Special Session Budget Band-Aids in Place – Now What?

(Josh Hicks) – As all remain hopeful that the recent special session will keep the state budget in the black through the biennium, the looming problem of a budget deficit that could reach $3 billion (around 50% of the general fund ) in the next biennium inches closer.

The stimulus crutch will be gone, and most of the temporary tax increases from the 2009 session are set to expire. The fiscal problem facing the state is severe and the solutions that come out of the 2011 session will surely reverberate for years. Going into an election year, candidates are loathe to discuss specific ways to solve the problem, as nearly all solutions will be difficult and unpopular. Other states have enacted a variety of solutions, including tax increases and spending reductions, to solve their budget problems.

But the sheer magnitude of the upcoming deficit in Nevada means even a combination solution will require dramatic action on both the spending and revenue fronts. Consider that the two largest tax increases in Nevada history occurred in the past decade, each being around $1 billion. Another tax increase of that size would only go to about 1/3rd of the budget deficit. Consider also that the SAGE Commission recommendations are estimated to be $2 billion. And given that much of the SAGE recommendations are long-term savings, even implementing every recommendation in the next biennium (which is impossible anyway) will not solve the budget shortfall.

With respect to existing revenues, the state is projecting general fund revenues of approximately $2.7 billion for the 2011-2013 biennium. In terms of actual dollars, that equates to revenues received in the 1995-1997 biennium. In terms of dollars adjusted for inflation, it’s equivalent to revenues received in the 1989-1991 biennium. (Information courtesy of the Nevada Department of Administration).

In hopes of an economic turnaround, the state has swept nearly every reserve fund possible in forestall further cuts to operating expenses. While this action has allowed the state to keep it’s budget balanced for the current biennium, it leaves a significant funding cliff for 2011-2013. The budget decisions that seemed so contentious and difficult in 2009 and 2010 will likely seem easy compared to what is to come in 2011.

(Mr. Hicks is a former gubernatorial chief-of-staff and publishes the Of Note Nevada blog)