Nevada Lawmakers Launch Session With Plans to Discuss Tax Policies

The 2013 Nevada Legislature began six days of pre-session budget subcommittee hearings Wednesday to evaluate Gov. Brian Sandoval’s $6.55 billion budget plan for the 2013-15 biennium.

The governor’s proposal is 5.5% higher than the $6.2 billion budget approved in June 2011 for the current biennium.

The hearings could set the tone for budget discussions over the length of the 120-day legislative session that begins on Feb. 4.

Lawmakers have already agreed to spend day two of the legislative session discussing tax reform proposals to raise more revenue and methods of replacing the payroll tax, according to state Sen. Majority Leader Moises “Mo” Denis, D-Las Vegas.

Part of the discussion will be to look at the big picture of which businesses are paying what taxes and how much, Denis said.

Lawmakers are hearing from some businesses that they are paying too much, while others are exempt, he said.

A personal income tax — Nevada doesn’t have one — will not be on the table, but just about everything else will be up for grabs, he added.

With a population approaching three million, Denis said Nevada has outgrown the tax structure created during a different time in the state’s history.

“I think we will have some pretty significant tax discussions in this legislative session,” said Debbie Smith, D-Sparks, who is chairwoman of the Senate Finance Committee. “There seems to be a general willingness to look at the tax structure and consider general revenue changes and methods of broadening our tax base.”

Bonds are likely to be a part of the discussion.

Neither Sandoval nor budget director Jeff Mohlenkamp could be reached for comment on a proposal in the governor’s budget to issue $58 million of “self-supporting” general obligation bonds that would be backed with user fee revenue, according to the recently released “GO Debt Capacity and Affordability Report for the 2012-2015 Biennium” prepared by Treasurer Kate Marshall.

Marshall’s report contends that the state will not have new capacity to issue general obligation bonds backed by property taxes until 2020, based on the state’s current and forecasted assessed valuation. Nevada GOs are repaid with an ad valorem levy of $0.17 per $100 of assessed valuation in the 2013-15 biennium.

Self-supporting general obligation bonds would be paid for through fees expected to be sufficient to pay the debt, as opposed to property taxes.

But the report said that self-supporting GO bonds would still carry the full faith and credit of the state, and if revenues are not sufficient to pay debt service, it would be paid from the Consolidated Bond Interest and Redemption Fund and-or a loan from Nevada’s general fund.

“There are various fiscal and policy issues for the state to consider when issuing general fund-backed general obligation bonds that are pledged by general fund revenue,” the report said. “These policy issues are beyond the scope of this debt affordability analysis, however.”

Smith said she isn’t convinced that borrowing connected to the general fund is the answer, but the state has over $500 million in request from agencies for capital improvements.

“These aren’t necessarily big building requests,” Smith said. “They are maintenance, but we are very far behind. Once you get behind on maintenance, it is hard to catch up.”

Despite experiencing the country’s worst foreclosure crisis and having the highest unemployment rate in the country, Nevada has managed to maintain double-A ratings across the board because of its willingness to take the necessary steps to balance its budget and its fiscal conservatism.

Part of that has been Nevada’s approach to repaying GO bonds.

State treasury officials prioritize maintaining a reserve in the Consolidated Bond Interest and Redemption Fund equal to 50% of the next fiscal year’s GO debt service to be paid from property tax revenues, according to a Jan. 18 report from Standard & Poor’s.

With a balance of $138 million on June 30, 2012, the fund has a reserve equivalent to 92% of fiscal 2013 debt service equal to 11 months of debt service, according to Lori Chatwood, Nevada’s deputy treasurer and debt manager.

Those policies will enable the state to achieve an expected $6 million in savings when it executes the competitive sale of three sets of refunding bonds totaling $52 million on Jan. 29, Chatwood said.

Lawmakers on both sides of the aisle have vowed to keep things conciliatory as the process moves forward.

Smith expects there will be a different atmosphere than the last session, because the state isn’t confronting a “big budget crisis as it heads into the session. That in and of itself will help. We also have a good working relationship with Gov. Sandoval.”

Democrats have majorities in the state Legislature and Sandoval is a Republican.

Two years ago the Nevada Supreme Court ruled against a proposal in Sandoval’s budget to move $62 million from a local wastewater fund into the state’s general fund. The decision resulted in a last-minute bipartisan compromise to adopt the budget that included Sandoval dropping his opposition to extending the sunset dates on some temporary taxes.

Sandoval, who had run on a no-new-taxes platform, also included in his biennial budget a proposal to extend $649 million in sales and business taxes for the general fund that otherwise would expire June 30.

Part of the discussion on the temporary taxes will be whether the state should just extend them indefinitely, according to Smith.

“One of our goals will be to provide businesses with more consistency, so that taxes aren’t on the table every year,” she said.

The governor said in his state of the state speech that he will veto any attempt to raise taxes this year. Sandoval also proposed a payroll tax exemption for businesses with an annual payroll of less than $330,000 that would give 2,700 small companies a tax break.

Denis spoke against the exemption, saying that he would not support a business tax cut proposal at a time when education is suffering from severe reductions made in the previous budget.

“What’s worse, with very little new revenue we don’t know how the governor plans to pay for these expenditures while cutting taxes,” Denis said. “Let me be clear, the governor is proposing to cut taxes on 2,700 businesses in the state while raising the sales tax on middle-class families.”

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