Special Session Postponed to Friday

In the wake of news that Nevada's projected budget deficit will be larger than previously estimated, Governor Jim Gibbons has postponed the start of his special legislative session on the budget deficit from next Monday to Friday. The news isn't good:

[T]he new shortfall figure lawmakers must deal with when they convene on Friday is $250 million, more than a $243 million shortfall projected by state Budget Director Andrew Clinger. And far above the $94 million projected by legislative fiscal analysts.

A Gibbons representative made it clear that with the expanded deficit, all policy options were on the table-- except for half of them:

Josh Hicks, general counsel to Gibbons, said every type of potential budget cut is on the table for the session, from 4 percent cost-of-living raises set to take effect July 1 for state employees and public teachers, to cuts to programs. Tax increases, he said, "are not on the governor's table."

Which reminds me of this exchange from the John Belushi-Dan Ackroyd classic "The Blues Brothers":

Elwood: What kind of music do you usually have here?
Claire: Oh, we got both kinds. We got country and western.

State Treasury: Special Session Not Necessary

In an interesting development, the Nevada State Treasurer has announced she doesn't think the upcoming special legislative session is necessary:

State Treasurer Kate Marshall joined fellow Democrats Thursday in saying that Gov. Jim Gibbons' proposed special session of the Nevada Legislature is unnecessary.
She sent letters Wednesday to Gibbons and other state leaders,
informing them the state will have enough money in the bank, more than $200 million, to deal with cash flow issues until the Legislature starts opens its 2009 session in February.
Marshall urged Gibbons and other state leaders to meet and go though the general fund budget to see what could be cut. It would be a far less expensive than convening a special session that costs taxpayers about $300,000 a week, said Marshall, of Reno.

Representatives for the Governor's office argue that Marshall is basing her rosy assessment on inaccurately low estimates of the state's likely budget deficit:

Marshall's assessment is out of date because she based her projections on a $60 million shortfall, Gibbons press secretary Ben Kieckhefer said.
This week, state officials said the amount of the shortfall will rise. Legislative fiscal experts put the shortfall at about $100 million, while some lawmakers said Gibbons' experts are saying the shortfall is about $260 million.

There is one sense in which Marshall's position is probably correct: a special session ostensibly devoted to restoring Nevada's fiscal footing is unlikely to be all that productive when a "no new taxes" governor has the last word. If state lawmakers are to honestly take steps to ensure the future of the state's tax system, all options should be on the table.

Tax Hikes on Agenda for Special Session?

The Reno Gazette Journal reports that tax increases may be on the agenda for next week's special session of the Nevada legislature. Among the candidates, according to Assemblywoman Sheila Leslie, D-Reno, is raising the business payroll tax and hiking the hotel tax, popularly known as the "room tax."

This isn't terribly exciting news because the harsh political realities of the state suggest it doesn't matter what tax hikes the legislature discusses:

Gov. Jim Gibbons has said he would stick to his election-campaign pledge of no new taxes. Democrats are a vote shy of being able to override a veto in the Assembly and are in the minority in the Senate. Lanni’s suggestion to raise the payroll tax from 0.63 percent to 1.23 percent and generate $246 million annually won’t go far in the special session, Senate Majority Leader Bill Raggio, R-Reno, said.“I am aware of it and have also heard from him on that and my indication is that this is not the time to start talking about raising taxes,” Raggio said. “We are in tough times and businesses are hurting and in this special session, it is something that we can’t even consider.”

Of course, depending on the outcome of the ongoing brouhaha over the size of Nevada's budget deficit, Democrats may ultimately find it easier to override a gubernatorial veto. And it's always possible that Governor Gibbons will back away from his pledge and start evaluating the state's fiscal jam in a non-judgmental way.

But don't hold your breath.

Not the Worst Idea In the Room

With a special session on Nevada's budgetary woes impending, there's growing interest in tax-based options for closing the state's projected budget gap. A new poll by the Las Vegas Review-Journal finds that one idea from the cherished tradition of "tax somebody" else scores pretty highly: increasing the sales tax on hotel rooms.

Is this going to be the best answer for permanently solving the state's school funding dilemma? It could be part of it. Hiking the rate from the current 10 percent to 13 percent is estimated to bring in at least $75 million a year, which is something.

The most obvious virtue of this plan is that most of the cost would fall on folks who don't live in Nevada. Tourists (and business visitors) will be the primary payers of this tax hike.

A secondary (and slightly more debatable) virtue is that these out-of-staters are probably not going to be dissuaded from visiting Nevada by a higher hotel tax. 13 percent is high, but not outlandish.

However. At a time when Americans are pinching pennies as much as possible, any tax hike that falls most heavily on low-income families could absolutely make Americans a little less likely to splurge on a trip to Vegas. And make no mistake about it-- a higher hotel tax will be felt most keenly by low- and middle-income travelers. High-rollers won't care, but the regular folks who are Vegas' bread and butter may very well factor this into their travel decisions.

One last consideration: as a new report from the Rockefeller Institute reminds us, Nevada now faces more and more competition from other states for gambling dollars. Anything that makes a Vegas trip more costly to, say, an Illinois farmer, makes them that more likely to just hit that state's riverboat gambling sites instead of traveling to Nevada.

So, it's not the worst idea in the room, and worse ones will almost certainly be discussed in next week's special session-- but it's not a cure-all either.

Tax Amnesty: A Good Move for Nevada?

Here's the latest in Nevada's never-ending search for ways of raising revenue without calling it a tax hike: a "tax amnesty." As the Reno Gazette-Journal explains, it's just what it sounds like: for a bunch of businesses who collectively owe about $69 million in back taxes, the state is prepared to waive prosecution (as well as penalties and interest) for anyone who ponies up now.

A press release from the Governor's office has more:

“Providing a temporary incentive for businesses to balance their ledger with the
state is a proven revenue generator, which is much needed during this difficult
fiscal time,” the Governor said. “All the revenue we collect during this amnesty
minimizes the effect the economic downturn will have on state services.”

So what's wrong with this idea? For starters, it's a short-sighted way of balancing the books. The overdue tax, penalties and interest is a stream of money that will hopefully be paid eventually. But by forgiving penalties and interest, the state is basically saying they need money so bad right now that they're willing to accept partial payment and forgo the remainder. This will help, on the margin, right now, but actually digs the hole deeper in future years.

In addition, from a law-and-order perspective, the state shouldn't have to provide a "temporary incentive" for these companies to pay what they're supposed to pay. Either they can afford to pay their taxes or they can't: and if they can, forgiving penalties and interest hardly seems appropriate.

It's not the dumbest idea in the world. It will certainly raise the state some cash. But it's symptomatic of a larger problem with the state's fiscal policy decision-making: the strategy these guys have chosen for getting through the ongoing fiscal crisis is "whatever it takes to balance the books this year." No thought at all to what's generating the short-term deficits; no thought at all to whether this year's fix will make things better or worse five years down the road.

Put another way, if your solution to every cash shortfall is to look for loose change under your couch cushions, that's a revenue-raising solution that is certainly not going to last you very long.