Nevada was born in the midst of the American Civil War. Our state motto reminds us we are “Battle Born”. Internal warfare is part of our heritage. And every two years, we celebrate our birthright by convening legislative sessions and introducing bills designed to raise and spend taxes. Once again the 71st Session is filled with tax wars. Most readers will think first of the battle among teachers, gamers and small business owners. Unhindered, this will be a classic confrontation. However, just in case the Nevada Supreme Court issues a ruling or other events spare us from the Teachers’ Tax War, numerous other life-and-death armed conflicts are under way.
These battles are being fought among governments. Cities are fighting their own counties; rurals battle metros; rapidly growing communities fight slow-growth neighborhoods. These wars began in 1981 when the state shifted away from property taxes in favor of sales taxes. Two components of that tax shift created revolutionary changes. First, the governor and Legislature decided to take control of local governments’ tax-and-spend authority. They set strict limits. For example, state law reduced the property tax rate for the city of Henderson to 3 percent of its original figure — from just over $1.20 per $100 assessed valuation to 3.6 cents. The reduction for the city of Las Vegas was 67 percent. Some of these reductions were offset by fancy new sales tax mechanisms. Second, because many rural governments collected far more from property taxes than they could ever realize from retail sales, sales tax dollars collected in urban communities were delivered to rural governments. This urban-rural shift created a political firestorm. Most Nevadans will never forget then-Assemblywoman, now Clark County Commissioner, Myrna Williams’ 1991 “Fair Share” bill. This classic North-South confrontation forever changed the state’s political landscape.
For 20 years legislators and armies of tax system experts have worked hard to make the system fair. However, despite best efforts at constantly correcting the system, we have learned that, like evolution in the animal kingdom, two generations of tax shift changes have created both simple beauty and hideous brutes in each emerging phase. The “brutes” come into focus when examining this year’s tax battlegrounds.
Growth. The state’s fastest-growing communities feel they have been pillaged. They are armed and ready. Their case focuses on the Consolidated Tax Formula (CTF), a revised version of the City-County Relief Tax created in 1981. Nevada’s three fastest-growing communities claim they have lost huge revenues over the past three years due to the CTF changes. The losses are: Henderson – $24 million, North Las Vegas – $4 million, Mesquite – $6 million. Their data suggests growth centers are getting unfair treatment. Once the state hits 2 million in population, they predict the CTF will create a per-capita allocation for the relatively static city of Las Vegas at $610, while Henderson and North Las Vegas will be capped at $236 and $123 respectively.
Urban – Rural. Nearly all state leaders agree Nevada’s rural county governments are facing severe hardships. Five rural county governments have property tax rates at the maximum level allowed by law, higher than any urban county’s rates, yet they are struggling to survive. Rural school district obligations are strangling local services. Shifting federal policies are killing the industrial base. Strict, new water-quality requirements are choking agricultural businesses. Land withdrawal and no-new-road initiatives are butchering ranching operations. Mining continues to be under siege.
A final blow could be dealt this year as centrally-assessed property tax distributions are threatened. Since the tax shift began, property taxes paid on railroad and utility properties have been distributed among all local governments via a central state system. Last year, $65 million was circulated among local governments through this mechanism. Recent electric utility restructuring changes have scrambled the system. According to Bob Hadfield of the Nevada Association of Counties, left unaddressed the changes “will be the death knell for some counties. Mineral and Lincoln counties are in serious jeopardy.”
These intra-government tax battles don’t often get the front-page coverage other legislative issues do. But decisions made on these issues directly impact revenue streams for police, fire, road construction and social service systems in every community. They directly impact every single resident and business owner in Nevada. These issues will determine how much service Nevadans will receive in return for the tax dollars they pay in property and sales taxes.
