As you read this column, Nevada’s highest-ranking state administrators are combing through their budgets searching for yet another round of “non-essential” services they can cut. Once again, an economic downturn has plunged state government into financial crisis. Two primary areas of economic activity sustain Nevada’s state government – retail and tourism markets. Upwards of three-quarters of all state tax dollars come directly from sales and gaming taxes. The economic fallout of the September 11 tragedies has taken a serious toll on both markets feeding Nevada’s major tax coffers. Visitors are not flying; consumers are not buying.
Recessionary economies deliver a double hit to Nevada’s state government budget. First, the state’s revenues fall in direct proportion to reduced tax collections. Budget cuts follow. Second, shrinking local school district revenues necessitate a second round of state government budget cuts. Local school districts’ budgets are supported by a state guarantee mechanism. When local tax sources that flow into school district revenue accounts fall short, revenues budgeted for state services must be diverted to fund schools.
Nobody completely escapes the budget-cutting process. Despite basic guarantee systems, local school districts, university and community college systems all suffer large budget cutbacks. We are in the early stages of this budget double-whammy right now. One more time Nevada Medicaid, prison, education, welfare and law enforcement programs are all pitted against one another, fighting to preserve what little they have in this, one of America’s most fiscally conservative states.
Ironically, new revenue mechanisms passed during the last hours of Nevada’s regular legislative session have exacerbated the state’s budget crisis. This year’s two major new-revenue tax sources are subject to the same weaknesses as our existing tax mechanism.
The first of these tax bills, AB 460, significantly increased Nevada’s rental car tax revenues. The vast majority of the new revenue comes from tourists renting vehicles. As tourism falls, the enhanced rental car tax revenues fall. We are more vulnerable, and in even deeper trouble now than before the new rental car tax was added.
The second major tax bill, SB 577, reduced statutory liability for stockholders, directors and officers of a corporation incorporated within the state of Nevada. The bill’s sponsors said the new law would provide a “shield” to corporate officials and, thereby, bring more corporations to Nevada. The bill also dramatically increased the secretary of state’s fee schedule for routine corporate filings. Fees were doubled, tripled and even quadrupled by the new law. More incorporations and more fees were expected to yield more state revenues. However, this revenue source also suffers the same shortcoming our basic tax system endures: corporate filings increase when the economy is strong and active. As the economy slows, new revenues will fall short.
All of this is certain to further charge the atmosphere surrounding the most critical political and state government issues of the day: tax revenue reliability and sufficiency. During this year’s special session, the Legislature created the Governor’s Task Force on Tax Policy. It is an examination nearly everyone knows is desperately needed, and yet almost nobody really wants to face.
The new law is quite specific in its assignments. The Task Force is to “identify the specific taxes to be reviewed, with consideration given to [taxes] on gross receipts, mining, property, sales or services, business profits, employees of business, slot route operators and car rental companies.” You can see why many people really don’t look forward to this group opening its hearings – somebody’s ox is about to be gored.
Fixing the chronic problem of unpredictable taxes will require changing the way we tax. That means changing who pays. It could also mean that even when business is down, tax bills must be paid. What’s fair? It’s going to be a long biennium.