Nevadans are accustomed to balanced budgets. Indeed, they are required by the Nevada Constitution. And while the Governor and Legislature balanced the 2009-2011 budget, they did so with over $1.5 billion in one-time revenues and taxes that will sunset. The next Legislature could face having to require new or increased tax revenues to maintain the status quo in spending levels, or force additional spending cuts if the status quo can’t be funded.
To be fair to those who made the difficult budget recommendations and decisions of 2009, any blame falls first on the effects of the economy in reducing business levels and consequently lowering tax and governmental revenues. Having never faced an economy as desperate as the past few years, leaders had never faced choices as stark as in the last legislative session.
First, the final budget included cuts of $1.5 billion from the projected $8 billion that would have maintained the level of programs and services at 2007-2009 levels. Still, at this $6.5 billion budget for the biennium, another $1.8 billion was necessary in addition to projected revenues available from existing sources to fund this reduced final budget.
Four taxes were raised to make up part of the difference—the Sales and Use Tax by an additional 0.35% rate per dollar; nearly doubling the payroll-based Modified Business Tax to 1.17% on every payroll dollar over the first $62,500 per quarter; doubling the business license tax to $200; and eliminating 10% of the depreciation taken against motor vehicle registrations. In the hope that the economy would get better, the increases in the Sales and Use Tax, the Modified Business Tax and the Business License Tax were sunsetted effective June 30, 2011.
Thus, a projected $550 million in additional taxes will go away if no longer needed. These taxes alone were not enough to balance the budget, but they sit as the first major decision-point the Governor and Legislature will have to deal with as they structure the 2011-2013 budget—whether or not to allow these taxes to sunset. But, as difficult an issue this is, it is by no means the toughest decision they face.
Unfortunately, the budget ultimately could only be balanced by an additional $1 billion of “one-time funds.” In a move that only such desperate times could begin to justify, the fundamental rule of never using temporary revenues or resources to fund ongoing programs was cast aside to take advantage of federal stimulus monies and other sources that will only last through this 2009-2011 biennium. Again, it was not the preference of legislators from both sides of the aisle to break this long-standing precedent, but the alternatives were so severe in hoping that the economy would rebound by the next session, they opted to use these “one-times” to fund the $6.5 billion biennial budget.
So now, the $1.55 billion dollar question to face and answer in the next legislative session is: “Will our economy rebound enough to plug these holes with sufficient revenues without extending the new tax increments and rates?” And, if it does not rebound, then a whole new set of questions will confront the Governor and Legislature, not the least of which is how to replace the $1 billion of one-time funds next budget if we do not want to cut additional spending?
One thing is for sure, the issue of balancing the state budget for the future means dealing with the challenges presented by how our current budget was structured and balanced. Our leaders will have to decide once again, which way will the next budget have to tip to be balanced? More spending cuts or more taxes? Extend the sunsetted taxes? How to fill the 1 billion dollar hole in the 2011-13 budget if our economy cannot? Will there be a replay of the 2009 session issues?
No matter how worrisome their billion-dollar magnitude might be, the most important feature may be that we already know what the questions are because they were built into the 2009-2011 budget. Although it is unusual to have these questions already framed two years in advance, it allows time to find the right answers next session to help re-establish the economy and rebuild business vitality.