No new … cash? Legislature prepares for parsimonious session

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The Nevada Legislative Building is pictured in Carson City, Nev., Saturday, October 8, 2016. (D ...

Every session of the Nevada Legislature earns a nickname.

For 2021, that nickname is shaping up to be “ugly.”

Not only is the state confronting a general-fund budget deficit of at least $535 million for the coming two years, some of the factors that will determine how the state balances its budget are entirely out of Carson City’s hands.

So state lawmakers are looking to past economic downturns for lessons, drawing up plans to make the least painful cuts to important services and praying for an economic recovery that’s at least a year off.

But nobody’s under any illusions. The coming Legislature is going to be ugly.

“It’s not going to be easy,” says Assemblywoman Maggie Carlton, D-Las Vegas, the longest-serving woman in Carson City. “This is not the way I wanted to end my legislative career, believe me.”

State Sen. Ben Kieckhefer, R-Reno, agrees: “It’s going to be a session unlike any other,” he says. “Every session is unique, but this one might be more unique than others.”

And he doesn’t mean that in a good way.

The known unknowns

A big part of the problem is that lawmakers have no control over some of the things that will determine Nevada’s fate.

First, there’s the special elections in Georgia that will determine who controls the U.S. Senate. If Democrats win the two contested seats, with Vice President-elect Kamala Harris casting tie-breaking votes, they will determine the agenda in the upper house.

But if Republicans win just one of the seats, they remain in charge.

That matters because Republicans have opposed Democratic calls for additional aid to state and federal governments, something Nevada officials say is critical to helping the state with its fiscal problem.

“We are absolutely dependent on more federal aid,” says Assembly Speaker Jason Frierson, D-Las Vegas.

State Sen. Chris Brooks, D-Las Vegas, the chairman of the Senate’s Finance Committee, agrees. “Short of federal aid, it’s going to be a really stark session in terms of the budget.”

Carlton calls federal relief critical, and without it, “it will be devastating,” she said. Since the overwhelming bulk of Nevada’s general fund budget is comprised of K-12 education, health and human services, including mental health services, and public safety, including prisons, “if we don’t get federal money, that’s what will suffer.”

Because of the deficit, Gov. Steve Sisolak has asked state agencies to trim their requests by 12 percent.

Says Kieckhefer: “If the federal government doesn’t come in with additional stimulus, the impact on state programs will be dramatic. Twelve percent cuts look really ugly.”

But it’s not just whether the federal government acts to assist states with the fiscal problems brought about in large part due to the coronavirus and the business shutdowns that came as a result. It’s when. Nevada lawmakers are charged with passing a balanced budget in late May; federal aid that comes later won’t be part of the session’s budget balancing process.

“The timing is going to be super critical,” says Senate Majority Leader Nicole Cannizzaro, D-Las Vegas.

Frierson agreed: “We needed it yesterday.”

And then there’s the final piece of the puzzle: the pandemic. Experts agree Las Vegas won’t return to normal until tourists feel comfortable traveling here, convention and business events return and limits on business are lifted. For that to happen, millions more people will have to be vaccinated, and coronavirus numbers will have to fall significantly.

Road maps

Nevada is no stranger to fiscal problems, especially in the wake of national events such as the Sept. 11 terrorist attacks or the great recession. Carlton says she’s drawing on those lessons to help her navigate the current crisis.

“We’ve been through this before,” she says. “If we did it before, we can do it again.”

Brooks says he’s got a checklist for bills that come before his committee: it must create jobs, create more revenue for the state and not cost the general fund anything. “If they come with a price tag, they’re not going anywhere,” he says.

Adds Assemblyman Steve Yeager, D-Las Vegas: “If we can get some things done without spending money, by all means, let’s do that.”

Carlton says the budget should be built with Nevada’s families in mind. “Everything has to be family-centric,” she says. “I’m telling people, if it involves money, the answer’s no. … We are down to basic needs, what people need to survive.”

Budget cutting without cost is going to be difficult, however.

Jeremy Aguero, the principal of consulting firm Applied Analysis, notes that the Legislature adjourned in June 2019 having approved a $9.1 billion general fund. When COVID-19 hit, actual revenues turned up at about $8.1 billion, forcing the Legislature to meet in special session over the summer, cutting some budgets, draining the state’s rainy day fund and making other changes.

This time around, the state Economic Forum has projected $8.5 billion in general fund revenue, but state agencies requested a total of $9.67 billion in spending. Sisolak’s 12 percent reduction has brought the budget in line with the $8.5 billion figure, but that still represents significant reductions.

“The impacts are as far reaching as I’ve seen,” Aguero says.

No new taxes?

Other than cutting budgets and relying on federal aid, the only other way Nevada can add to its general fund is through taxes. But that’s a difficult prospect in the state, since the Constitution specifies that any bill that raises taxes or creates new revenue requires a two-thirds vote in both houses.

Kieckhefer notes that the last two major tax increases came only after the governor — Kenny Guinn in 2003 and Brian Sandoval in 2015 — called for them.

But this time around, tax talk is already in the air.

The Clark County Education Association has qualified two tax measures that will come before the Legislature at the start of its session. One would raise a portion of the state’s sales tax by 1.5 percentage points, while the second would create a new tier in the state’s gaming taxes at 9.75 percent for all gross revenue of $250,000 or more each month.

The Legislature has 40 days to either enact those taxes as written, or they will automatically appear on the 2022 ballot.

While Democrats won’t say they oppose either, and several mentioned the need for more school funding, the sales tax in particular seems ill-fated.

“We’ve got to make sure we’re not balancing the budget on the backs of folks who are already struggling,” Cannizzaro says, in a typical comment.

In addition to the CCEA’s tax proposals, the Legislature passed a trio of proposed constitutional amendments to change the way the mining industry is taxed in the state during a special session this summer. The Legislature could pass one or more of those resolutions again in 2021 and have that appear on the 2022 ballot as well.

Assemblyman Tom Roberts, R-Las Vegas, says the initiatives mean taxes will get some attention from the very start. “We’re going to talk about it no matter what,” he says.

But Roberts — who flatly predicts neither teachers union tax will be approved by the Legislature — says he’s skeptical of the mining tax effort, because of the impact it will have on that industry. He also says he’s skeptical of additional money for education budgets until a new funding formula is fully implemented.

“Before you just throw more money at an issue, you really have to look at education as a whole,” he said.

His fellow Republican Kieckhefer agreed. “Rural Nevada feels under assault,” he said, predicting higher-than-usual voter turnout in 2022 in the traditionally Republican areas of the state to defeat a potential mining tax. “They’re going to be out in spades in 2022.”

But Yeager replied that proposals such as the mining tax are a matter of equity: “We just want everyone to be paying their fair share,” he said. “That shouldn’t be controversial.”

The tax initiatives has upended the traditional legislative playbook – propose a parsimonious budget, tinker with funds during the first part of the session and then unveil the stark reality of what the cuts would do toward the end, when conversations about taxes heat up.

“It hits you when it’s right there on the paper in front of you. It hits you,” Carlton said.

Cannizzaro said the divided Legislature – Republicans gained seats in both the Senate and Assembly in November’s election – means any budget that includes taxes will have to include Republicans.

“We’re going to do everything we can” to produce a balanced budget, she said. “We can’t do this alone.”

Other lawmakers, however, have already declared their opposition to any tax increases. Newly elected Assemblywoman Annie Black, R-Mesquite, for example, wrote in a newsletter sent to constituents in December that she would not consider raising any taxes.

“Nevada continues to lead the nation in unemployment – with the Department of Employment, Training and Rehabilitation still unable to process thousands of unemployment claims dating back to last March,” she wrote. “Many businesses have already gone out of business, with thousands teetering on the edge of bankruptcy. And tens of thousands of so-called “non-essential” jobs have been permanently lost. Yet we’re supposed to raise taxes to protect non-essential government workers and programs from suffering the same pain as private sector workers and businesses? I don’t think so. Do you?”

Black is one of six members of the Assembly to have signed the Americans for Tax Reform’s Taxpayer Protection Pledge, alongside Minority Leader Robin Titus, R-Wellington, Jim Wheeler, R-Minden, and Heidi Kasama, Andy Matthews and Richard McArthur, all R-Las Vegas. In the state Senate, Minority Leader James Settelmeyer, R-Minden, has also signed the pledge.

That’s probably why lawmakers including Yeager say they are skeptical that a compromise might be reached: “I’m not super hopeful that’s out there,” he said.

Thus far, nobody has mentioned yet another tax issue: property taxes, which are capped by statute since the heady days before the great recession. Since the recession, however, the caps have kept property taxes from rising and have kept local government revenues low.

In the next two years, according to Aguero, $1.1 billion in property taxes will be subject to abatements, $400 million of which would have gone to K-12 schools.

Other issues

Although the budget will dominate every discussion in Carson City, other issues will come up. But it seems the most controversial issue, redistricting, will have to wait for a special session in the summer. The federal government will not be able to get new census numbers to lawmakers until late in the session at the earliest, but the delay removes a huge political hot potato that could otherwise have affected negotiations over the budget and myriad other issues.

Another old issue, economic development, has taken on new importance with yet another fiscal crisis, which are almost always followed by calls to bring new businesses to Nevada that will create jobs, generate more revenue and keep the state from suffering as much when the next tourism-disrupting event strikes. Typically, however, the push for diversification is usually forgotten once the economy returns to normal.

Kieckhefer says he’s working on a plan to make Nevada a global destination for e-sports, video gaming that is now a serious and monied industry. He says he’s working with the casino industry and UNLV on that project, with the goal of having weekly events, some of which can draw hundreds of thousands of people.

The idea helps to build on Las Vegas’ brand – an e-sports arena already exists at the Luxor hotel-casino. “Don’t just look at what you don’t have, look at what you do have and support that,” Kieckhefer says.

Along the same lines, Brooks says he’s passionately interested in expanding the energy economy in Nevada – electricity storage, transmission, and electrifying transportation in the state. Brooks says Nevada is uniquely suited to become a center for solar, wind and geothermal energy generation, and with the proper infrastructure can export electricity to other states. Best of all, he says, the industry won’t displace existing jobs in the state and those jobs can’t be exported to other states or countries.

Even if a portion of the taxes for these projects – built on land that’s not generating much tax revenue now – are waived to induce development, the state would still get more revenue than it’s receiving currently, while fostering a new industry.

Brooks agreed that the tight budget may be a blessing in disguise: There’s not enough money to provide the large-scale tax incentives that have lured companies such as Tesla and Apple to Nevada.

Roberts said during his days at the Metropolitan Police Department – he retired there as an assistant chief – two teams reviewed the budget closely, and found $2.5 million to $3 million in potential cuts, without affecting services or personnel. While those amounts were not significant, given the department’s overall budget, it was still money that could be applied toward critical needs.

Another critical issue is election law reforms – including whether to make permanent the changes approved during the special session that saw ballots mailed to all active registered voters.

Cannizzaro says she’s open to election reform, but not changes based on unproven allegations of voter fraud. “There is absolutely no evidence here in Nevada or at the federal level of voter fraud,” she says. “That is now how you make good policy.”

Roberts says there is room for reforms, however, including cleaning up voter rolls so outdated registrations are removed. (During the election, there were also reports of duplicate voters or voters who’d long moved away still getting ballots.) He also said that rules for so-called ballot harvesting – in which a person collects ballots from people who aren’t relatives to turn in – need to be tightened. (A proposal from Secretary of State Barbara Cegavske to do that was rejected by Sisolak earlier this year.)

“I think we’re going to have to do some of those things,” he said.

A new hope?

The start of a new Legislature always brings calls for comity and bipartisan cooperation, ideas that are generally discarded around deadlines that winnow the bills eligible for consideration. The rules in Carson City heavily favor the majority party, including near total control on which bills get hearings and votes.

The election of 2020 may have changed the dynamics slightly, since neither party has a supermajority and neither is a super-minority, either. (Some seats lost in the Assembly were in close districts that Democrats won in a very good year for that party in 2018.)

But the sheer size of the budget gap, the consequences of the solutions related to it and the stakes for residents of the state who depend on schools and health care set up a session where cooperation is not just an ideal, but perhaps a vital necessity, a situation where rigid ideologies of both parties may have to give way to uncomfortable concessions.

As Roberts puts it, in a quote worthy of being enshrined on a brass plaque mounted on the wall of the Assembly chamber aside a portrait of Abraham Lincoln, the president who oversaw Nevada’s admission to the union in 1864: “At some point, you have to govern.”

Contact Steve Sebelius at SSebelius@reviewjournal.com or 702-383-0253. Follow @SteveSebelius on Twitter.