Budget Deal Announced Today Includes New Taxes, Major Reforms

CARSON CITY – Gov. Brian Sandoval and legislative leaders from both parties announced a budget agreement today that will see tax increases and restorations of funding to public and higher education in exchange for significant policy reforms in education and collective bargaining.
The agreement came on the 115th day of the session, and virtually guarantees that lawmakers will adjourn the 2011 session by Monday as the constitution requires.
“Nevadans deserve leadership, stability and consensus, and I believe this budget and reform package provide all three,” Sandoval said at a press briefing attended by numerous lawmakers, lobbyists and other interested parties.
Assembly Speaker John Oceguera, D-Las Vegas, called the agreement fiscally responsible and a true compromise that “protects the most essential funding for our schools, our community colleges and universities, and services for our most vulnerable.”
Pete Goicoechea, R-Eureka, head of the Assembly GOP caucus, said the deal is the best that could be achieved among the two houses and parties.
“None of us got everything we wanted,” he said. “But the bottom line is we hung together.”
Faced with a recent Nevada Supreme Court decision that threw his budget into turmoil, Sandoval reluctantly agreed to extend higher business taxes on the state’s largest employers for two more years to bring in nearly $300 million. The budget deal also includes a reduction in tax exemptions for the mining industry that will bring in another $24 million to the state general fund.
In all, the two-year state budget that begins July 1 totals $6.24 billion. This does not include another $265 million in other revenue that will go directly to the state’s public schools system bringing total spending to about $6.5 billion.
Sandoval decided to agree to new taxes because of the court ruling issued last week over the decision by the Legislature in 2010 to sweep a$62 million local government water fund. The court said it was impermissible. While opinions on the effect of the ruling differed, ultimately $481 million in anticipated revenue was eliminated from Sandoval’s proposed budget. The ruling forced lawmakers and Sandoval into intense budget negotiations.
Until Sandoval opted to relent on the tax issue, Republicans had held firm with him opposing new revenues to increase funding to public education, higher education and health and human services programs.
In exchange for new taxes, Sandoval and Republican lawmakers won a number of reforms, including the elimination of teacher tenure and ending the seniority system used in the public schools for layoffs.
“These reforms do not hurt good teachers,” said Senate Majority Leader Steven Horsford, D-Las Vegas. “If you are a good teacher, you have a job.”
The reforms also include the complete elimination of the modified business tax for 70 percent of the state’s smallest employers. This group currently pays a 0.5 percent rate based on payroll.
Other reforms include the elimination of health care benefits upon retirement for new state hires. The state currently subsidizes health insurance for retirees. The change effective Jan. 1, 2012 will save an estimated $275 million over the next 30 years.
There are also reforms to the state’s collective bargaining law, including a provision allowing agreements to be reopened in cases of fiscal emergency and eliminating bargaining for supervisory public employees. There will also be a study on how to deal with the $10 billion unfunded liability of the Public Employees’ Retirement System.
The governor will also get to appoint the superintendent of public instruction.
One area that remains an issue is construction defect reform.
Assemblyman Pat Hickey, R-Reno, said Assembly Bill 401, proposed by Oceguera, is not real reform. The construction industry is expected to oppose the measure, he said.
“It does absolutely nothing,” Hickey said.
Sen. Sheila Leslie, D-Reno, said the budget bills implementing the spending plan should be introduced tomorrow. A final joint money committee hearing set for later today will put the few final minor finishing touches on the budget, she said.
But even with the increased funding, Leslie said the 2011-13 spending plan is not one she is proud of, or believes adequately funds important social and education programs.
“We’re eliminating programs like a senior outreach program,” she said. “We have the highest suicide rate for seniors in the country, and we eliminated the one outreach program for senior mental health that we have.”
It does eliminate the unacceptable securitization of the insurance premium tax proposed by Sandoval as a way to generate $190 million in additional funds for the budget, Leslie said. It also eliminates the use of the school bond reserve funds.
One bit of bad news for Nevada’s economic future was mentioned in passing in the budget compromise. Nevada’s forecast for revenue from unclaimed property was revised downward by nearly $34 million. The reason is the relocation of a division of Citibank now located in Southern Nevada.
The state’s unclaimed property fund has benefited from the Citibank presence because money belonging to the company’s customers from around the world ends up here when the owners cannot be identified. The company turned over $36 million in unclaimed property this year. With the relocation, this revenue will no longer flow to Nevada.
Reaction to the budget and reform deal varied.
Assemblyman Crescent Hardy, R-Mesquite, said: “I think neither one of us ended up real happy with the situation. I think we’re both pleased we have come to a consensus. They didn’t get their $1.2 billion tax package; we’re really happy about that.
“We had five reforms we wanted. We didn’t get all of them,” he said.
Assemblyman John Hambrick, R-Las Vegas, said: “The Republican Assembly caucus had certain goals and priorities in mind and we stuck to them, but unfortunately through no fault of the governor he was handed a devastating blow by the Supreme Court’s ruling and he had to pick up the pieces.
“I had personally hoped for a little more depth in construction defect and collective bargaining reforms,” he said.
Nevada News Bureau Editor Elizabeth Crum contributed to this report
Audio clips:
Gov. Brian Sandoval says the budget deal is the result of leadership and consensus:
060111Sandoval :12 provide all three.”
Assembly Speaker John Oceguera says budget deal is bipartisan and fiscally responsible:
060111Oceguera1 :18 our most vulnerable.”
Oceguera says work is still needed on reforming the state’s revenue structure:
060111Oceguera2 :12 state forward, thank-you.”
Senate Majority Leader Steven Horsford says the reforms to teacher tenure won’t harm good teachers:
060111Horsford1 :13 a great job.”
Horsford says Nevada policy makers came together while facing the biggest fiscal challenge of any state:
060111Horsford2 :13 to the plate.”
Assembly Minority Leader Pete Goicoechea says not everyone got all they wanted in the deal:
060111Goicoechea :15 resolve this issue.”
Sen. Sheila Leslie says the budget is not one she is proud of because of the necessary cuts to important programs:
060111Leslie :12 that we have.”