Nevada governor promises tax cuts, sweeping K-12 spending boost in State of the State speech

In his first State of the State address, Republican Gov. Joe Lombardo laid out plans for aggressively saving for a potential economic downturn, cutting gas and payroll taxes, boosting public school spending and expanding a much-fought-over school choice program.

During his inaugural State of the State speech, Lombardo announced details of his proposed two-year $11 billion budget, shared Tesla’s plans for a $3.5 billion manufacturing facility in Northern Nevada and pledged to provide raises and bonuses for state employees, although to a lesser extent than former Gov. Steve Sisolak proposed last month.

Speaking before members of Nevada’s Assembly and Senate, he also took aim at recently passed Democratic policies — calling for a rollback of universal vote-by-mail and seeking harsher sentences for certain drug-related crimes.

Lombardo’s remarks to the Democrat-controlled Legislature set the stage for likely partisan policy fights during the upcoming legislative session as he pledged to take certain policies, such as requiring voter ID, to the ballot box if legislators oppose his agenda.

Continuing messaging from his inaugural address earlier this month, Lombardo again spoke about the “Nevada Way,” highlighting Nevadans’ history of perseverance, and highlighting “exciting opportunities within our grasp” because of an “unprecedented budget surplus.”

“On one hand we have exciting opportunities within our grasp,” he said. “But on the other, we must not allow ourselves to give way to the temptation to overspend.

Below, we explore highlights from Lombardo’s speech and his policy goals for the upcoming year. For a detailed look at the governor's proposed budget, read more here.

Budget and taxes
State employee raises
Education
Economy and business
Crime and public safety
Elections
Water, energy and land
Health care
Rural Nevada
Gaming

Budget and taxes

Lombardo said his proposed budget would lower the tax burden on working families and businesses while also reserving more than $1 in savings for every new dollar in general fund spending — an aggressive move to save state funds as economists have warned that another recession could be on the horizon.

The tax changes include a yearlong suspension of the state motor vehicle fuel tax — a 23-cent-per-gallon tax on all motor vehicle fuel — and increasing the Commerce Tax threshold from $4 million to $6 million, meaning the tax would apply only to annual business revenues exceeding $6 million.

“No sunsets. No court decisions. No gimmicks. Just plain old fashion tax cuts that allow Nevadans to keep more of what they earn,” he said, referring to maneuvers in recent legislative sessions that yielded lower taxes

Lombardo also noted that his budget includes a rate reduction for the Modified Business Tax — a tax businesses owe on the wages they pay workers. That change complies with state law requiring business tax rates to be reduced when collections from the tax exceed projections by a certain amount.

Besides tax changes, his push to increase state savings comes as the projected size of Nevada’s two-year general fund budget is set to balloon from about $9.2 billion to more than $11.4 billion in the two-year period beginning this July, with the increase driven by inflation and increased consumer spending.

With a budget surplus collected in the current two-year budget period, Lombardo announced plans to put an additional $630 million in the Rainy Day Fund “to be used when dark clouds again gather on the horizon.” The Rainy Day Fund acts as an emergency savings account for the state and had been drained early in the COVID-19 pandemic as the coinciding recession decimated the state budget.

“Overall, my budget sets aside more than $2 billion dollars in total savings to safeguard against cuts to education and critical programs in the years to come,” Lombardo said.

State employee raises

Flush with extra cash, Lombardo’s proposed budget includes 8 percent increases for all state workers in the next fiscal year (July 2023-June 2024) and a 4 percent increase in the year after that — both slightly smaller than raises of 10 percent and 5 percent proposed by outgoing Democratic Gov. Steve Sisolak in December.

Lombardo proposed a slightly larger increase of 10 percent next year for state public safety employees, such as members of the highway patrol, “to help bring them closer to parity with local agencies.”

Lombardo’s proposed budget also includes $2,000 annual bonuses — split into four $500 bonuses each quarter — for “every executive branch state employee,” and he called upon the Legislature to prioritize passing a bill that would fund the bonuses starting at the end of March, rather than requiring state workers to wait until after the session for the payments.

Education

In outlining the policy fundamentals behind his campaign promises to reform the state’s ailing K-12 education system, Lombardo made sweeping promises to increase education spending.

That includes $2 billion in additional education funding for the next biennium, up 22 percent from the two years prior. That amount would boost funding by $2,000 per pupil, Lombardo said, in addition to fully funding so-called “targeted weights” as part of the state’s Pupil Centered Funding Plan, which aims to send extra money to schools based on how many English language learners, at-risk and gifted and talented students they serve.

He added, however, that he would not accept “a lack of funding as an excuse for underperformance,” and that he would call for “systematic” governance change for K-12 education in 2025 “if we don’t start seeing results.”

Lombardo also called for the investment of $730 million into an education-specific rainy day fund, dubbed the Education Stabilization Account. Interest on the account would help provide scholarships for in-state students attending Nevada colleges and universities and who commit to teaching in Nevada for a minimum of five years after they graduate.

To address the teacher shortage, Lombardo also called on lawmakers to adjust state law so retired educators could draw a salary, too — in essence allowing retired teachers to return to the classroom without jeopardizing their retirement money.

Lombardo also attributed an uptick in violence in Nevada schools to the passage of a “restorative justice” law, AB168, in 2019. In calling for the repeal of the “most onerous” sections of the law, the governor characterized the measure as having “handcuffed” teachers and administrators and left them unable to address repeated misbehavior and classroom violence.

Though the law does not prevent administrators from expelling students, it did make the process more difficult and came with no additional funding. After an increasingly large number of violent incidents since the law’s passage, the measure has drawn criticism from teachers, especially in Southern Nevada, who protested the measure last year. The Clark County Education Association (CCEA) and the Nevada State Education Association (NSEA) have called for changes to the law.

In a nod to another campaign promise, Lombardo said he would give schools five years to increase reading scores and called on lawmakers to reinstate elements of the state’s Read by Grade 3 law that would hold back students who are not proficient in reading by the third grade. Originally passed during the Sandoval administration, lawmakers repealed the hold-back provisions in 2019.

The governor stopped short, however, of promising major policy wins on school choice, or state government investments into private education.

An issue central to Lombardo’s 2022 campaign, school choice in Nevada came most notably in 2015 through the Education Savings Accounts program under Republican Gov. Brian Sandoval. The funding mechanism for those accounts were quickly deemed unconstitutional by the state Supreme Court — even as the program itself was left standing — and a Democrat-controlled Legislature later axed the program in 2019 under Democratic Gov. Steve Sisolak.

In his speech, Lombardo instead announced a planned bill to create an “Office of School Choice,” a subdivision of the state’s Department of Education designed to “to ensure students and their parents have the information they need” to assess “every available option.”

Still, Lombardo also pledged a record $50 million in funding for the state’s Opportunity Scholarship program, a tax credit-funded program designed to fund scholarships for certain students at private K-12 institutions. The program is currently offering less than $7 million in scholarships each year.

“Traditional public schools are not — and should not — be the only option,” Lombardo said.

And though he did not clarify additional school choice policies, Lombardo said his post-legislative session goal was to “give Nevada parents significantly more choices to make about their child’s education.”

Separately, Lombardo also pledged extensive investments in the state’s higher education system, which saw hundreds of millions in operating cuts as a result of the pandemic. He pledged to restore those cuts, totaling $76 million, and proposed $5 million for a funding formula study that could revamp the state’s decade-old credit-hour-based formula.

That funding formula study would also require “increased transparency and accountability” for self-supporting budgets, or those funded by tuition, student fees and other non-state dollars.

Lombardo’s proposed budget also would provide tens of million in new dollars for increasing graduate student stipends, the state’s Millennium scholarship, the Promise Scholarship (designed to cover the costs for certain students attending community colleges), faculty at the UNLV’s School of Medicine and for so-called “deferred maintenance,” designed to repair or maintain buildings and infrastructure across the system.

Economy and business

Lombardo said the main tenet of his economy and business plans is recentering Nevada as a pro-business, pro-development state.

Though he said the best opportunity for the state’s growth includes offering pro-development incentives for the expansion of new businesses and industry, he did not offer details.

He illustrated his commitment by saying he would join Elon Musk and the team at Tesla on Tuesday for an unveiling of plans to build a $3.5 billion manufacturing facility in Northern Nevada for the company’s all-electric semi-trucks. It was unclear if the state will offer tax breaks or other incentives to the company.

In 2014, then-Gov. Brian Sandoval wooed Tesla to set up shop in Northern Nevada with an unprecedented tax incentive policy estimated to be worth about $1.25 billion over 20 years.

Economists and other economic development authorities have attributed Northern Nevada’s successful navigation of the pandemic in part to the economic diversification of the region, including the arrival of the Tesla gigafactory.

In February, 2022, Brian Bonnenfant, the project manager for UNR’s Center for Regional studies, attributed a rise in income levels in Northern Nevada to companies such as Tesla and Switch. However, those wage increases combined with geographical limitations helped increase median home prices in the region and have contributed to a housing shortage.

Lombardo addressed those issues by saying that money from economic investments must be responsibly reinvested and used to address transportation, education, housing and public safety demands.

He also touted the inaugural Formula One Las Vegas Grand Prix, which former Gov. Steve Sisolak helped unveil in March 2022.

Crime and public safety

On the campaign trail, Lombardo criticized the Legislature’s passage of “soft-on-crime” policies under former Democratic governor Gov. Steve Sisolak. During his State of the State address, Lombardo again took aim at the policies, which were geared toward reducing the costs of incarceration.

“I will be introducing legislation that makes it harder — not easier — to commit a crime in the state of Nevada,” he said.

He said part of the proposed legislation will include enhancing charges for repeat offenders, empowering judges and probation officers to impose tougher sanctions for parole violations and increasing penalties for fentanyl possession by making possession of the drug a category B felony, for which the punishment is one to 20 years imprisonment.

Elections

Lombardo sharply criticized Democrat-backed legislation from 2020 and 2021 creating universal mail-in voting. Calling for a return to the prior system of opt-in absentee ballot requests, Lombardo derided the current laws as both “unnecessary” now that the pandemic has ebbed, and too expensive.

The governor also backed the creation of a voter ID law and called on lawmakers to end “unregulated ballot harvesting” — another part of Democrat-backed election reforms that allow non-family members to submit mail ballots.

Separately, Lombardo also called on lawmakers to create an independent redistricting commission that would end the use of partisan maps created by state lawmakers after each census.

An often-contentious partisan process, Nevada’s 2021 redistricting, led by Democrats, produced maps that maximized the number of Democrat-held seats across the board, producing a super-majority in the state Assembly, near-super-majority in the Senate and helping Democrats to win three out of four congressional districts — even as Lombardo won the governor’s race.

Lombardo told assembled lawmakers that if they did not act on his proposed election policies, he would turn to ballot measures that would give voters statewide a say on the ideas.

Water, energy and land

Amid a crushing, decades-long drought that has devolved into a worsening crisis on the Colorado River, Lombardo signaled he would be more heavily involved in future negotiations over water rights with the six other states, as well as Mexico, that reside along the river basin.

“There are no simple solutions to these complicated water challenges, but we must be assured that our neighbors share the same commitment that we ask of ourselves,” Lombardo said.

Lombardo also called for Nevada to reduce its reliance on the western energy market and seek “energy independence,” and announced he would sign an executive order allowing energy providers to develop “in-state generation resources” that would reduce the state’s reliance on the outside market.

Lombardo also pushed for a “more predictable approach” to the “timely” release of public lands from the Bureau of Land Management (BLM), a federal agency that manages more than 48 million acres in Nevada, or about 67 percent of the state’s total land.

For decades, Las Vegas, in particular, has balanced surging population growth through the sale of publicly managed BLM land. A more recent bid by Clark County to expand the boundary of developable federally owned land stalled last year in the U.S. Senate.

Lombardo did not specifically mention Clark County in his remarks, nor did specify how his administration would pursue such an approach, though he did signal it would be in “coordination” with the state’s congressional delegation.

Health care

Lombardo took a swing at the public health insurance option the Legislature passed during the 2021 legislative session, calling it “political theater.”

“Getting Nevadans insured is the goal,” Lombardo said. “At a minimum this law needs to be substantially revised, or better yet repealed, so we can re-focus on the real problem which is getting eligible but uninsured Nevadans the coverage they need.”

In early January, his administration pushed back a hearing on the necessary Medicaid waiver for Nevada's public health insurance option.

“An agenda was scheduled for a public hearing the day after [a roughly 400-page actuarial study] was published; that's unacceptable,” Lombardo Chief of Staff Ben Kieckhefer said during a roundtable with statehouse reporters on Jan. 6.

Nevada Medicaid indicated a public comment period will restart no later than Nov. 15.

While on the campaign trail in April, Lombardo called the public option, which was an unrealized goal of Obamacare, “bullshit.”

Though Lombardo panned the public health option, he championed access to mental health services and said he will make sure the government increases reimbursement rates in areas of acute need, especially mental health services.

“Jails and prisons are all too often places where we house those we have failed to educate, failed to treat or otherwise failed to get them the help they need,” Lombardo said.

In his proposed budget, Lombardo includes an enhancement in Medicaid aimed at expanding community behavioral health centers. The $17 million expansion will result in up to six clinics across the state in underserved areas, the governor said.

Rural Nevada

Lombardo discussed priorities for rural Nevada, noting that broadband connectivity and improved relationships with the mining industry are key for his administration.

“The soul of Nevada can be found in the people and places that make up our rural counties,” Lombardo said.

As part of improving communications with rural communities, Lombardo said he appointed a staff member to act as a liaison to Nevada’s rural communities and would be recommending a $400 million dollar broadband investment for rural communities in his budget.

He also said understanding rural Nevada is tied to understanding Nevada’s mining industry. But Lombardo said the mining industry’s relationship with the state government deteriorated in recent years and he is committed to improving the relationship.

“My office will make sure that the five key state agencies with jurisdiction over mining issues are working in cooperation with the industry,” Lombardo said.

Gaming

Lombardo, who announced two weeks ago that Las Vegas attorney Kirk Hendrick would be appointed chairman of the Gaming Control Board by the end of this month, said the agency’s testing lab needed improvement.

He said “concerns have surfaced” over the time it takes for the lab to approve new slot machines and associated gaming equipment, such as cashless payment technology. Lombardo said new gaming products are being introduced “with more speed outside of Nevada,” which gives other casino states a competitive advantage in the opinion of casino operators.

“We need to work with the control board to ensure the logjam is cleared,” Lombardo said.

He also proposed repealing a bill passed during the 2020 special session that required mandatory COVID-19 daily cleanings and time-off requirements.

“Personal time off and daily cleaning requirements add to the labor shortage and exceed current CDC (Centers for Disease Control and Prevention) guidance,” he said. “Yet, our hotel operators’ hands are tied by this burdensome legacy law, and it should be repealed.”

— This story was written by Sean Golonka, Jacob Solis and Tabitha Mueller and used with permission of The Nevada Independent. Go here for updates to this and other stories.