Speaking for Nevada - November 2002

A Challenge for Nevada

Overcoming Budget Shortfalls

by Kenny Guinn

Nevada faces a serious budget problem. The facts bear repeating – from 1990 to 2000, Nevada’s population grew 66 percent, the highest growth rate in America. Our needs outstrip a revenue structure dependent on gaming and sales taxes. Clark County grows by an average of 5,000 people per month – the equivalent of the city of Ely. Last year alone, school enrollment in Clark County grew by 14,000 students, requiring that one new school be built each month.

In May 2000, I convened a fiscal forum during which the state’s leading economists, demographers, tax experts and budget analysts confirmed the state faces an estimated $800 million shortfall over the next 10 years between incoming revenue and the costs of running the state. Years of dramatic growth, coupled with the escalating cost of providing vital services in areas such as education and healthcare, have resulted in a substantial increase in the amount of resources needed to provide the services our citizens require.

When I ran for governor, I recognized the need to explore changes in how the state budget is built, and to analyze historical approaches to state spending. After taking office, it became abundantly clear I had no choice but to make tough, common sense decisions in order to submit a lean, balanced budget to the Legislature.

What followed was a comprehensive, fundamental review of state government – a top-to-bottom review of every agency, program, position and dollar. That process gave me the flexibility to reallocate millions of dollars in my budget to areas of high priority such as healthcare, education and public safety.

I introduced flat budgeting – the process of creating a budget based on the prior year’s funding without increased across-the-board spending – allowing for growth in the state’s high priority areas. As a result, I presented to the Legislature a streamlined flat budget for fiscal years 2002 and 2003.

When horrific tragedy struck our nation on Sept. 11, the acts of terrorism confirmed what we knew – our unique revenue structure is especially vulnerable to unpredictable events that affect our tourist-based economy. Nevadans were struck hard by an economic disaster of incredible magnitude. Gaming and sales tax revenues sharply declined, more than 15,000 in Southern Nevada alone lost their jobs, while demand for state services skyrocketed. Within the last year alone, the Temporary Assistance for Needy Families (TANF) program grew by nearly 15,000 recipients, and those requiring health services through Medicaid increased by over 37,000 people, resulting in a shortfall of over $26 million in our Medicaid budget.

With revenues considerably down, and the demand for and the cost of delivering state services unpredictably high, we are faced with a $294 million shortfall for the 2002-2003 biennium budget – based on the state of the economy today. Frankly, the scarce new revenue we expect in 2003-2004 will not cover the cost of educating the 16,000 additional children for each of the next two years. It is important to note the state is required to make up any sales tax shortfalls experienced by local school districts. The Sept. 11 tragedy resulted in a shortfall of at least $54 million, which the state is obligated to pay. And yet, Nevada still spends $1,400 less per pupil than the national average.

I took every measure possible to reduce our shortfall. We cut $59 million by postponing one-time expenditures – making cuts for much-needed equipment and supplies and implementing other cost-cutting measures, and cut $24 million by maintaining the state hiring freeze. I asked each agency to further cut its operating budget by 3 percent – a cut of $38 million for the general fund, and to make an additional $9 million cut to cover increased costs of employee health insurance – resulting in a reduction of $47 million.

Given Nevada’s tremendous growth over the past 12 years, coupled with the economic impact of Sept. 11, our budget situation is grave. I believe, however, we can create a revenue structure that meets our immediate budgetary needs and that fulfills our long-term goals, allowing us to be stronger in education, job growth and diversity, and in the health and safety of our citizens. On November 15, I will receive recommendations from the Task Force on Tax Policy, which are potential solutions to help create that revenue structure.

Nevadans have a history of overcoming adversity. As your governor, I appreciate the patience, understanding and support Nevadans have demonstrated during these trying times, and I have no doubt we will emerge healthier and stronger.