The $580.36 million reduction in revenue projections ordered by the Nevada Economic Forum Friday is just the first shoe to drop on the state's beleaguered budget.
The other shoe, the statute guaranteeing public school funding, will add well over $200 million to that total. Under Nevada Revised Statutes, state government must protect K-12 education from unanticipated reductions in sales tax revenues school districts depend on to pay for teacher salaries and eduacational programs.
Fully 2.6 cents of the sales tax collected in Nevada goes to K-12 education in the 17 county school districts. That law was enacted to protect public schools from budget shortfalls which could force teacher layoffs and program cuts half way through the school year.
When the forum reviewed the state's 2 cent share of sales tax revenues, they reduced the projected total for this biennium by $183.38 million. If the 2 cent state share is that much short of projections used to build the state budget, then the 2.6 cent share that goes to the school districts would be short by the same percentage. That translates to a $238.4 million K-12 funding shortfall the state will have to make up. Adding that to the $580.36 million the governor and lawmakers must already cut from the current budget raises the total reduction they face to $818.76 million.
The governor and Legislature will have to cut $580.36 million from agency budgets to bring state spending in line with the reduced revenue projections issued by the Economic Forum Friday.
The forum, a panel of five outside business and financial experts appointed by the governor and lawmakers, generally took he most conservative of the projections presented to them by the collecting agency, the legislative fiscal division and the budget office.
"The economy continued to decline at a much more tapped rate than we estimated in May," said chairman John Restrepo. He said the continued weakness of the national economy is contributing to "a significant snowball effect" in Nevada.
The forum, called into special session by Gov. Jim Gibbons, reduced projections for the 10 major General Fund revenue streams from $2.6 billion to $2.36 billion in this fiscal year and from $2.66 billion to $2.32 billion in fiscal 2011. That translates to a reduction of $238 million from this fiscal year and $342.4 million in fiscal 2011.
Sales and use taxes, gaming and the Modified Business Tax took the biggest reductions. Sales tax projections were cut nearly $71 million for this year and more than $112 million in the second year of this budget cycle - a total of $183.4 million for the biennium. When the Live Entertainment Tax is counted, projections for total gaming revenues were reduced $157.7 million this budget cycle.
The business tax was cut a total of $142 million over the biennium. The governor and lawmakers are required to use the forum's regular meeting projections in building the state budget. While it wasn't clear they are absolutely required to use the projections generated in this special meeting, several officials said they would undoubtedly do so.
The forum session was called after revenues fell some $72 million below the May 2009 projections in just the first three months of the this two-year budget cycle. Every major General Fund revenue source was chopped back except the financial section of the Modified Business Tax - which is applied only to banks and other financial institutions. While analysts projected that revenue would actually grow a bit over the May projections, it only generates about $20 million a year.
The Insurance Premium Tax was reduced nearly $30 million over the two year cycle and the secretary of state's corporate fees about $13 million. Room tax revenue projections were cut by some $32 million by the forum and the Real Property Transfer Tax by $7.3 million. The cigarette tax was cut some $17 million.
Russell Guindon, Legislative Counsel Bureau fiscal analyst for the Forum, advised the forum the $580.3 million isn't the final total for revenue reductions because the 10 revenue streams reviewed aren't the only revenues feeding the treasury. The remaining 15 percent of "minor revenues," he said, will be reviewed by staff and any necessary changes made. The governor and lawmakers will use the new projections in deciding how to balance the state's budget when Gov.
Contact reporter Geoff Dornan at gdornan@nevadaappeal.com or 687-8750.
