Budget in place reforms education, collective bargaining, employee benefits

Even the deteriorating weather couldn't wipe the smiles from Gov. Brian Sandoval and legislative leaders as they announced a budget deal Wednesday.

"The agreement represents historic reforms in education, collective bargaining, public employee benefits and construction defects," said Sandoval, surrounded by more than 40 lawmakers in the Legislative building. "It also balances the state budget, includes no new taxes and partially extends sunset taxes by only two years."

He said it is also the first time in history that Nevada's biennial budget actually goes down to a total less than the previous budget.

That $500 million decrease, however, counts not only general fund dollars but federal, highway fund and other dollars that have reduced because of the recession or from cuts to matching funds needed to maintain federal grants.

Primarily using $620.5 million generated by lifting the sunsets on tax hikes from the 26th special session, the agreement funds a $6.24 billion General Fund budget for the coming two years.

The negotiations were kick-started last week by Thursday's Supreme Court ruling that said taking the Clean Water Coalition money was unconstitutional because it was a special act impacting just one governmental jurisdiction. While the money totaled just $62 million, legal advisers warned that other local funds taken in the recommended budget increased that hole to more than $656 million.

One longtime observer said the ruling was a Godsend, forcing Democrats and Republicans to sit down at the table and compromise

"I don't think anybody got what they wanted," said Assembly Minority Leader Pete Goicoechea, R-Eureka.

"This wasn't an easy process," said Senate Minority Leader Mike McGinness, R-Fallon. "And I can't say I didn't holler at anyone at the table."

The big change, Sandoval said, is the elimination of the modified business tax on 70 percent of Nevada businesses. Businesses spending less than $62,500 a quarter on payroll currently pay a half percent of that. Particularly for small businesses, operators have testified repeatedly that is a serious disincentive to hire more employees.

"They will no longer pay the MBT," Sandoval said.

But the sunset that would have dropped the 1.17 percent MBT on bigger businesses back to 0.63 percent is lifted for the next two years - generating $298 million of the total added revenues.

In addition, the mining claims fees that exploration companies said would seriously damage their ability to stay in business were lifted, one of Goicoechea's biggest issues.

"I believe common sense has prevailed in Carson City," said Senate Majority Leader Steven Horsford, D-Las Vegas.

He said the budget plan "responsibly funds our schools and positions Nevada for success."

Assembly Speaker John Oceguera, D-Las Vegas, said the plan also makes "fundamental changes in education and how our state operates and lays the foundation for long term reform."

He said the big change in his mind is education reform giving school districts more control during periods of layoffs and in getting rid of bad teachers.

The challenge was how to close the $968 million gap between the governor's recommended budget and the budget approved by lawmakers - plus the gap caused by the Supreme Court ruling.

Among the sunsets lifted in the plan is the increase in the Local School Support Tax portion of the sales tax, which was scheduled to drop back to 2.25 percent from 2.67 percent effective July 1. While that money goes to the school districts, not the state, the state guarantees that money so the General Fund would have to make up the $282 million decrease in school revenues the sunset would have caused.

The sunsets covered most of that but the negotiators had to use a few tricks to fill in the more than $300 million difference.

Despite the fact the Supreme Court ruling in the Clean Water Coalition case took the Initiative Petition 1 money off the table, the plan still uses the $225 million generated from room taxes. As the petition intended, the money will now go directly to the school districts instead of the general fund. Then the budget simply backs that much money out of the K-12 education budget and uses it elsewhere. The same trick is used with $40 million from the Clark County School District capital funds - putting that cash directly into the district budget and then backing the same amount out of the General Fund appropriation.

When those amounts are added to the General Fund budget, the total is more than $6.5 billion for the biennium.

They got another $155 million over the biennium by reinstating the line of credit to borrow from the Local Government Investment Pool. Director of Administration Andrew Clinger said like two years ago when they set up that line of credit, the administration will try not to use that money.

They got another $23.8 million from Senate Majority Leader Steven Horsford's plan to scale back the deductions mines are allowed to take in calculating the net proceeds of mines tax they owe the state.

Another estimated $16.66 million will come from Assemblyman William Horne's legislation sweeping a portion of the profit now collected by ticket-in, ticket-out casinos from unredeemed slot machine wagering vouchers. Those amounts are normally very small, many just a dollar or two, that gamblers have left on their cards when they leave for home.

Finally, they will collect a total of $51.1 million over the coming two years by taking Governmental Services Tax commissions and penalties from DMV. That money will be backfilled from the Highway fund, which Clinger conceded will come at the expense of the other two major recipients of highway fund cash - NDOT and the Nevada Highway Patrol.

Also unhappy were those unable to push changes that would reduce construction defects litigation. The reforms Sandoval mentioned were far less than they wanted, according to Assemblyman Crescent Hardy, R-Las Vegas. He, and Ira Hansen, a Sparks painting contractor, both said they would be back again next session.

One veteran lobbyist said the leverage to do that "left the building" when the Supreme Court ruled and Sandoval said that meant lifting at least part of the sunsets.

With a deal in place, it's up to legislative fiscal staff to begin drafting the Appropriations Act and Authorizations Act, Distributive School Account legislation and other pieces of the puzzle that implement the state budget.

Then, Sandoval told reporters, "we will meet the legislature's deadline to adjourn."

That date, under the constitution's 120 day requirement for a regular session, is 1 a.m. Tuesday.

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