The governor's plan to securitize part of the insurance premium tax was described Thursday as an undesirable alternative but the only choice to prevent further budget cuts.
Director of Administration Andrew Clinger laid out the plan before a skeptical Senate Revenue Committee saying the $190 million the proposal would generate was needed to fill the final hole in the budget.
"This was not an ideal choice by any stretch of the imagination," Clinger said. "This was the last choice trying to protect the economy of the state and the services we provide."
The plan is to sell a quarter of the $234 million a year revenue stream to an investor. The state would pay off that debt over a five-year period along with interest. Clinger said the total interest paid under the proposal would be $24.3 million.
The insurance tax was chosen, he said, because it is very stable compared to other state revenue streams. Since insurance is mandatory for autos and such things as homes with mortgages, it has proven much more recession proof than other sources the state relies on.
Revenue Chairwoman Sheila Leslie, D-Reno, said the plan just covers the state in the short term.
"What happens two years down the line? Are we going to have a $190 million hole?"
Clinger said by then, the state is expected to see at least some economic recovery. He said he and other experts believe Nevada "has hit the bottom on sales tax collections" and that those revenues will start to recover.
"Gaming: I don't think that's coming back," said Sen. Mike Schneider, D-Las Vegas. He said he also has concerns about sales taxes because they are heavily dependent on construction and that rising oil and gas prices could hurt the tourist economy's recovery as well.
"I'm really hesitant about spending money we don't have," Schneider said.
Senate Majority Leader Steven Horsford, D-Las Vegas, also questioned the wisdom of the plan: "I don't like the concept the begin with."
Clinger said the repayment schedule starts in 2014 and that projections are the total tax collected will increase a bit each year through 2019 when the debt will be paid off.
The committee took no action on the proposal.
