State of the State: Gov. Sandoval unveils record $6.5 billion budget

Nevada Gov. Brian Sandoval on Wednesday unveiled a record $6.5 billion General Fund budget for the next two fiscal years that is balanced by extending most of the tax increases and revenue diversions put in place two years ago.The spending plan proposed by the first-term Republican governor is $342 million, or about 5 percent, more than the current budget. Nearly all of the increased spending would go to K-12 education and Health and Human Services programs — primarily for a huge increase in Medicaid spending. The plan assumes a gradually improving economy, with “light at the end of the tunnel,” Sandoval said in his State of the State address, delivered as his 3,414-page budget plan was released.“We cannot cut our way out, we cannot tax our way out. We can only grow our way out,” Sandoval said in his 45-minute speech.“During the last several years of very lean times, state government has had to tighten its belt,” the governor said in a separate letter regarding the budget, adding, “This executive budget begins the process of restoring elements considered most critical to ensure we can continue to provide the services our citizens expect.”Director of Administration Jeff Mohlenkamp said the biggest change in the budget is a $1.2 billion increase in federal funding. When spending based on state revenues plus revenues from federal and other sources are totaled, the proposed state budget comes to $17.6 billion for the coming two-year budget cycle. That overall total is about 11 percent higher than the current overall total.Under Sandoval’s proposal, the state’s K-12 funding would rise $135 million to a total of $2.46 billion in General Fund money. Chief of Staff Gerald Gardner said that would expand all-day kindergarten from 114 to 160 schools. Other elements in K-12 funding include implementation of Teach for America, a nonprofit program that recruits college students to become teachers. Gardner described it as “Peace Corps for teachers.”Sandoval’s spending plan, which will be reviewed by the state Legislature over the coming four months, also provides for an expansion of English Language Learner funding to the cost of $14 million. K-12 per pupil funding would increase 5.9 percent over the biennium, from $5,374 this fiscal year to $5,697 by the end of fiscal 2015.The proposed state budget would pump an additional $5 million into the Millennium Scholarship program launched by former Gov. Kenny Guinn, augmenting the tobacco money that annually generates about $15 million for the program that helps Nevada college and university students cover the cost of their studies.The university system also would see implementation of a new funding formula developed following the 2011 legislative session, which Gardner said bases funding on course completions instead of enrollment in classes. That new formula was designed to shift more higher education money to Southern Nevada, but it raised concerns the small campuses such as Western Nevada and Great Basin college would be hit too hard.Gardner said changes in the formula are proposed to “mitigate the effect,” but only by about $2 million. Overall, the system will get a $29 million increase.The total funding for K-12 and higher education accounts for more than half of the proposed General Fund spending. Nevada has one of the lowest high school graduation rates in the nation, and Sandoval has made education a priority. Fully a third of his State of the State address focused on K-12 and higher education funding.Human services funding, the second biggest funding category accounting for about a third of the overall budget at about $2 billion, would grow by another $136 million in General Fund dollars, mostly to cover a Medicaid caseload projected to hit 490,000 Nevadans by the end of Fiscal 2015.The increase in Medicaid caseload, Mohlenkamp said, will actually require about $200 million more than the current budget, but he said some of that will be offset by a sharp increase in the percentage of that bill paid by the federal government. The federal portion of that cost has risen from 54 percent to nearly 64 percent because of the decline in the average state income over the past couple of years. To help local governments out, the proposed budget gives up the $38 million in the Indigent Accident Fund that pays for hospital costs of the poor. County officials complained bitterly about that diversion, saying it creates a severe financial hardship for rural hospitals that can’t turn away the sick and injured poor and also hurts University Medical Center in Las Vegas which gets most of the funding. Esmeralda County Commissioner Nancy Boland said at the time that one serious accident with a half-dozen poor victims could bankrupt her county.To balance the proposed budget, the plan continues the higher Modified Business Tax, generating $234.6 million over the biennium. But to give more small businesses a break, Sandoval would raise the exemption on payroll taxes from the first $62,500 in employee wags to $85,000. Gardner said that equates to a $24 million tax break and would free an additional 2,700 small businesses from paying the levy.The proposal continues the $200 annual business license fee, which was to drop back to $100, and continues to divert the governmental services tax to the General Fund instead of letting it return to the Highway Fund — another $126 million.Miners would continue to pay the Net Proceeds tax upfront instead of at the end of the year, generating a one-time $83 million to the General Fund.Sandoval wants to continue the Local School Support Tax at 2.6 percent instead of letting it sunset back to 2.25 percent — generating some $331 million to school districts that the General Fund would otherwise have to make up. And it keeps the voter-approved room tax in the General Fund for another $271 million during the biennium.Altogether, extending the sunsets on tax increases instead of letting them expire raised $649 million. Continuing the diversions of revenue from places including the Highway Fund and school budgets raises $422 million and extending prepayments of primarily mining taxes another $112 million for a total of $1.18 billion.That doesn’t quite pay for everything in the proposed budget. Mohlenkamp said the state will use some of its increasingly healthy Ending Fund Balance along with all but $15 million of the $84 million in the state’s Rainy Day Fund to cover the rest.The Capital Improvement Program is limited this time to about $80 million, nearly all of it necessary maintenance such as roof repairs.The plan does, however, include money to build a new execution chamber at Ely State Prison. Moving the chamber along with the prison license plate plant will complete the shutdown of the now-closed Nevada State Prison on Fifth Street.