Faced with projections saying revenues will fall $111.8 million short of the forecast used to build the budget, Gov. Jim Gibbons ordered agencies Wednesday to begin identifying where they can cut.
Gibbons said in a prepared statement the only areas not on the chopping block are funding for transportation construction, child welfare programs and K-12 education.
But, he said, the state "must make sacrifices in order to comply with our constitutional requirements of a balanced state budget."
The news prompted Senate Majority leader Bill Raggio, R-Reno, to raise the issue of Gibbons' pledge to veto any fee increases not endorsed by those paying the tab.
"He may need to revisit some of the proposed fee increases that his policy would preclude," Raggio said. "We need to revisit some of those fee increases."
He and other members of leadership also served notice many of the agencies and outside groups seeking cash or program enhancements aren't going to get the money.
"We have to remove some of those expectations that we are going to be able to fund some of those requests," said Raggio, who also leads the Senate Finance Committee.
The shortfall is primarily the result of lower than expected sales tax revenues, which produces a double whammy to the state treasury. First, the state gets less sales tax money. Second, the school districts get less sales tax money from the Local School Support Tax. The state is required, by statute, to make up any losses in support taxes to protect public school budgets.
About $80 million of the total shortfall is because of the sales tax.
Most of the rest is the result of lower than expected revenue from the Modified Business Tax.
One option which Gibbons will have to consider is dropping his plans to reduce the business tax this session. Eliminating his proposed reduction in the tax rate would put an estimated $28 million back in the treasury over the biennium. Doing the same with his proposed elimination of the annual per-branch fee on banks would put back another $5.8 million.
Assembly Speaker Barbara Buckley and Ways and Means Chair Morse Arberry, both D-Las Vegas, said the proposed prison budgets are one place they will be looking for cuts. It's not the prison construction funding they are looking at, rather the increases in operating costs caused by the growth of Nevada's prison population.
"I'm not totally supportive of all the prison budgets," said Arberry calling, instead, for reforms in parole and probation. "We need to let some of these people go."
Buckley said the state needs to be "tough on crime but smart on crime." She said even the state's consultant on prison issues, James Austin, has said Nevada could release a large number of those in its prison system without endangering the public.
"We're definitely moving forward with some long-term prison reforms," she said.
But, Buckley said, that most likely won't help much this legislative session.
Arberry said the large increases in the Nevada System of Higher Education budgets are also likely to face reductions.
The projections were prepared by the budget office and fiscal staff from the Legislative Counsel Bureau because the Economic Forum won't actually make its projections until May 1. That would leave just one month before the end of the 2007 legislative session to make major changes throughout the $7 billion, two-year executive budget, which the heads of the money committees say would be almost impossible.
Although the total reduction in revenues is nearly double what many were predicting just a couple of weeks ago, Raggio, Arberry and Assembly Minority Leader Garn Mabey, R-Las Vegas, said the cuts most likely mean smaller than expected budget increases rather than actual cuts from current spending levels for most agencies.
"We want to give them an increase, but we have to cut the size of the increase," Arberry said.
"The governor said he's going to propose some reductions in increases," Mabey said adding that a number of one-shot proposals will also go away.
Senate Minority Leader Dina Titus, D-Las Vegas, said the governor is expected to cut out about $10 million in one-shot appropriations.
"They're all great projects," she said. "But can the state afford them?"
All uniformly praised Gibbons for getting the projections put together early. Raggio said getting them in May would be a prescription for disaster.
Arberry said the Legislature will have to wait and see where Gibbons and his agency heads propose to make the cuts.
"The cuts are going to be ugly," Buckley said.
• Contact reporter Geoff Dornan at gdornan@nevadaappeal.com or 687-8750.