Bill exempts unfunded liabilities from spending cap

Nevada could exceed its budget spending cap to help pay off unfunded liabilities, under a bill approved Friday by the state Assembly.

Currently, state construction is exempted from the cap, which was enacted in 1975. Also, one-shot appropriations that don't create a continued burden of spending by the state are allowed.

AB196, introduced by Assemblyman John Marvel, R-Battle Mountain, is an effort to help reduce a $4.1 billion unfunded long-term liability in the Public Employees Benefits Program.

"It will really up our bond rating by addressing the situation now. Without it, we could really lose the capacity we have for bonding right now," Marvel told the Assembly, adding that the measure enables any future budget surpluses to be paid toward the liability.

Lawmakers reviewing a budget for PEBP voted Thursday to put $50 million toward paying down the liability, which could cause trouble for the state's credit ratings and result in increased interest rates on money it borrows.

An annual contribution of at least $247 million is needed to keep the liability off financial statements.

The liability will continue to grow unless benefits are changed or more money is allotted to pay it down in future budget cycles, legislators have been told.

Beginning this summer, all states must report such unfunded liabilities, and Wall Street bond-rating agencies will be taking note. If states don't take action to reduce them, a bond-rating agency could downgrade their ratings.

The state spending cap enacted in 1975 is based on a formula that follows population growth. State revenues never approached the cap until this session.

In 2005, $300 million in surplus state money was refunded in $75 checks to drivers and seniors registered at the Department of Motor Vehicles. That surplus resulted from a strong economy and increased taxes passed during the 2003 session. This year, budget cuts are being made to reduce a projected revenue shortfall of about $142 million.