Governor orders budget belt tightening

With sales taxes and other revenue sources already falling behind projections, Gov. Jim Gibbons on Monday ordered his department heads to freeze hiring and prepare for cuts of up to 5 percent of their general fund budgets.

The situation is strikingly similar to Kenny Guinn's first year as governor, when he had to impose a hiring freeze and chop more than $200 million out of his budget plan.

Director of Administration Andrew Clinger said Gibbons has given agency directors two weeks to submit a prioritized list of what they would recommend be cut from their own budgets. The cuts apply not only to this fiscal year but the 2008-2009 fiscal year as well.

Altogether, that would total a $185 million reduction in the $6.9 billion, two-year, general fund budget.

In addition, Gibbons ordered an immediate hiring freeze of all nonessential vacant positions paid for with general fund money. He exempted the Department of Corrections and the Department of Public Safety - primarily parole and probation - from that order. Clinger said there will be an appeal process for other agencies who can make a case to fill an essential position.

Gibbons exempted K-12 public education budgets from the cuts, but not the system of higher education, which will be asked to surrender just more than $64 million of its $1.18 billion in state funding.

The biggest hit, however, will be in the Department of Health and Human Services; 5 percent of its near $2 billion general fund budget totals $95.6 million.

And Gibbons applied the order to his own office and staff as well. His office budgets will have to surrender $252,000 over the rest of this two-year budget cycle.

The other areas of government exempted from the 5 percent cuts are the account that pays district judges' salaries, pay increases for state workers and the funding for wildland-fire suppression and emergency response.

Clinger said sales tax collections are $6.6 million behind projections used to build those budgets in July, the first month of the fiscal year, alone.

The impact to the state treasury will actually be double whatever the sales tax shortfall ends up at since the state guarantees the portion of the sales tax that goes directly to public schools. That portion is the same amount the state receives.

Any reduction to the Health and Human Services budget will also effectively double since that agency's programs are funded 50-50 with federal matching money. If the governor has to cut HHS program budgets by $95.6 million, it will result in an equal reduction in federal funds, making the total budget cut more than $190 million.

The biggest hits to sales tax revenues are in auto sales, down nearly 13 percent in July from the same month of 2006, building material sales, down 19 percent and furniture sales 13 percent.

The collapse of the residential housing market has also sharply reduced revenues from the Real Estate Transfer Tax.

At the same time, job growth was just 2.5 percent through August where it was 4.8 percent for the same period in 2006 and more than 6 percent each of the two years before that.

With all those negatives beginning to pile up, Clinger said even though the state is less than halfway through the first fiscal year of the two-year budget cycle, the governor wanted to get departments to "start looking to see where they can tighten their belts."

He said planning ahead will help minimize the impact on services if the economy doesn't improve. But, he said he hopes the economy and, therefore, state tax revenues, will rebound, reducing the need for cuts.

For Gibbons, this is the second round of budget cuts. In April, he and lawmakers were forced to cut $136 million from his original 2007-09 budget plan as the housing market deteriorated and revenue projections fell.

His predecessor Guinn cut more than $200 million from the 1999-2001 budget proposal and $290 million from the 2001-03 budget - also primarily because of sales tax shortfalls. But Guinn was able to get more than $100 million of that from the state's Rainy Day fund. For more than three years, state agencies were under a hiring freeze during Guinn's first term.

Guinn proposed tax increases to the 2003 Legislature which allowed most of what was cut to be restored.

• Contact reporter Geoff Dornan at gdornan@nevadaappeal.com or 687-8750.