Gov. Jim Gibbons and legislative leaders were all pleased to announce they avoided more cuts to programs and ongoing expenses in the second round of budget reductions, despite trimming spending some $900 million.
But unless the economy makes a dramatic recovery before February 2009, they won't be able to do so in the next budget cycle.
The math is simple: General Fund appropriations to ongoing state programs for Fiscal 2009 totaled more than $3.6 billion. But because of the recession, revenues are projected to just top $3.2 billion - a difference of about $400 million.
Gibbons and lawmakers covered that gap for FY2009 with one-time cuts from $185 million worth of Capital Improvement Projects, $40 million from the Department of Transportation and $267 million from the Rainy Day Fund, among other sources.
But those are one-time savings that are now gone. Only $108 million of 2009's cuts came from ongoing programs.
So as Gibbons' staff begins to build the FY2010 and FY2011 budgets, they will be starting the process $400 million in the red each year. That means a total of some $800 million more will have to be cut from the state's ongoing budget for the next biennium.
That's without taking into account inflation and caseload growth everywhere from human services to schools to the prison system.
"There's no doubt we're going to have to cut $400 million a year out of the budget next biennium," said Director of Administration Andrew Clinger, when asked if those calculations were correct.
He said revenues will grow next year but, "will revenue growth cover our caseload growth so we don't go deeper into a hole? I suspect the answer is no."
"We filled our budget gap for the current biennium with one-shots, CIP delays and other fiscal maneuvering," said Gibbons spokesman Ben Kieckhefer.
Since those resources won't be available for the next budget cycle, he said, "the approach will be to reduce budgets."
"The governor has no problem reducing state spending," he said, but that the debate over exactly how to go about that is just beginning in the governor's office.
"I know we're starting in the hole - a big hole," said Assemblywoman Sheila Leslie, D-Reno. "We have to look hard at finding some solutions. The governor has made his intentions clear about not raising taxes, but does that mean he thinks we should cut education and public safety? We don't have hundreds of millions of dollars of waste."
She said she and others are looking, for one, at corporate exemptions in Nevada's tax laws.
"We're more than willing to work with the governor and the Senate to find a solution but, to us, the solution is definitely not to cut education, cut human services, cut public safety," she said. "That's not the answer."
Assembly Ways and Means Chairman Morse Arberry, D-Las Vegas, said not only do the governor and lawmakers need ideas now, they need to fix the core problems that make Nevada's revenues so vulnerable to economic swings.
"We've got to figure a way to broaden the tax base for the state so we can get out of this. We need to come up with great creative ideas. Otherwise we're going down the chute."
Arberry said that means bringing gaming and business people along with local and state officials to the table.
"We have to come up with a plan. Not everybody's going to be happy but everybody's going to have to give," he said.
Sen. Bob Beers, R-Las Vegas, said he believes ongoing expenditures will have to be reduced because tax hikes aren't a good answer.
"The obvious targets of new taxes are hurting themselves. Our largest gaming employer (MGM-Mirage) just laid off 440 mid-level managers."
"Certainly our work is cut out for us next session, but I can't see how tax hikes are part of that solution."
Senate Majority Leader Bill Raggio, R-Reno, also called for a broader look at how the state - and local governments - raise and spend money. But he said most of the state budget has been thoroughly gone over and "if there's any waste, it's pretty hard to find much now."
He said if a comprehensive analysis shows the state needs more revenues, "I'm not going to stick my head in the sand."
But, he quickly added, "Don't assume I'm advocating raising taxes."
Arberry made it clear he didn't agree with Raggio's reference to local revenues. Raggio has suggested in the past that the state take some of the revenues now collected by local governments to solve its cash problems.
"There's no use looking in somebody else's pocket," Arberry said. "It's all about no money. We can't put it on the back of somebody else."
Health and Human Resources Director Mike Willden said if the answer is just cuts, "our only alternative will be to get into ugly cuts."
He pointed out his department would have to suffer some serious cuts because it consumes nearly 30 percent of general fund revenues.
"We'll have to talk about rolling back the Medicaid rates, talk about mental health reductions and reductions in the workforce."
"It'll be a huge policy question," Willden said. "I don't have any more tricks."
State agencies will get a better look at exactly what the governor's office expects of them in a week or so when rewritten budget instructions are issued.
The first draft, written late last year, told agencies to start with the FY2009 budget for their programs, then add 3 percent each year.
Clinger said the new instructions will start with a lower base each year and require spending above that base be strictly limited.
• Contact reporter Geoff Dornan at gdornan@nevadaappeal.com or 687-8750.