Plan would reduce budget shortfall

Nevada would give up more than $1.2 billion in payments from the tobacco industry during more than 20 years to get about $600 million now to help reduce a revenue shortfall - and the chief proponent of that trade-off said Friday it makes sense.

Lt. Gov. Brian Krolicki, in releasing an analysis of the plan, said critics will argue that it's better to collect the larger sum over time, but he's convinced the best course is to shrink the revenue shortfall now to avoid deep budget cuts or tax increases.

Under normal economic circumstances, Krolicki said he wouldn't suggest the plan, but added, "These are not normal circumstances. We have to get our fiscal house in order."

Krolicki has asked Gov. Jim Gibbons to consider the plan. He's also providing the analysis to all lawmakers. The Legislature and the governor must approve the deal, and Krolicki hopes that can be done soon through a special legislative session rather than waiting until the 2009 session.

He's also recommending a "working group" to study the idea, including himself, state Treasurer Kate Marshall, Gibbons' budget chief and legal counsel, top legislative fiscal analysts and the head of the Nevada Taxpayers Association.

Gibbons, who has said repeatedly that he's opposed to higher taxes, has asked agencies to produce "what-if" cutback plans of up to 14 percent.

Krolicki said that in the big Health and Human Services Department alone, that would reduce Medicaid, mental health and child-family services funding by $500 million over two years - nearly half of that in federal matching funds that the state would still get if 14 percent cuts could be avoided.

Under the "securitization" plan, an estimated $600 million to reduce the shortfall - expected to be nearly $1 billion in a year - would be raised by a one-time bond sale. The bonds would be paid off over 23 years with about $1.25 billion in tobacco company payments. The state would incur no liability.

Under a settlement that the "Big Four" tobacco companies made with the states, Nevada would still get just over $1 billion after the bonds are redeemed in 2031. That's because the settlement payments run another 17 years, until 2048.

Forty percent of the tobacco payments now coming to Nevada are used to help fund the Millennium Scholarship program providing scholarships to students who go to state colleges and universities. The rest goes to public health programs and services.

Krolicki said other funding sources for the scholarships and the health services would have to be found, but there's time for that. He also noted that 20 other states already have implemented similar plans for all or part of their tobacco settlement revenues.