Budget cuts: 14 percent could become 30 percent

The state will have to chop nearly $250 million more out of agency spending this fiscal year, bringing the total cuts to more than $1.4 billion and, unless something changes, a 30 percent total cut in the budget for the coming two-year budget cycle.

And according to Director of Administration Andrew Clinger, that is 16 percent on top of the 14 percent cuts agencies have already made in their budget requests.

The Economic Forum voted Monday to cut this fiscal year's revenue projections for the seven major revenue sources that feed the General Fund from $2.565 billion to $2.4 billion. That coupled with reductions to other revenues add up to a $250 million shortfall.

For the coming two-year budget cycle, Clinger said, the most optimistic revenue projections show the state more than $1 billion short.

"To get to that number, I think you would have to cut 30 percent," he said.

Spokesman Ben Kieckhefer said Gov. Jim Gibbons has been informed about the situation but that Clinger's office has not yet talked with agencies or run detailed projections of what the impact to agencies and programs would be if 30 percent cuts were ordered.

"We're trying to get our arms around what this means to the people of Nevada and what effect it would have on the people of Nevada," he said.

Asked whether 30 percent cuts are even possible, Kieckhefer said, "I don't know."

Asked whether Gibbons has softened his anti-tax stance, he said, "He has not indicated a change in tax policy."

Deputy Chief of Staff Mendy Elliott said whatever cuts are made, it will be agency by agency.

"Departments are going to be seeing an increase in need, not a downturn," she said.

Members of the Economic Forum, meanwhile, were unwilling to make the preliminary projections for the coming two-year budget cycle they were supposed to make Monday.

Chairman Cathy Santoro and the other four members said with credit markets still in gridlock, wild daily swings in the stock market, unemployment climbing and the construction industry in shambles, they just don't have enough information to make solid projections.

Santoro said the forum will instead wait until Dec. 1 to make the final revenue projections the governor and Legislature must use to build the 2009-2011 executive budget.

Clinger said after the meeting that not having preliminary projections for the 2009-2011 biennium will make developing the executive budget plan all the more difficult.

Instead of plugging in revenue projections now then refining them after the Dec. 1 revenue projections are made, his office and state agencies will have to make their own best estimates of what the revenue numbers will be for FY2010 and FY2011.

He said the additional reduction this year will basically double the cuts already made in operating budgets " another 8 percent.

Santoro said the Forum members simply need another month of numbers and solid estimates by the various agencies and economists advising them.

"We may be in a recession for a while," said Member Bill Hartman, adding that he too wants more solid data.

The Forum also held off approving minor revenue projections for the next two years.

They made the decision after listening to gloomy projections from economists all morning. Both James Diffley of Global Insight consultants and Bill Anderson, chief economist for the Department of Employment, Training and Rehabilitation, said they see some light at the end of the tunnel, but that it doesn't show up until near the end of the coming biennium.

Diffley said the worst is yet to come for the economy. He said the most pessimistic projections would make this economic downturn the worst since 1981.

Both said unemployment will continue to climb past this month's 7.3 percent to more than 8 percent in 2009 and 2010.

The most pessimistic view of the coming budget cycle, however, came from Lon DeWeese of the Nevada Housing Division, who said home prices are down 35 percent from their peak but that, "at this point in time, we're only about half way through the adjustment."

He said fully a third of all housing financing was 100 percent by 2006 and that a large number of those loans will readjust their interest rates over the next two years. The impact, he said, will be more foreclosures by people who simply cannot afford the houses they were allowed to buy with creative and risky financing packages.

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