Guinn will ask $1 billion tax increase to balance budget

Faced with rising costs in areas he can't control, Gov. Kenny Guinn will present lawmakers Monday with a general fund budget totaling $5 billion.

That is 33 percent more than the existing two-year budget of $3.79 billion. And to balance it, he'll ask for nearly $1.1 billion in new revenues over the next two years.

Guinn will announce his budget plans at the State of the State address scheduled for 6 p.m. Monday.

The centerpiece of his plan to pay for it all is expected to be a tax on business modeled on the controversial gross receipts tax recommended by the Governor's Task Force on Tax Policy. But it will take more than a year to set up that new tax even if lawmakers support it.

To bridge the period before a business tax actually starts producing, Guinn needs increases that will generate cash immediately. He has said he will support doubling both the cigarette and liquor taxes as soon as possible -- April 1. But, together, those levies generate less than $65 million a year.

Whether they support the business tax or not, observers from lawmakers to businessmen say the obvious place to get a lot of revenue in the short term is the Business License Tax, which has been $100 a year per full-time employee since it was created a decade ago. Doubling it would add more than $85 million a year to the treasury and, if lawmakers act by April, the first checks would arrive in July.

Since that's still not enough to balance the budget, Guinn is reportedly planning to triple the business license tax, bringing in $170 million more each year.

Once a new business tax of some sort is in place, the business license tax would drop back to about $140 per worker per year.

The quarter-percent tax on gross receipts is being strongly protested by businessmen who say it doesn't take profitability into account and would tax even businesses that lose money.

They have the ears of not only conservative, anti-tax lawmakers but moderates in Guinn's own Republican Party -- including Sen. Mark Amodei of Carson City and Assemblyman Bob Beers of Las Vegas.

Whether he has the two-thirds majority needed to pass any tax bill remains to be seen.

Guinn said last week it would take $704 million in new money over the next two years just to maintain existing services. But he has made it clear much more is necessary to fix the state's finances.

"If this is all we do, we will remain a very financially fragile state," he said last week.

The biggest pieces of the shortfall are outside state control -- growth in the Distributive School Account, which funds public schools and Medicaid. Both of those budgets are expected to exceed $1 billion a year -- the first budgets in state history over that mark.

Just to maintain existing funding levels for public schools, the state will have to increase the account by nearly $400 million for the biennium. Distributive School Account this year was budgeted for $794 million and that doesn't include funding for special education -- $76 million -- and class-size reduction -- just under $100 million.

Medicaid was budgeted for $825 million this year -- about $300 million of it from the general fund, the rest federal and local money.

But Guinn had to dip into the reserves in the Intergovernmental Transfer Fund to meet rapidly growing demands this year. Medicaid will consume about $900 million this year -- nearly $400 million of it state money. With caseloads growing rapidly, it will total more than $1 billion next year. The general fund share should hit $1 billion for the two-year period.

In addition, university enrollments, welfare, employee health benefits and utilities are driving up the demand for more revenue.

Guinn's budget won't just do the minimum. He wants to restore funding to some of the Human Services programs approved two years ago but put on hold by the budget crunch. He wants to expand programs including the Children's Health Insurance Program, or CHIP, and Senior Rx. He plans to put some new money into public schools and give teachers the 2 percent raise promised them in 2001.

He plans to cover the more than $50 million the university system can no longer pay for with the estate tax and increase the state share of the university's formula funding from 80 to 85 percent.

To pay for it, he is expected to rely heavily on the 1,150 page Task Force report, which calls for increases in existing taxes and new levies designed to raise more than $700 million over the next two years. In addition to the proposed business tax, Guinn will recommend the state claim a larger piece of the property tax -- up to $66 million a year.

The task force also recommended increasing fees charged by the secretary of state to bring in $28 million and a series of "efficiencies" that would generate about $20 million a year.

It's not clear whether he will endorse the controversial plan to extend the state's sales tax to "admissions and amusements" such as sporting events and non-casino entertainment. That would bring in $90 million.

He has said he won't support expanding the sales tax to services in general.

Guinn will present his proposed budget and tax recommendations to the state and lawmakers Monday evening. Lawmakers will begin briefings on the budget Tuesday morning.

Who: Gov. Kenny Guinn

What: State of the State

When: 6 p.m. Monday


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