Legislature changes spending cap

The Nevada Legislature on Monday agreed to change the statutory spending cap to help fund a deficit in its employee benefits program.

The Public Employee Benefits Program has an unfunded liability for its retirees estimated at $3.8 billion. The state has been paying subsidies for retirees by budgeting for them every biennium. But the Governmental Accounting Standards Board has ordered the state and other governmental entities to begin accounting for that liability as a debt.

Financial experts say adding that liability to the state's books could negatively impact its bond rating, potentially costing millions in added interest on bonds.

But under the requirements of the existing statutory spending cap, any money set aside for that liability must be counted against the statutory cap. Since this budget is just a few million below the $7.064 billion general fund cap, it's practically impossible to put aside any significant money toward that liability.

That cap was put in place by the 1977 Legislature and restricts the growth of general fund spending to population plus inflation. But the state has grown so rapidly over the past two decades spending never approached the cap - until this session.

Assemblyman John Marvel, R-Battle Mountain, introduced AB196 to exempt appropriations to pre-fund that liability from the cap. He said the state had several hundred million in revenue above the cap this year but was limited to using it for the rainy day fund, capital construction, road construction or refunds to voters.

The only objection in the Senate came from Sen. Bob Beers, R-Las Vegas, who said the bill would "break the cap." He said it would only serve to free up money for other spending within the cap.

The bill was approved 14-7 in the Senate with Republicans including Beers and Majority Leader Bill Raggio, R-Reno, voting no.

The bill goes to the governor, who has said he agrees with attempting to pre-fund the liability to the best of the state's abilities. In fact, Gibbons found reductions in other parts of the budget to free up more than $30 million he recommended putting toward the PEBP liability. Completely pre-funding that liability would cost the state $339 million this next biennium.

According to the legislation carrying that money, the cash will be put in a separate fund managed by the Public Employees Retirement System which has the financial consultants to handle the investment.

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