Tax and mend

Momentum grows for revisiting the infamous 2003 tax increase

By Larry Wills

Many Nevada legislators, still smarting from the fallout of their acrimonious 2003 session, are dreading another free-for-all over state taxes when they meet again in 2005.

"I don't think so," Assembly Speaker Richard Perkins said of revisiting the $833 million in tax hikes approved last year. "We went through the most difficult legislative session ever. Hard decisions were made. I don't see additional taxes."

But lawmakers may not be able to avoid an uproar next year, amid cries that the tax increases were unfair and that some legislators had conflicts of interest. The issue has become deeply politicized, spawning initiatives to undo the hikes and bar public employees from serving in the Legislature. It also has sparked a debate over whether the tax hikes were needed at all. Sales tax revenues in December were up 10 percent over the same month the year before. The sales tax revenue projection for the year is 5.1 percent.

Assemblyman Bob Beers, R-Las Vegas, an outspoken opponent of the tax increases, says increased revenues will reinforce his push to lighten the tax load, which increased spending 33 percent last year. "Indications are revenues are going up," he says. "Some of our plans on spending failed to materialize. I have no doubt we'll have a surplus. If we could realize this return later this year, we're likely to reduce spending."

Not so, says Greg Bortolin, spokesman for Republican Gov. Kenny Guinn. "Gaming revenues have been flat," he says. "The gains we're seeing in sales taxes are not enough to compensate for the gaming revenues." Bortolin estimates state officials will have to tighten their belts to stay within the budget this year. "We have a hole we have to overcome in the budget. The inheritance tax is going away. That's $150 million to $200 million and education is getting a lot of it."

At the same time, Bortolin insists the governor will not support further tax hikes in the 2005 session. "We have to live with what's existing. We need more time to see what works and what doesn't. We're two sessions away from major adjustments."

That, of course, depends on the outcome of the initiative petitions. If the tax rollback initiative passes, legislators will find themselves back at square one. And the public employee initiative could profoundly change the makeup of the statehouse, now manned by more than a dozen public employees. The state Senate is controlled by Republicans by a five-vote margin. In the Assembly, Democrats hold a small majority, 23-19. All 31 Democratic legislators voted for the tax package, while only 14 of the 32 Republicans did so.

State Senate Minority Leader Dina Titus, D-Las Vegas, calls the public employee issue a veiled attack on those who voted for tax hikes. "They say you shouldn't be in the Legislature because you vote for taxes," she says.

But Beers blames the tax backlash on legislators being out of touch with voters. "Two-thirds of our citizens thought it was not a good idea [to raise taxes by $833 million]. When they [legislators] came home, they realized the depth of opposition to what happened."

Compounding the problem are the Democrat assemblymen accused of taking pay while absent from their government jobs at Carson City. Wendell Williams, Kathy McClain, Kelvin Atkinson lost their public sector jobs over charges of double-dipping. Assemblyman John Oceguera is working to make up hours for which he was paid by the North Las Vegas Fire Department, and Perkins has been accused of billing the Henderson Police Department for hours worked while he was in the Legislature. All the Democrats are facing opponents in the fall election in what appear to be tough races centering on interest conflicts and double-dipping. Even if the initiatives fail to get on the ballot, they will certainly play a role in local races.

"That campaign issue will be still valid," Titus says. "People do care about double-dipping." Titus, a UNLV professor, takes unpaid leaves of absence when she is in the Legislature.

On Monday, Attorney General Brian Sandoval further muddied the political waters when he issued his long-awaited opinion that state executive branch workers cannot serve in the Legislature, but employees of local governments can. His nonbinding ruling may be challenged in court by both sides on the issue.

Losing key Democratic seats over that issue could give the GOP control of both houses and boost the anti-tax ranks by five critical votes. That would influence the debate, since tax increases require a two-thirds vote of the Legislature, but tax rollbacks require only a simple majority vote. Such a scenario could place Guinn in a political jam, forced to veto bills promoted by his own party.

No matter what happens, most agree the tax package will have to be tinkered with. "Small business got screwed," Titus says, referring to the payroll tax, while Beers thinks the payroll tax unfairly targets banks, which experienced 300 percent increases. Bortolin says the governor's proposed gross receipts tax "would have better protected small businesses." But that plan failed for lack of support from business groups.

Just how much of this revision will be fine-tuning or a major overhaul may depend on the November election. Titus earlier blamed the uproar on a failure to sell the need for tax hikes to the public before the 2003 session. The first that many Nevadans, including legislators, heard of the massive tax increase plan was during Guinn's State of the State address.

"I don't think many people understand what we actually did," Perkins says. "If I have time to explain it to them, I think there's a great deal of understanding."

Bortolin says the tax hikes were a matter of preserving state government. "We preserved our bond rating on Wall Street. Our kids didn't have to end school early. We didn't hire a bunch of new people or implement a bunch of new programs. We just preserved what we had."