Nevada in Budget Squeeze

Nevada's $887 million deficit is puny compared with California's $20 billion hole.

But in a state that operates one of the leanest budgets in the nation, that amounts to a 22% shortfall, a gap that has some worried that the state might fall further behind in such areas as education and health care, where it already lags behind other states. Others sense an opening to chart a new course in small government.

"We are working on solutions to turn this recession into an opportunity to reinvent our state's government," Republican Gov. Jim Gibbons said in an emergency State of the State address this month. "We may never have an opportunity like this again," he said. Mr. Gibbons faces a tough primary battle this year and has had low approval ratings.


Workers in August dismantle cloud-seeding equipment after Nevada cut state funds for the program as it sought to curb government spending. Some local agencies have sought other funds to revive the practice.
.Limited government is as much part of the folklore of Nevada as cowboys and mobsters. Shortly before Nevada became a state, mining companies—then the dominant industry—ensured a tax cap for themselves in the constitution. The state has never had a personal income tax, and voters enshrined that ban in the constitution in the 1980s. The state legislature meets in regular session only for a few months every two years.

Nevada has been hit hard by both the foreclosure crisis and a sharp drop in gambling and tourism spending. The unemployment rate was nearly 13% in December, up from 8.4% a year earlier. Housing prices dropped 25% in the third quarter of 2009 from a year earlier, when they were already down 26%.

Mr. Gibbons, a conservative who faces a tough primary challenge, is among those who are trying to use the latest budget crisis as a way to ensure Nevada doesn't stray from its small-government roots.On Tuesday the legislature begins a special session to close the shortfall in the budget it approved a year ago, which includes this fiscal year and next.

However, that's a mighty task in a state as flinty as Nevada.

As Nevada's population grew by more than 30% in the past decade to 2.6 million in 2008, state government expanded even more rapidly as it hustled to build roads, increase university programs and develop cultural institutions. Still, in 2008, the state spent the least of any per capita, $3,563, according to data from the U.S. Census Bureau. California spent $5,707 per person, while New York spent $6,586 and Alaska, the leader, spent $13,294 per resident.

Counting local counties and cities, Nevada's spending ranked somewhat higher, though still below the national average. In 2006-2007, the last available U.S. Census comparisons, public welfare, education and health-services spending was among the lowest of all states. Medicaid spending ranked the lowest per person in the country—$472 compared with a national average of $1,015.

.In 2008, its spending on education per student was 48th among states, at $7,133, ahead of only Utah and Arizona. Nevada's student-teacher ratio was the fourth highest in the nation, at 19.3, according to the National Education Association, which represents teachers and other education professionals.

The governor's budget director, Andrew Clinger, said finding areas to cut has been a difficult process, especially since the state has been cutting budgets since 2008 as the economic picture worsened. "We're the leanest of the lean," Mr. Clinger said.

Mr. Clinger said the governor believed that there would now be opportunities to force cuts in areas that have protective constituencies. For example, Mr. Gibbons has long faced opposition to plans to close a state prison, which has been fought by prison employees, among others.

"It is so bad there are some things now that while they may not like it for political reasons, we're going to have to do it," Mr. Clinger said.

Other states are also taking drastic steps. Arizona this week is beginning to close state parks, and the governor there has proposed eliminating the health-insurance program for low-income children. Governors meeting over the weekend said they expected to face combined budget shortfalls of more than $134 billion over the next three years.

Some governors held out hope that economic conditions were starting to pick up. California Gov. Arnold Schwarzenegger said on ABC's "This Week" that "we see signs of a comeback, but it's very clear that the comeback is not going to be as quick as we've seen in the past." California is collecting revenue at a clip of $1 billion more a month than anticipated, he said.

But state revenue often trails an economic recovery because of the time it takes for collections to catch up with lower sales and incomes. In Nevada, many believe that because state revenue is so dependent on casinos, its recovery could lag. Already legislators are expected to confront an additional $3 billion budget deficit next year because funds from short-term tax increases and federal money won't be available.

The governor delivered a plan on Feb. 16 to the legislature that included raiding government accounts including the college scholarships reserve fund, cutting salaries for state workers and raising around $50 million from the mining industry by cutting out some tax deductions. He also proposed 10% across-the-board cuts that would reduce K-12 education by around $200 million and eliminate Medicaid benefits such as eyeglasses, hearing aids and dentures. and adult day care

Democrats, who control both houses of the legislature, have vowed to spare some of the cuts in funding to education and health services. They have discussed increasing some fees on businesses but have said tax increases are off the table this year, which means many programs they saved from the ax last year through a tax increase are on the chopping block this time around.

Some Democrats are hoping Nevadans will eventually loosen their anti-tax stance as they see key services like schools and hospitals erode. "Call me the eternal optimist, but I do think that there is a growing demand that we fix our tax structure," said Sheila Leslie, a Democratic Assemblywoman from Reno.

Democratic lawmakers often blame the low spending for the state's ranking on what they call the bottom of all the good lists and the top of all the bad lists. Nevada has among the highest number of uninsured children and suicide rates and among the lowest reading scores and college degrees per capita.

Conservative critics insist spending isn't the primary factor. "A lot of the spending programs have not been shown to significantly improve performance," said Geoffrey Lawrence, a fiscal policy analyst for the Nevada Policy Research Institute, a conservative group.

Employment was built on well-paying service-industry, mining and construction jobs. The state treated education as a low priority. Critics say that has made it hard to attract businesses that rely on a more educated work force, despite the low tax environment. University system Chancellor Dan Klaich said that under current proposals, the state would be forced to eliminate colleges, limit enrollment and raise student fees.

"We had started to make some headway," Mr. Klaich said. "We were recruiting some of the better students and building some research programs that had some national prominence. Some of that is going to be unwound, and the problem is that it could take us years and years to rebuild."