Sandoval's school bond reserve bill is criticized

By Sandra Chereb

Associated Press

Published: Tuesday, April 19 2011 5:56 p.m. MDT

Clark County School District Chief Financial Officer Jeff Weiler, and banker Pat Zamora, left, tell lawmakers about the expected impacts of the governor's plan to take money from school bond reserve accounts to plug a budget hole during a hearing Tuesday, April 19, 2011, at the Legislature in Carson City, Nev.

Cathleen Allison, Associated Press

Enlarge photo»

CARSON CITY, Nev. — A bill that implements portions of Gov. Brian Sandoval's plan to shift and borrow money to balance his $5.8 billion spending proposal was met with a critical eye Tuesday by members of the Assembly Ways and Means Committee.

AB561 outlines the first-term Republican governor's plan to take $300 million from school bond reserve accounts to shore up education funding.

He also wants to borrow $190 million against insurance premium taxes to infuse into the state's general coffers.

The bill also would:

— extend a payroll tax break to businesses.

— divert the portion of levies imposed on car rentals from the state highway fund to the general fund.

— continue the prepayment of net proceeds taxes paid by mining companies.

— delay payments to the state rainy day fund.

Democrats estimate the governor's two-year budget plan is $2.5 billion short of what's needed to continue existing services. Sandoval has promised to balance the budget without raising fees or taxes.

Tapping bond reserve money to plug a $300 million hole in Sandoval's budget for education operations is opposed by school districts, who say it goes against the intent of voters who approved the bond money for improvements.

It's also a sore point for Assemblywoman Debbie Smith, D-Sparks, who sponsored AB183 that was passed by both the Assembly and Senate in party-line votes, only to be vetoed by the governor. Like the governor's proposal, Smith's bill also would have allowed school districts to keep lower amounts in bond reserve payment accounts. But her measure would have authorized districts to use the funds for repairs and improvements.

School representatives testified Monday against the governor's plan, arguing it would hurt their bond ratings and result in higher interest payments or the need to raise property taxes to cover debt service.

Pat Zamora, a banker who works with the Clark County School District, described the district's reserve fund as "a sinking fund," because of depressed property values and foreclosures.

"We need all of our reserve as we currently see it for the next five years," said Jeff Weiler, the district's chief financial officer.

Those arguments were echoed by other school representatives, including Sharla Hales, president of the Douglas County School Board, who said the improvements needed in her county already exceed bonding capacity.

"Please do not betray the trust of the voters by using these funds for purposes not authorized by them for the use of their money," she urged.

Reduced payroll, or modified business tax rates, as outlined in the bill would cost the state general fund about $16 million over the upcoming biennium, Budget Director Andrew Clinger told the committee.

In 2009, lawmakers passed about $800 million in tax increases, most of which are as set to expire June 30. As a concession to opponents, the tax businesses pay on wages was lowered for small businesses to 0.5 percent on the first $62,500 in quarterly wages paid. Amounts higher are taxed at 1.17 percent.

If allowed to sunset, all businesses would pay 0.63 percent of total wages.

Sandoval's proposal would keep the rate at 0.5 percent on wages not over $62,500; and 0.63 percent for anything above that.

Committee members expressed skepticism on the governor's plan to raise $190 million by borrowing against insurance premium tax revenues.

"This is a one-time fix," Smith said, adding that taxpayers would be on the hook for interest payments estimated at $54 million a year.

"I'm not sure that is the logical, intelligent way to go about filling a budget hole unless there's some magical silver bullet out there ... a farm of money trees somewhere that are just going to come to fruition," said Assemblyman Marcus Conklin, D-Las Vegas.

Clinger said the governor acknowledges the option isn't ideal, but the state is left with no easy choices.

No action on the proposal was taken by the committee.

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