Sandoval proposes pot tax to help balance $8.1 billion budget

Gov. Brian Sandoval painted a hopeful picture of a recovering Nevada during his State of the State address on Tuesday, saying dreams of a diversified economy are starting to materialize and proposing a two-year budget that’s 10 percent larger than the one before it.

Following a slick video that touted Nevada’s climb from financial ruin, he unveiled an $8.1 billion spending plan that includes more money for higher education, funding to restart the suspended Education Savings Accounts program and a raise for state employees. Even the 10 percent excise tax he proposed on sales of recreational marijuana has an educational bent and will funnel $70 million into the state's main public education account.

“My vision for our state is to put all Nevadans, regardless of age or circumstance, on a career pathway toward success,” he said.

The speech is the final State of the State for the popular two-term Republican governor, who’s barred by term limits from seeking re-election in 2018. It comes on the heels of a productive legislative session in 2015, when he leveraged Republican majorities in the Senate and Assembly to pass an ambitious slate of education reforms and mustered support for a $1.1 billion tax package to bankroll them.

He’s facing a new reality this time around with Democrats in control of both the Senate and Assembly, although Democratic leaders say they’re generally on board with Sandoval’s vision for a “New Nevada.” Sandoval pointed out that he was standing below a portrait of Abraham Lincoln, an icon of unity, in his appeal that the parties work together to build a more prosperous Nevada.

“Join me in rejecting the counterproductive divisiveness of partisan politics and instead embrace the tradition of bridging our differences in honorable Nevada fashion,” he said,

Nevada’s economy has largely rebounded from the depths of the recession during his six years in office, and tax yields are starting to show it. The state expects to reel in $8 billion for its general fund over the next two years -- about 6 percent more than it will bring in during the current two-year budget cycle, according to an official state projection.

“In my first State of the State message, I said ‘If Nevada were a stock, I’d buy it now,’" he said in the speech. "I’m even more confident now than I was then.”

Sandoval committed to adding $200 million to the state's rainy day fund in the next biennium. The state put $64 million in its rainy day fund this year, socking away money for the first time recent history, and ended the last fiscal year about $400 million in the black.

“There’s no red whatsoever,” Sandoval chief of staff Mike Willden told reporters on Tuesday.

If last session was focused on K-12 education, Sandoval’s staff says this session will also spread the wealth to colleges and universities. His budget calls for $115 million more for Nevada’s colleges, including funds for growing enrollment, more money for the UNLV School of Medicine and about $21 million to expand career and technical education program at the state’s community colleges.

“The bottom line is that an unprepared workforce inhibits our economic growth, and prevents too many of our citizens from obtaining the jobs they deserve," he said.

He’s doubling down on new funding initiatives targeted to at-risk groups like English Language Learners and children in poverty. On top of the funding approved last year, he hopes to add $42 million to bring the Zoom Schools program to 25 more schools, $30 million to add 30 new schools to the Victory Schools program and another $30 million to special education.

Scholarship programs also stand to gain from his budget. Sandoval aims to put $60 million toward Education Savings Accounts, an ambitious school choice program that would offer families more than $5,000 per child for private school tuition or other educational expenses. The Nevada Supreme Court ruled this fall that the program’s funding mechanism was unconstitutional, but greenlighted the broad concept of the program. More than 8,000 families already have applied for ESAs, but Willden said the money could not be found to fund $85 million to cover all of those families.

Legislative Democrats who said they want to work with the governor on his public education initiatives aren't happy about the proposal and sat, stoically, when he announced it while their Republican colleagues stood and applauded. .

“Dead on arrival,” Democratic Sen. Tick Segerblom declared after the speech. “Not unless there's a billion dollar tax increase that goes to public schools.

Republicans have less clout this year as the minority party but sounded a hopeful note about about a compromise that could revive the program they created last session.

“The governor put it in his budget and he’s proven over the years to be highly effective at getting things passed,” said Republican Senate Minority Leader Michael Roberson. “I think it will happen.”

A need-based college scholarship created in 2015 -- the Silver State Opportunity Grant -- will see funding doubled to $10 million in the upcoming biennium under Sandoval’s plan, and the budget calls for $20 million to continue the merit-based Millennium Scholarship in spite of its dwindling funding base.

Republican Sen. Ben Kieckhefer, co-creator of the opportunity grant, said it’s an important step forward even if $10 million is only a fraction of the need in the state.

“There’s a lot to be happy and excited about,” he said about the education initiatives.

 

Sandoval’s budget calls for $246 million to cover growth in the Medicaid rolls  and the rising cost of health care. Willden said the state is still concerned and uncertain about how congressional Republicans’ plans to repeal and replace Obamacare will play out in the state.

An estimated 400,000 Nevadans have health coverage through Medicaid or the state insurance exchange as a result of Obamacare, but details about what Congress might put in its place and when are sketchy.

While new levies like the Commerce Tax passed last session are broadly boosting state revenues, the budget does rely on some targeted maneuvers to make ends meet.

The Government Services Tax attached to vehicle registrations would be partially diverted into the general fund -- a redirection of revenue that’s been used in the past to balance the budget. Those tax revenues were intended for road improvements and were scheduled to flow completely to the Highway Fund starting in mid-2017, but Sandoval wants 25 percent of those funds, or about $40 million, pulled back to the general fund.

Democratic Sen. Kelvin Atkinson has long pushed for 100 percent of vehicle registration fees to flow into the highway fund and said he expected some discussion about Sandoval’s diversion plan but not necessarily a fight over it. He praised other ideas in Sandoval’s speech, including raises for state employees.

“Those types of things are great moves,” he said. “It’s one of the least controversial (speeches) we’ve had since I’ve been here so I think we can make some progress.