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Sisolak proposes $8.68 billion budget restoring cuts to Medicaid, other state programs

Riley Snyder
Riley Snyder
Megan Messerly
Megan Messerly
Michelle Rindels
Michelle Rindels
Tabitha Mueller
Tabitha Mueller
State Government
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Governor Steve Sisolak during a press conference

Gov. Steve Sisolak is proposing a two-year budget that reverses cuts to Medicaid and other key K-12 programs made last summer, after financial projections left the state at what officials are calling an “inconsistent, if not positive, ending point” for tax revenue.

The proposal, which was released Monday evening and comes a day before the governor’s biennial State of the State address, sets the state budget at $8.68 billion over the next two years, as revenues are about $500 million less than what was allocated during the last two-year budget cycle. The state’s tourism-dependent economy remains battered by the COVID-19 pandemic but economists are hopeful that a vaccine will usher in recovery.

State officials, in a press briefing ahead of the proposal’s release, said the budget reflects a more positive view of the state’s forecast than the worst-case scenario projections made last year as the governor and lawmakers were forced to reengineer their budget because of economic fallout from the COVID-19 pandemic. Still, it represents a roughly 2 percent cut to the budget approved during the 2019 legislative session.

Notably, the proposed budget includes a restoration of some, though not all, of the cuts made during the 2020 special session, where lawmakers slashed nearly a billion dollars from the previously approved budgets as the state faced massive shortfalls in key revenue streams such as the gaming tax and sales tax. 

“I am committed to remaining flexible and working closely with the Legislature in this unprecedented and evolving fiscal situation,” Sisolak said in a statement accompanying the release of his budget. “Throughout this dynamic process, the priorities will remain the same: recovering from this crisis and creating jobs, educating our kids, promoting justice and equality, and most importantly now, protecting the health of our people.”

Officials said their task of balancing the state’s budget was aided by passage of another federal stimulus package near the end of 2020 that in part extended the deadline for use of funds in the original $2.2 trillion CARES Act. That additional federal funding, they said, gave them additional flexibility even as tourism remains anemic and tax revenues continue to suffer through the pandemic.

But the budget proposal still needs to survive a thorough review by state lawmakers through the upcoming 120-day legislative session, plus additional guardrails that may be imposed by the state’s Economic Forum, the five-member economist panel that will meet in May to give lawmakers a final tax revenue projection that must inform the budget.

Michelle White, the governor’s chief of staff, said during a call with reporters on Monday that the state’s economic situation is still extremely fluid given uncertainty over the COVID-19 virus and vaccine rollout and that the budget should be viewed more as a snapshot in time based on what is known now with portions likely to change in the future.

“We are feeling positive but knew that it would be the most responsible thing to use the information we have in front of us, just like Nevada families are doing right now,” she said. 

White also said there were “no changes” in proposed taxes included in the recommended budget, but stressed that the state’s future unknown financial health could potentially lead to changes.

“The governor is going to be working with the Legislature to see if there's any augmentation or refinements that need to be made as we go forward,” she said.

The state’s payroll tax rate is currently being challenged in court by Senate Republicans.

In addition to reversing a 6 percent Medicaid reimbursement rate cut, the budget also begins the process of implementing the long-awaited revision to the state’s 53-year-old K-12 education funding formula. 

The budget calls for a “phased-in” approach to the new funding formula recommendations developed over the past two years, with the first phase being implemented between 2021 and 2023 modifying the distribution of state revenue, and the full implementation happening between 2023 and 2025 with changes in distribution to state and local revenue.

Budget officials said the plan would hold school districts harmless and not see any district receive less funding until the new funding formula is fully implemented.

The budget additionally calls for emptying out about $97.5 million from the state’s “Rainy Day” emergency fund to the 2022-23 fiscal year to “mitigate budget reductions.”

In a statement, Democratic Senate Majority Leader Nicole Cannizzaro said the budget proposal recognizes the "stark reality of the on-going COVID-19 emergency while also laying the groundwork for Nevada’s economic recovery."

Here’s a look at highlights in the governor’s budget proposal:

Health and Human Services

The governor’s proposed budget includes $15.2 billion in combined state and federal funding for the Department of Health and Human Services — $2.6 billion more than is being spent in the current biennium.

That includes a $1.6 billion increase to the Medicaid budget, which will swell to $10.2 billion in the upcoming biennium to cover an 18.7 percent increase in the public health insurance program’s caseload. The ongoing coronavirus pandemic has left hundreds of thousands of people unemployed and increasingly reliant on the state to receive their health care.

As of November, more than 761,000 people — or one in four Nevadans — were enrolled in Medicaid, 120,000 more people than had been projected when the Legislature approved its budget for fiscal year 2021 in 2019. State officials anticipate that more than 778,000 people will be enrolled in Medicaid by the end of the upcoming biennium, a 2.2 percent increase over the current caseload.

The state of Nevada will, however, be responsible for footing only a portion of that Medicaid bill, as the federal government is responsible for paying the lion’s share of the public health insurance program through federal matching funds. Nevada, specifically, will spend an additional $153.5 million in fiscal year 2022 and $146.9 million in fiscal year 2023 to account for Medicaid caseload growth.

The governor is also, notably, recommending restoring the 6 percent cuts the Legislature made to the state’s Medicaid program during a special session this summer and increases to the neonatal ICU rate approved during the 2019 legislative session. That rate will increase from $1,487 to $1,858, an increase of 25 percent.

“This is obviously going to be incredibly impactful to families and providers throughout Nevada, and it's something that I know is a big priority for the governor and (DHHS) Director [Richard] Whitley, understanding the impact that this would have,” White said.

The governor’s recommended budget also includes $3.7 million to reduce waitlists for the Autism Treatment Assistance and Home and Community Based Care Programs, as well as $863,000 in the Assistance to Aged and Blind budget for caseload growth of about 4.4 percent. The budget will also account for caseload growth for programs that serve children with disabilities, people with intellectual disabilities, adults with physical disabilities and seniors.

Funding for state family planning, a budget account that was first created during the 2017 legislative session, will remain flat under the new budget.

The budget will also reflect a structural reorganization within the Department of Health and Human Services — moving the Office of Analytics from the Division of Public and Behavioral Health to the Director’s Office. The office is responsible for maintaining multiple data dashboards, including the state’s comprehensive COVID-19 dashboard.

“The work that they have done in the Office of Analytics over the past 11 months, starting from nothing and building up, has been incredible and a great resource and they are building and building all that data every day,” White said, “and certainly, point out the growing need for things like this in the state of Nevada and why we need to invest to these things.”

The budget does, however, recommend deferring start dates for positions in both the Division of Public and Behavioral Health and the Division of Welfare and Supportive Services, within the Department of Health and Human Services. White noted that those deferrals will allow for cost savings but “may increase wait times or cause delays for Nevadans seeking assistance.”

“We are still in a crisis,” White said. “This is still a state of emergency and, again, this budget reflects the very precarious fiscal situation our state finds itself in.”

Education

K-12 education is expected to take a hit in the coming biennium, but the budget anticipates Nevada will receive $450 million in federal aid from the stimulus bill passed in late December to compensate for “learning loss” and technology infrastructure.

In all, the state expects to spend $4.9 billion in state funds in the coming biennium, and $6.63 billion when local and state funds are added together.

But guidance on how the state can use the federal funds is not yet out and therefore not included in the budget proposal.

The budget reflects how the pandemic has thwarted plans to modernize Nevada’s half century-old education funding and move to a weighted model called the “Pupil-Centered Funding Plan” (PCFP). A commission has been meeting in the interim trying to work out the details of the model.

“The Governor’s Executive Budget recognizes the importance of modernizing education funding formulas while addressing the realities of the economic landscape by proposing a phased approach to PCFP implementation,” the budget document states. “This approach will ensure equity and transparency while allowing flexibilities to accommodate the current economic circumstances.”

Sisolak recommends implementing the first phase of the plan in the coming biennium, using only revenues that are currently distributed by the state: per-pupil state allotments and “categorical funds.” A second phase of implementation will kick in the following biennium.

The governor’s office says it will be holding districts harmless, meaning no district will receive less money under the new formula than they did in the fiscal year that ended in mid-2020.

The state’s main education funding pool, called the Distributive School Account, includes enough money for a 2 percent merit salary increase for each of the next two years, at a cost of $59.1 million in the coming fiscal year and $119.5 million in the second.

Enrollment numbers in the state’s public schools are expected to be nearly flat. The incremental costs of the growth are expected to be $4.7 million in fiscal year 2022 and $11.8 million in fiscal year 2023.

The growing cost of health insurance for K-12 education employees is a greater expense. For the first year of the biennium, medical inflation is expected to be an added expense of $11.2 million in the first year of the biennium and $23.6 million in the second compared to current levels.

Sisolak’s proposal melts a number of “categorical” programs that were program-specific into the basic per-pupil funding amount that the state provides to schools. The programs that will no longer be standalone initiatives with restricted funding include Class Size Reduction, Read by Grade 3, Nevada Ready 21 (technology programs), Financial Literacy, School Safety, Social  Worker/Mental Health providers, School Resource Officers, Advanced Placement Exams, and College and Career Readiness.

Other streams of funding that have been helping serve students with special needs for the last five to seven years will still exist in some form. Zoom Schools, an initiative created in 2013 that serves more than 17,000 English language learners, will transform into a “weight” where an extra boost of funding follows students who fit in that category rather than flowing to schools with a high concentration of English learners, as it has under the previous system. 

A total of $49.5 million each year will support English learners, which is virtually the same level that the Legislature approved in 2019 for the current biennium.

Victory Schools, which supported schools in the state’s poorest ZIP codes, will also transfer into a “weight” so it follows students from low-income households rather than applies to entire schools. Sisolak’s budget calls for $23.1 million each year for that purpose — a slight increase over current funding levels.

And the “New Nevada Plan” — $69.9 million per year for students within the lowest quartile of achievement levels — is being restored after being canceled through the special session. It will also exist as a “weight.”

NSHE

Similar to K-12 education, the Nevada System of Higher Education (NSHE)’s budget is also facing a funding cut of about $80 million, but officials expect to receive more than $100 million in federal aid to help address lost revenue, distance learning, financial aid and other expenditures. The state is still waiting on guidance from the federal government for specifics on how to use the funds.

The proposed budget includes $24 million per year for student enrollment growth and $4.4 million each year to fund the Silver State Opportunity Grant, a need-based financial aid program for low-income students at NSHE community and state colleges.

About $11.2 million of the NSHE budget is dedicated to various capacity building projects including expanding existing programs, workforce training and certification courses. The governor’s budget also includes $73.6 million for a new engineering building at UNLV and $6.3 million for a welding lab at Great Basin College in Elko.

Though the Graduate Medical Education does not fall under the NSHE’s umbrella, the budget recommends a reduction in state funds from $10 million to $8.5 million. That program supports residency programs for doctors in training.

The Knowledge Fund, dedicated to commercializing the research coming out of Nevada’s higher education institutions, is also set to increase by $2.5 million to $5 million over the biennium. The goal of increasing the Knowledge Fund is to help diversity the state’s economy and help the state’s businesses, officials wrote; its projects have included turning water technology research from the Desert Research Institute into business opportunities.

Public safety and corrections

The Department of Corrections’ budget, meanwhile, will reflect a small decrease in caseload from 12,395 to 12,349. State officials expect that the number of people in the state’s custody will continue to decrease as a result of criminal justice reforms passed during the 2019 legislative session that seek to reduce the prison population.

The governor’s proposed budget also will restore the “Going Home Prepared” program to help inmates plan where they will live upon their release and offer other supportive services. It also accounts for the implementation of a modified supervision model for low-risk offenders that will create cost savings for the department.

Employee compensation and benefits

State worker furloughs approved by the Legislature during a summer special session that were implemented Jan. 1 will not be continued in either fiscal year of the governor's budget, meaning they'll come to an end in June 2021. As it stands, state employees must take six furlough days a year.

State workers will also receive expanded coverage options through the Public Employees’ Benefits Program in the upcoming biennium, including a new, low-deductible, co-pay based option. 

Additionally, the governor’s proposed budget calls for higher contributions to the Public Employees’ Retirement System (PERS). Regular employee- and employer-paid rates are recommended to increase from 15.25 percent to 15.5 percent. Police and fire employee and employer rates are recommended to increase from 22 percent to 22.75 percent.

One-shot expenditures 

The governor’s budget proposes setting aside $226.5 million in general fund dollars for one-shot and supplemental expenditures in fiscal year 2021, which runs through this June. Funds for the expenditures come from revenues that were higher than original projections and include federal reimbursements to the state.

The proposed budget calls for immediate approval of the funds to support businesses, health care workers, scholarships, maintenance projects and technology needs.

The budget proposes allocating $25 million toward the construction of UNLV’s medical school complex — funding that was slashed during a special session last summer. It also recommends spending $6 million for testing and treating hepatitis C among the prison population. 

It also sets aside $44 million for the merit-based Millennium Scholarship and $7.3 million for the Nevada Promise Scholarship, a last-dollar award that aims to make community college effectively free. Though assistance for small businesses affected by the pandemic is included in one-shot expenditures; no set dollar amount is noted and the governor’s staff said more details on those initiatives would be discussed in Tuesday’s State of the State speech.

Deferred maintenance projects are set to receive $2.3 million — $1.2 million of which will go to the Department of Health and Human Services, $530,000 to National Guard facilities and $667,000 to the Division of Forestry. 

In addition to $3.9 million for new equipment, including computer hardware, printers, and medical and dental equipment, the governor is also proposing dedicating $78.7 million to information technology projects — specifically, $23.2 million for a new human resources and financial system, $17.4 million for child support enforcement system and $18.6 million to replace the state’s criminal justice information system.

Capital Improvement Projects and other projects

The proposed budget calls for about $415.9 million in the Capital Improvement Projects budget, the account dedicated to state buildings, maintenance and other building expenses.

The budget includes 91 “CIP” projects, including 13 construction projects. Those include:

  • An addition to the Washoe County Training Center for the Nevada National Guard
  • Rehabilitation of the Hobart Reservoir Dam
  • A Southern Nevada Fleet Services Maintenance Building
  • Rehabilitation of the Cave Creek Dam near Ely
  • Aircraft storage hangar and sitework at the Harry Reid Training Center in Stead
  • Initial funding for programming and conceptual design of a state forensic crime laboratory

The proposed budget also includes $342 million in what’s called supplemental appropriations, or dollars required to meet obligations for the current fiscal year. The bulk of those appropriations ($331 million) will go to K-12 education, along with $10 million for fire suppression and $500,000 to the state prison system.

The state had to kick in more money for schools to account for local revenues that took a major hit. Nevada’s education funding operates like a see-saw, with the state putting more funding toward schools when local revenue streams suffer and vice versa.

The budget also makes some administrative changes to departmental organization for state government, including:

  • Moving the Division of Emergency Management from the Department of Public Safety to the Office of the Military
  • Moving the Office of Workforce Innovation from the Governor’s Office to the Department of Employment, Training and Rehabilitation
  • Transferring the Western Interstate Compact for Higher Education from the Governor’s Office to NSHE

Other funding included in the budget proposal includes dollars to fund an annual statewide inventory of greenhouse gas emissions, and dollars to support additional positions in the state Cannabis Compliance Board. The budget also includes $75 million dedicated to the State Infrastructure Bank, an agency created in 2017 to provide matching loans for infrastructure projects.

Updated at 7:23 p.m. on Jan. 18, 2021, to include a statement from Senate Majority Leader Nicole Cannizzaro. Updated at 10:55 a.m. on Jan. 19, 2021 to remove erroneous information about the state Modified Business Tax rate, and again at 11:56 a.m. to correct information about state worker furloughs.

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