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Gov. Steve Sisolak waves prior to his first State of the State address on Jan. 17, 2019. (David Calvert/The Nevada Independent)

Democratic Gov. Steve Sisolak unveiled a slew of policy priorities and promised pay raises in his proposed two-year budget when he delivered his inaugural State of the State address, without calling for any new taxes.

Many of the proposals announced Wednesday — including plans for state employee and teacher raises — were originally in a balanced budget proposal submitted by former Republican Gov. Brian Sandoval at the end of his term. But two key changes are expected to give Sisolak about $138 million more to play with than Sandoval had projected.

Sisolak wants to cancel a proposed reduction in the payroll tax rate, and ensure a quarter of the state’s Government Services Tax (vehicle registration tax) revenue continues flowing to the general fund, rather than reverting to the highway fund.

Keeping the status quo on those taxes, plus higher collections from the state sales tax and other major revenue sources as the state economy has recovered, means Sisolak’s proposed two-year budget is $898 million larger than the state’s last two-year budget — equivalent to 11.2 percent growth.

Budget documents released by the governor’s office after his speech put an actual price tag on some of Sisolak’s ambitious proposals, including raising teacher and state worker pay by 3 percent, which would cost the state more than $240 million over two years. The state and the employees would also have to pay more toward their retirement, with contributions recommended to rise for both parties from 14.5 percent to 15.25 percent.

Sisolak’s proposed budget contains relatively few changes to the one left by Sandoval, which included a recommendation that lawmakers give state, university and school district employees a one-time cost of living pay raise of either 2 or 3 percent, as well as a 2 percent merit pay increase for teachers in each year of the budget.

The recommendations are by no means set in stone; state lawmakers will have the upcoming weeks and 120-day legislative session to analyze Sisolak’s proposals before sending back a final budget for the governor’s signature. But major changes to gubernatorial budgets are rare, and even more unlikely given Democratic control of both legislative chambers.

Here are some of the highlights:

Tax changes

Sisolak’s proposed budget calls for axing one of the lesser-known features of the 2015 tax increase package championed by Sandoval. Under that law, if revenue from the Modified Business Tax (payroll tax), Commerce Tax (levy on larger businesses) and an excise tax on banks exceeds projections from the state’s Economic Forum by 4 percent, the payroll tax rate must automatically decrease.

State tax officials announced in October that the tax rate was set to decrease from its current level of 1.475 percent to 1.378 percent for most businesses and from 2 percent to 1.853 percent for finance and mining industries in July 2019. Sisolak’s budget calls for keeping the higher rates in place, a move that would bring in about $48 million in each year of the two-year budget cycle.

The budget also calls for keeping 25 percent of the Governmental Services Tax in the state’s general fund, delaying a plan to start sending all tax revenue from the vehicle registration tax into the state’s Highway Fund starting in 2019. Sisolak’s change is estimated to keep $21 million per year in the state’s main budget account.

The governor is also following Sandoval’s recommendation to divert funds from a 10 percent excise tax on recreational marijuana sales away from the state’s Rainy Day Fund toward school safety programs and the Millenium Scholarship, the scholarship program offered to Nevada high school students. The budget includes $33 million over two years for the scholarship program, and $76 million over two years for school safety, including $25 million for improved physical school security, $10 million for 70 new school police officers and $13 million for behavioral health workers in schools.

The budget also calls for diverting quarterly slot taxes to the state’s general fund, worth about $1.3 million in each year of the budget.

Sisolak is sticking to Sandoval’s plan of transferring 1 percent of state revenue into the state’s Rainy Day Fund every year, which should leave the state’s reserve budget account with $415 million by the end of the 2021 fiscal year — or about 21 percent of the most recent two-year state budget.

Education

Sisolak’s budget boosts state funding to K-12 education by $156 million in the coming biennium relative to the current two-year budget. When local funding is counted, the budget is up $375 million from the current period.

That increase includes a $242 million plan to raise teacher salaries by 3 percent, or $89.4 million in the 2020 fiscal year and $91.2 million in the 2021 fiscal year.

On top of that, he’s calling for a 2 percent merit salary increase in both years of the biennium — a move that will cost about $169 million.

The state’s basic per-student support is rising from $5,897 to $6,052 in the first year of the coming biennium and $6,116 in the second. Natural growth in the number of K-12 students is expected to cost the state $127 million over two years.

Sisolak’s budget takes Sandoval’s recommendation to expand “weights” — an extra $1,200 for each student performing in the bottom quartile on proficiency exams. Increasing the payout from $36 million to $70 million each year means weights will apply to an additional 28,281 students and will cover students in any school, not just those in low-performing schools.

The governor also wants to expand an account that reimburses teachers for out-of-pocket classroom expenses. Nevada currently allocates $2.5 million a year for such school supplies, while Sisolak wants to bump that up to $4.5 million. If all teachers take advantage of it, the account averages out to $180 per teacher.

He also wants the state to pay $32.5 million to support new preschool slots as a federal grant that launched them evaporates and add another million dollars in each year of the budget for career and technical education, up to $13.5 million per year.

Sisolak plans to keep up Sandoval’s “categorical” education investments at the levels Sandoval recommended:

  • $99 million for Zoom Schools over two years.
  • $50 million for Victory Schools over two years
  • $63 million for Read by Grade 3 initiatives over two years, following Sandoval’s recommendation to increase funding to the program by $11.2 million per year.

Of note: Sisolak’s budget makes no mention of Opportunity Scholarships, a state program allowing private companies contribute to a private school scholarship fund for low-income students in return for tax credits. Lawmakers in 2017 approved a one-time $20 million increase in available tax credits for the program, and school choice advocates have already begun pushing for the program to be reauthorized so students can continue uninterrupted at their private schools.

Higher education

Sisolak is proposing $22 million per year to cover growing enrollment in the Nevada System of Higher Education.

To add more students to the UNLV Medical School, he proposes adding another $14 million over existing levels in the coming biennium.

The governor also plans to provide more than $40 million over two years to support each institution’s “capacity building projects,” such as UNR’s endeavor to spur Nevada’s advanced manufacturing sector and UNLV’s initiative to bring more health-care jobs to the state.

Sisolak also wants to continue funding the need-based Silver State Opportunity Grant program to the tune of $10 million for the biennium and allocate $4.5 million to the Nevada Promise Scholarship, which helps cover community college costs for Nevada students. Sandoval had originally recommended $3.5 million for the Promise Scholarship.

Health-Care

The state’s costs for expanding Medicaid are going up as the program matures and the federal match diminishes. Nevada officials knew when they decided to opt in to expanded Medicaid in 2012 that they would eventually bear more of the burden, but they say it’s worth the cost because the federal government is still paying the lion’s share of Medicaid expenses.

Nevada will need to pay another $114 million over two years to cover its greater responsibility for Medicaid payments. On top of that, Sisolak’s administration projects it will need $107 million for the biennium to cover a growing number of people enrolling in Medicaid.

Mandatory rate increases for prescriptions and services such as hospice and federally qualified health centers will cost the state $70 million over two years.

Sisolak highlighted some new health-care initiatives in his State of the State address, including a plan to reimburse hospitals more for neonatal and pediatric intensive care provided to Medicaid patients. Those increases are expected to cost an extra $10 million in state funds over two years, but attract a federal match of about $18 million.

He also wants to raise the pay of people who provide Supported Living Arrangements, or home-based help to people with disabilities. He’s calling for the hourly rate to increase gradually from $20.48 to $23 an hour, which will cost the state an estimated $12 million over two years, but also bring in about $25 million in federal matching funds each biennium.

He’s making a similar effort to raise the pay of personal care attendants, who help the elderly or people with disabilities with feeding, cleaning and going to the bathroom as a way to keep them out of an institution. Medicaid would reimburse $17.56 an hour, up from $17 an hour, under his plan. That would cost the state about $2.5 million over two years and bring in $4 million in matching federal funds.

Sisolak is also proposing to add $7 million to the state’s Autism Treatment and Assistance program, addressing the current wait list of around 239 families.

His budget also increases funding for Las Vegas Mobile Crisis Units, which respond to community calls to assist homeless people or those suffering from mental illness, so they can operate 24 hours a day. Expanding that program is expected to cost $360,000 over the two years of the budgeting period.

The budget also calls for $10.9 million over two years in premium fee revenue for the Silver State Health Exchange to contract for a state-run health insurance exchange, moving away from the one provided to states by the federal government.

Criminal Justice

Sisolak took Sandoval’s recommendation for 97 new positions within the Division of Child and Family Services at juvenile justice facilities to comply with the Prison Rape Elimination Act (PREA), a 2003 federal law intended to cut down on sexual assaults and rape in correctional facilities.

The state was certified as compliant with PREA in 2017, but noted that more security staff were needed to adhere to staffing ratios and other PREA requirements. That would cost an estimated $11 million over two years.

Sisolak plans to increase adult education program funding from $18.2 million to $19.2 million a year, which will expand programming in the community and in correctional centers and add capacity for 1,200 more students. The governor also wants to expand a pilot prison education program that’s operating through the College of Southern Nevada, roping Truckee Meadows Community College and Western Nevada College into the initiative at a cost of $875,000.

The governor called for another $5.2 million to the Division of Parole and Probation to support  27 new staff members. Sisolak is also taking Sandoval’s recommendation for 52 new positions within the Department of Corrections (or $5.5 million) to help with transporting inmates out of the prisons and supervising them when they receive medical services in regular hospitals. An additional 11 positions within the department are aimed at reducing recidivism and supporting mental health and substance abuse programs.

Finally, Sisolak supports a 5 percent increase in pay for workers at Ely-area correctional facilities to help with recruiting and retaining employees at the remote sites.

Housing

Sisolak announced $10 million in tax credits for affordable housing developing, but the credits are not scheduled to be taken until the 2021 fiscal year.

Sisolak is also proposing using Medicaid funds for “tenancy support services” for people who are homeless. Those supports could include everything from assistance filling out rent applications and applying for subsidies to help moving and education about proper practices to avoid eviction.

The state would pursue a Medicaid waiver to implement the tenancy supports. General funds of about $2 million over two years are projected to bring in a federal match of about $8 million.

Construction

Sisolak’s proposed construction budget includes $280.9 million in state funds for 90 total projects, including 15 construction projects and 11 planning projects.

As he announced in his State of the State address, Sisolak’s budget calls for construction of an education building at Nevada State College, at a cost of $61.8 million, and a Health and Science building at the College of Southern Nevada, at a cost of $76.7 million.

Other planned construction includes security perimeter upgrades at Three Lakes Valley Camp north of Las Vegas, expanding the Southern Nevada Veterans Cemetery, completing the new DMV facility in south Reno and a planning project at the Northern Nevada Correctional Center.

The budget also calls for planning a new state building in Southern Nevada, which comes amid complaints and litigation filed over black mold in the Grant Sawyer State Office building — which caused Secretary of State Barbara Cegavske to move her department’s offices out of the building.

Other Spending:

Other spending priorities proposed by Sandoval and continued by Sisolak include:

  • Increasing problem gaming program funding from $1.3 million to $4.6 million per year, which includes prevention, treatment and workforce development related to gambling addictions. The increased funding comes from a 0.6 percent diversion of the state’s gaming percentage tax.
  • Moving the state Athletic Commission into the governor’s office, away from the Department of Business and Industry
  • Allocating $7.5 million each year to the Interim Finance Committee to help state agencies make up lost funds as part of the implementation of Marsy’s Law. The law requires offenders pay restitution to victims first before paying court or administrative fees — a change that could make it difficult for agencies to collect fees from offenders and thus destabilize their budgets.

Sisolak has also proposed several new budgetary items, including:

  • An Office for New Americans, comprised of an administrator and one support staffer, at a cost of $184,000 in the 2020 fiscal year and $205,000 in the 2021 fiscal year
  • An additional $1.5 million to the Division of Forestry for fire suppression
  • $500,000 in each year of the budget to the Office of Military to operate a “Youth Challenge” program, to place high school dropouts between 16 and 18 in a residential rehabilitation program
  • $3 million per year to “support enhanced family planning services statewide”
  • Additional veterans services officers for Fallon and Pahrump, where there are a combined 5,532 “underserved” veterans and even more dependents who rely on those veterans. Sisolak’s team says veterans in these areas may have trouble learning about or accessing benefits and services, leaving up to $114 million a year on the table.
  • More than $600,000 over two years to bolster efforts to license foster families in rural counties
  • Approximately $823,000 to increase funding for the Meals on Wheels program, which the administration estimates will eliminate the program’s current wait list and provide meals to an estimated 8,700 seniors
  • The budget also contains $1.74 million over two years to create the Office of Indigent Defense, which will mainly provide legal services to rural counties. The ACLU has sued the state over its poor rural indigent defense programs, and a recent study found “widespread failings in how 15 of Nevada’s 17 counties provide court-appointed attorneys.”

Several of Sisolak’s budget priorities will be one-time spending for certain state agencies paid out of a budget surplus returned at the end of the fiscal year. Many of the recommendations were initially made by Sandoval, and include:

  • $4.2 million for equipment
  • $7.4 million in deferred maintenance, including $2.6 million for the Department of Conservation and Natural Resources and $2.1 for Conservation Camps
  • $22.3 million for vehicle and helicopter upgrades, including $4.5 million for a replacement Division of Forestry helicopter, $5.3 million for new state vehicles and $5.1 million for replacement state vehicles
  • $102.3 million for Information Technology projects, including $40.5 million for a new state accounting and human resources system called Smart 21, nearly $17 million for a replacement Child Support Enforcement System and $11.5 million for a replacement Nevada Criminal Justice Information System
  • $5 million in “activities” related to the 2020 Census
  • $5 million for a Las Vegas Museum of Art. Lawmakers appropriated $1 million for a future Las Vegas art museum in 2017
  • $8.6 million to the Washoe County School District to compensate for the state’s improper accounting of students who enrolled in online schools rather than attending the school for which they are zoned
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