Turning Point

Everyone knew the 2003 Nevada Legislature would be about money. With state government income sliding further and further into the red in the months leading up to the legislative session, and with the inherent weaknesses in the state’s revenue structure becoming more apparent, money was the principal subject on the minds of most players.

That preoccupation may explain why, when Gov. Kenny Guinn announced a plan that went well beyond merely balancing the budget, most people missed the significance of the governor’s program.

The speech seemed unlike the previous 14 State of the State governors’ messages to the Legislature that I had heard. Instead of sounding retreat, in keeping with an economic downturn, Guinn was sounding charge.

The news coverage in the days after Guinn’s message to the Legislature focused mostly on revenue and scorecard issues: How much money would this tax hike produce? Would the governor be able to win the supermajorities required for passage of the tax hikes? Can the governor hold his own Republicans in line? Even stories dealing with the human impact of Guinn’s program did not mention the sharp break it represents from the state’s post-World War II priorities.

Still, with reporters focused mostly on legislative-process stories, I was surprised when not a single news story dealt with Guinn’s underlying message in the speech: Nevada needs to change its ways, to return to the days when the state was known for caring for its most vulnerable citizens and to put an end to Nevada’s serving as a bad example to the nation. The state needs to become a different Nevada.

In a state of newcomers (fewer than 20 of every 100 Nevadans are native born), there is little institutional memory and little knowledge of state history. What most people know is that there are always lists coming out that show Nevada at the wrong end—teen pregnancy, prenatal care, voter turnout, suicide by senior citizens, suicide generally, tobacco use, tobacco-related death, alcohol- and drug-related death, firearms death, children’s health, health generally, health insurance coverage, homicide against women, rate of working people in poverty, toxic releases, child immunizations, reading skills, dropout rate (on both high-school and college levels), infectious disease and crimes of all types.

Reno Gazette-Journal columnist Cory Farley once wrote that a friend told him, “We’re high in everything you want to be low in and low in everything you want to be high in.” In most of these indices, Nevada usually ranks near states like Louisiana and Mississippi.

It was not always that way. Political scientist Elmer Rusco has written that, prior to about 1935, Nevada was one of the most generous states in social programs and in caring for its most vulnerable citizens—senior citizens, the blind and needy families—at a time when the state’s populace was not particularly well off.

But by the 1950s, Nevada’s reputation as a backwater was well-established. In 1955, Colliers magazine, then a leading national publication on the order of Life or the Saturday Evening Post, ran an article titled “The Sorry State of Nevada.” The piece described a state with the nation’s third-highest income level, yet among the highest rates of crime, suicide, infant mortality and tuberculosis and the most overcrowded prisons and schools. Nevada’s mental-health clinics weren’t overcrowded because, the magazine said, it didn’t have any—and only one understaffed mental hospital.

Forty-six years later, in 2001, the New York Times ran a front page story, “Bleak Statistics Tarnish Nevada’s Glitter,” that echoed much of the Colliers indictment and reported little progress: “Pick almost any index of social well being, and Nevada ranks at or near the bottom of the 50 states, although it ranks near the top in personal wealth.”

Such attention often draws defensiveness and denial from local officials, who inevitably blame the state’s high number of transient citizens. (Scholars like James Hulse say there is some merit to the argument, but the view is wildly overstated and Nevada would still be a backward state even if transience were eliminated as a factor.) What is certain is that the reputation has hampered the state’s ability to diversify its economy beyond one dominant industry. In October 2000, the Wall Street Journal ran a scathing report flunking the state in economic development. Quality-of-life factors are high among the reasons cited by CEOs for not choosing Nevada as a business location.

For decades, Nevada has been the fastest growing state in the nation, and that growth has been a mixed blessing. Among the most sizable demographic groups moving into the state are senior citizens and young married couples with children. Both groups are attracted by Nevada’s low-tax climate. But the groups are also the two heaviest users of expensive public services. And one of these groups—the senior citizens—often provides the margin of defeat for school bonds intended to serve the second group.

Government service overload is not the only consequence of Nevada’s new residents. Nevada’s image as a rebel among the states exacerbates its poor quality of life. In its struggle for new business, Nevada has often offended the nation’s sensibilities, from the time it made prizefighting legal in 1897, through its quickie divorce laws, to its later legalization of numerous things that were illegal elsewhere—gambling, small-county prostitution, acupuncture, a supposed cancer cure named laetrile and even an alleged youth drug called gerovital.

This has led to what might be called the Claude Dallas syndrome—folks from the East who move to Nevada and live on society’s edge under the impression that this is a place where rules don’t apply, with an attendant effect on the state’s crime rate. (Dallas was an Easterner who came west to Nevada and Idaho, posing as a mountain man and cowboy and eventually killing two game wardens who interfered with his poaching.)

Accompanying this development was a change in approach toward crime by state lawmakers. Beginning in the 1960s, state lawmakers took a steadily more punitive approach, making more activities illegal and thus creating more crimes, increasing the length of sentences and making parole more difficult to achieve. Nevada’s prisons bulged, and more were built. The U.S. Justice Department eventually put Nevada in third place among the states in the percentage of taxpayer dollars dedicated to law enforcement. Nevada Supreme Court Justice Charles Springer said Nevada had the highest incarceration rate in world history.

Nevada’s poor showing in indices of human services has been driven less by a lack of funding than by how it uses the available funding. The Nevada Legislature has had a practice of not frontloading social programs, often rejecting relatively small funding for various social problems, only to find itself forced to pony up even more money to pay for the consequences of shortchanging the funding in the first place. For example, when Nevada mothers do not have access to prenatal care, the cost and consequences of providing services to low-birthweight babies are substantially greater.

Lack of prescription drug coverage causes major health problems farther down the road. Former Nevada Attorney General Frankie Sue Del Papa called this “spending dollars to save dimes.” Nevada now has gargantuan and expensive social problems in part because it failed to make smaller investments to prevent them. In business, this would not be considered cost effective.

At an event last week honoring Reno’s Committee to Aid Abused Women on its 25th anniversary, former Lt. Gov. Sue Wagner recalled attending a 1980s national conference where other state representatives showed interest in Nevada’s pioneering arrangement for funding abuse programs from marriage license fees.

“We felt lucky to be able to show Nevada had done something right,” she said.

Nevada’s problems were aggravated by the 1981 revenue change known as the Tax Shift. Enacted by the Democratic Legislature at the request of Gov. Robert List, the state government shifted from reliance on property taxes to sales taxes. It was one of the great blunders of Nevada fiscal history, tying the state tax structure to the sales tax just in time to ride the shrinking goods-based economy (which generated sales tax) to today’s growing information- and service-based economy (which doesn’t). It was a recipe for a budget disaster. Even the ‘81 Legislature had misgivings—there was an attempt to repeal the shift before the legislative session ended, but it failed in the face of List’s veto threat.

At her last session in 1999, the late Assemblymember Jan Evans of Sparks bewailed the way the state was “placing high reliance on sales tax. That means durable goods when we know in the economy the real growth is not on durable goods but on services.” After the shift, Nevada (whose casino economy was once described as “recession proof") was wracked with boom-and-bust cycles, whipsawed by three crippling recessions in 30 years.

As the years passed, the sales tax (raised again in 1997) gave Nevada a growing share of a shrinking revenue source, creating a downward spiral in state government income. The sales tax also fluctuated with the economy. When needed most, in hard times, it dwindled. Democrats often criticized this basic instability, but no Democratic governor ever offered significant reform. Instead, they merely tinkered with the tax structure: Gov. Richard Bryan won a small increase in property taxes in 1983, and Gov. Robert Miller extracted more money from mining in 1989.

In the 1990s, Nevada’s terrific population growth was accompanied by a new and threatening development—casino gambling in California. Formerly the principal source of Nevada casino customers, California went into business for itself. After 71 years of legal gambling, Nevada has risen to gross gambling revenues of $10 billion. California, in a tenth of that time, has gross revenues of $5 billion and is expected to double that figure quickly and then move far beyond it. After a gradual start, California gambling is now on fire. Ever larger and more sophisticated resorts are being built, and mega resorts are not far off.

In 1999, the first Republican governor since List took office. Guinn became governor with the backing of powerful lobbyists who had “anointed” him as the candidate of the business establishment and who had also frozen out other candidates to ease Guinn’s way. Few expected him to rock the boat as governor. During his first four years, he presided over a cautious, traditional administration, biding his time and, apparently, planning carefully. He also launched a task force to conduct a thorough examination of the state’s faltering tax structure.

When Guinn began his second term with his message to the Legislature on Jan. 20, his language in this recession was the language of growth, which in itself was a break with the past. During the 1981 recession, Gov. List cut state spending to keep the budget in balance. Many of those programs never regained the lost ground. In the 1991-92 recession, Gov. Miller slashed programs that, again, were never made whole when better times came. One of the consequences of those approaches was that Nevada fell further behind on all those indices of social well being.

Guinn, in his speech to state lawmakers, did not do that. He said things like this:

“Directly ahead of us are two roads to the future. Tonight is the time for choosing our path. One choice may be easy to make but hard to endure. It is a road that is short-sighted and paved with irresponsibility. The legacy of once again running from our duty as leaders will produce a devastating effect on every single Nevadan. To me, this is not a choice worthy of our citizens. It is not a choice for leaders, but a choice of political cowardice. Thankfully, there is another road, a road that will meet the needs of a rapidly growing state, and one that will put Nevada on course to a brighter future. I am talking about a future where we provide for higher student achievement, where more students go to college … where our children, senior citizens, and those less fortunate live safer, healthier lives. This road will allow us to develop new businesses, grow our economy, create new jobs and build a more competitive Nevada. This is my vision of the future, and Nevadans deserve no less.” (Lawmakers bristled at the “cowardice” comment, but Guinn said he was referring to himself, not them.)

List often said, “When Nevada families and businesses must cut back, government should do the same.” Miller echoed the sentiment. Guinn is trying something that hasn’t been done before—expanding state programs in the teeth of a business downturn. If he succeeds, at a time when other states are cutting, Nevada will likely be pulled out of the bottom of many of those lists in one dramatic stroke.

To pay for this radical shift in Nevada’s priorities and policies—and self-image—Guinn, acting on the task force findings, proposed what one newspaper called a “breathtaking” array of taxes and tax hikes to generate $980 million. (He also talked about equity in taxation, another new approach. Past governors have tended to talk about the administrative practicality of taxes rather than their fairness.) The money would be used to keep existing programs in balance and then, once that was done, to expand dramatically state spending in a number of areas—education, mental health, drug treatment, prescription drug coverage for senior citizens, road construction. It is a daring break with the Nevada that landed at the bottom of all those lists.

In the days after the speech, when I could find no coverage of this aspect of Guinn’s program, I began to wonder whether I had read something that wasn’t there into his words. So I checked with him. Was there, I asked, a subtext to his message to the Legislature?

“Absolutely,” he said. “That was a very important part of the message that I was sending, that—look, what kind of a Nevada do we want to live in starting tomorrow and next year and for the future 10, 15 years that we can plan for? We have to change.”

Guinn said his talk of the state of the state being “fragile” referred not just to Nevada’s economy, but also to its people.

“I’ve moved millions of dollars from the prison system to put into health care because we’ve been the 50th state on health care for our seniors and our children, the frailest and the oldest and the most dependent,” he said. “And I look at our university, I look at K through 12 systems, we’re so far below the national average. So we have to start making some changes, a little bit at a time.”

That last comment is hardly the case. Guinn is not taking small steps. He has rejected incrementalism. His program could be summed up in Robert Kennedy’s dictum, “We must grab the web whole.” Guinn is proposing nothing less than a different kind of Nevada.

Guinn’s approach also fits a comment made by Democratic Gov. Bryan in one of his messages to the Legislature in 1983, a comment that differed from the List/Miller approaches. Bryan argued, “When times are tough, business loses customers. When times are tough, government gains customers, and they are customers who cannot take their business elsewhere.” In hard times, Bryan said, rates of child abuse, mental health problems, alcoholism, prison populations and medical aid to the indigent all increase.

It does not, on the surface, seem like a favorable time for Guinn’s initiative. The economic doldrums would have given him an excuse for acting differently. The clichéd response to tax increases is, “They should cut spending before raising taxes.”

To such comments, Guinn pointed out that he has spent four years carving $167 million out of state spending. He has cut 1,500 jobs from the state workforce, 500 of them permanently (to the point that the remaining state workers’ workload has become a serious morale problem, causing a loss of trained people). He’s even proposed a program under which state workers get no raises for eight years.

“And so I just said, ’Enough,’ “ Guinn commented. He made his cuts, he said, at a time when adjoining states such as Arizona and California were increasing their spending.

Lawmakers supporting Guinn cited similar experiences, as shown by two conservative Republican senators. William Raggio of Washoe County and Ray Rawson of Clark County both said they’ve exhausted themselves slashing spending.

“I’ve cut and trimmed, pulled and tugged,” Rawson said.

Last week at a hearing on Guinn’s plans to beef up the state’s emaciated mental-health programs (seen as a remedy for those high suicide rates, among other things), Rawson said he and his colleagues have been getting e-mails asking them to cut mental-health spending. The writers are apparently not aware the program has been cut so severely that more cuts would compromise its viability as a state function.

“They say if it ain’t broke, don’t fix it,” Rawson said. “Well, this is broke.”

There are those who criticize Guinn for not tapping the casinos for more money, a criticism that resonates because casino lobbyists sponsored his candidacy for governor. His program provides for a small gambling tax increase, but it is not a significant contributor. This is apparently deliberate.

Guinn said he is trying to make the public aware of how serious the oncoming challenge to Nevada gambling is. The bottom line is that the casinos can’t be counted on as a major revenue source much longer.

Even some of his critics are supportive in this. Economist Thomas Cargill, who opposes much of the governor’s tax program, nevertheless said Guinn is making the right move on taxing the casinos. Cargill, one of the few who testified against the 1981 Tax Shift, says it would be a mistake to increase the state’s reliance on yet another tax source (such as the sales tax) that is headed straight for decline. “The casinos are in real trouble,” he said. “Northern Nevada is the most serious. Gaming is finished in northern Nevada. In 25 years tourists who come here will be told, ‘Yes, we have a little gambling here.’ It won’t be the significant source of taxes.”

“Look at downtown Reno,” Guinn says. “Look at the income levels of the hotels, the casinos. Look at our sales tax. Look at everything we’ve been living off of for years and years. We can no longer do that.”

There are also those who fault the sheer number of new taxes or Guinn’s choice of which new taxes will get established (though Guinn says he is not wedded to any specific approach if other alternatives are offered). But Nevada is not a state that gives fiscal planners a lot of elbow room.

The mining industry long ago got its tax loophole written into the Nevada Constitution. In 1988-90, a ballot measure sponsored by the casinos wrote a ban on personal income taxes into the Constitution. The Constitution also prohibits differing rates of taxes on businesses and individuals.

Guinn has what to many would seem like a naïve, civics-book faith in educating the public and in the good sense of ordinary citizens. He worries that the hyperbole and misinformation typically wielded by lobbyists to scare businesspeople—"You’ll go out of business if Guinn’s taxes pass"—will abort the whole program, but he thinks he can prevent that by informing the public how the program really works. A few days ago, he got a message from a plumbing company owner with seven employees asking how his business would be affected. Guinn called him and walked him through the program, and the man pledged his support to the governor. But that kind of education is difficult to do on a statewide basis.

Guinn hopes the publicity given to legislative hearings on the taxes will inject reliable information into the public bloodstream, but it is clear that the heaviest burden of bringing the public and the legislators along will be on Guinn.

He is not the kind of governor, like Mike O’Callaghan, who is comfortable twisting arms in legislative hallways, but merely relying on speeches to service clubs or small business owners is not likely to do the trick.

Guinn is attempting something many Nevada groups—weary of the state’s role as national embarrassment—have for decades wanted a Nevada governor to do. Their chance may never come again. That’s what’s at stake, and residents needed a better explanation from journalists. It is a political risk for Guinn, and if it fails it will be a powerful message to future governors. For another generation, Nevada will remain as it is. In another half-century, another publication will do a cover story that repeats what Colliers and the New York Times reported.

Enactment of the Guinn program is uncertain because of a minority control provision in the state Constitution, enacted by an initiative petition campaign led by (now U.S. Rep.) Jim Gibbons in 1996. It allows the losing side—one-third plus one member of either house of the Legislature—to stop any tax measure.

On the other hand, if Guinn succeeds in winning approval for his ambitious program, he will be doing more than making policy—he will be making history.

List spoke of creating a “new Nevada” in his inaugural address in January 1979. That turned out to be sloganeering in imitation of terms like the New Deal and New Frontier, not an augury of policy. Guinn has not offered such a grand slogan, but a new Nevada is exactly what he is trying to create.

In previous economic downturns, governors have gone into a crouch. Guinn believes these hard economic times and the state’s budget shortfall offer an opportunity. And besides, he says, the state hasn’t the luxury of waiting for better times. The California challenge is coming at Nevada like a freight train.

“I’m smart enough to realize—and I think most of our people are in Nevada—that when your very best customer and your biggest customer becomes your biggest competitor, you’re in trouble and you need to start analyzing how you’re going to restructure. …

“We have to change. And that’s what I’m asking, I’m talking, I’m cajoling—I’m begging the people of Nevada to pay attention to that.

“Because in another four years, I’ll be gone, and I hope it’ll be a better foundation for us to look forward to cope with that … and to help those who are frailer and less fortunate than we are."