Tax study default leaves Nevada lawmakers upset, angry, as state faces huge deficit

Tax study default leaves Nevada lawmakers upset

CARSON CITY, Nev. — State lawmakers expressed frustration and anger Friday after an international research firm defaulted on a tax study, leaving legislators without an updated playbook as they face a budget deficit that could top $3 billion going into the 2011 session.

“It’s hard for me to understand how an entity with an international reputation can let something like this slide as important as it was to this state,” said Senate Minority Leader Bill Raggio, R-Reno.

Moody’s Analytics was awarded a $253,000 contract last fall to analyze Nevada’s tax structure and work with a 20-member citizens committee to assess quality-of-life priorities.

Moody’s missed deadlines in June and July, and the state sent a default notice. The tax portion of the study was canceled this week, and Moody’s will only be paid for the vision component, less than $100,000, legislative officials said.

Senate Majority Leader Steven Horsford, D-North Las Vegas, said Moody’s “failure to perform has put us in an awkward situation.”

The study was ordered by the 2009 Legislature as the recession began to strangle Nevada’s economy, which is heavily dependent on sales and casino taxes.

Nevada now has the highest unemployment rate in the nation at 14.2 percent, and the state leads the nation in foreclosures and bankruptcies.

Raggio was a key backer of the study and favored contracting with Moody’s over other applicants, such as the University of Nevada, Reno, to avoid potential criticism that the authors would have an interest in the outcome and sway their findings.

“I wanted an objective tax study,” Raggio said. “To say I’m disappointed is an understatement. I’m angry that we were misled, and I personally feel we’ve been deceived.”

Attempts to reach someone at Moody’s for comment Friday were unsuccessful.

Lorne Malkiewich, director of the Legislative Counsel Bureau, said senior management at Moody’s was “very cooperative.”

“Their leadership was apologetic,” he said.

Horsford said legislators will use the quality-of-life segment as a blueprint and rely on previous tax studies as a guide as they confront what’s described as the worst budget outlook in state history.

But Raggio questioned the value of that.

“Just getting the quality-of-life segment is not too helpful without some revenue plan or some way to tie it together,” he said.

“This is the most difficult session we’re ever going to face from budgetary standpoints,” said Raggio, who has served in the Senate for nearly four decades. The projected general shortfall is about half of the $6.8 billion two-year budget passed by lawmakers in 2009.

“There’s only so much you can cut before you get to essential services that need to be provided by the state,” Raggio said.

Horsford said legislative committees will continue working in the interim on ways to consolidate services, make government more efficient and reduce spending.

He said he expected the vision report to include suggestions on moving Nevada away from a reliance on gambling and tourism revenues, and that previous tax studies can be used to weigh options.

The last major study on Nevada’s tax structure was conducted by Price Waterhouse and released in 1988. That report criticized Nevada has having the most “unfair tax system in the nation,” featuring regressive taxes that hit the poor the hardest.

Besides recommending business profit taxes, the study suggested Nevada impose taxes on food sales and personal income — both of which are banned by the state constitution. It also recommended taxing services.