Introduction
State lawmakers approached the 2009 Legislative Session knowing they would face difficult decisions. Declining tax revenues over the previous budget cycle had already forced legislators to gather in Carson City on two occasions for special sessions to deal with gaps between tax revenues and planned state spending. Revenue projections released in December 2008 indicated that the state’s fiscal position would continue to deteriorate.
With tax revenues projected to decline for the second straight biennium, the Executive Branch was claiming that expenditures would have to grow by more than $1 billion in order to maintain government services at the same levels lawmakers and the governor had chosen when revenue forecasts were much higher. Now, with revenues projected at $5.656 billion, lawmakers faced a gap of $2.266 billion between revenues and desired spending.
To reconcile this gap, lawmakers knew they would have to choose between two general strategies: searching for additional revenue or searching for areas where state spending could be reined in. Complicating this decision were the economic conditions providing the session’s backdrop: The state was already facing its worse economic recession in decades. More than a decade of overly loose monetary policy by the Federal Reserve had inspired the creation of a “bubble” market in housing that was particularly pronounced in Nevada. By the time the 2009 session began, the median sale price of a home in the Las Vegas Valley, since peaking in early 2006, had fallen nearly 50 percent.
The collapse of the artificial housing market quickly reverberated throughout the economy, leading to massive unemployment. At the outset of the 2009 session, Silver State unemployment had already reached 9.4 percent and would soon exceed 10 percent. The rising unemployment led some policymakers to argue for controlling government size rather than raising tax rates. A minority, they understood that higher tax rates — imposing higher costs on struggling businesses — would only exacerbate the unemployment problem.