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Good evening.

Mr. Speaker; Madame Lieutenant Governor; members of the Senate and Assembly; honorable Justices of the Supreme Court; elected officers; distinguished guests; and my fellow Nevadans:

We come together on a special day for our country, a day set aside each year to honor a great American, a pioneer and a champion for civil rights; Dr. Martin Luther King, Jr. Dr. King’s commitment to peaceful progress remains an inspiration to all who believe in equality and the American Dream. He would be pleased, as you and I are proud, that the Nevada State Legislature has the highest percentage of African-American members of any Legislature in the Nation.

Dr. King led his struggle during difficult times for America. In different ways, the times are no less difficult today; for America, and for the Silver State.

My fellow Nevadans, it is my duty as Governor to report this evening that the state of our state is fragile, and as challenging as any period in our 139-year history. For the last two years, we have been dealing with a $300 million budget shortfall. For the next two years the shortfall is projected to be even worse, over $700 million.

Since I last stood before you, much has happened to weaken the finances and the economies of our country and this state. The terrorist attacks of September 11th did far more than destroy the World Trade Center, damage the Pentagon, and leave a scar in the heartland of Pennsylvania.

The terrorists struck at the heart of business and industry, and no industry was hit harder than the tourism industry, the lifeblood of Nevada.

The consequences of these attacks turned the already threatening fiscal clouds on Nevada’s horizon into a full-blown storm.

That is why, this evening, Nevada stands at a crossroads. 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.

It means leaving thousands of senior citizens without nursing home care, affordable medicine, and the dignity of their independence, forcing 27,000 new students into overcrowded classrooms without employing 900 new teachers and without buying new textbooks, denying access to higher education for our high school graduates, eliminating health insurance for 25,000 needy children, and cutting prescription medicine for Medicaid recipients and the mentally ill.

These are not threats, they are realities.

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, led by a new generation of Millennium scholars, 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.

I stand before you, in the house of the people, under a portrait of Abraham Lincoln, a man who united our country, and I ask you, Republicans and Democrats, members of the Senate and Assembly, to join me, so that together we can ensure a more prosperous Nevada.

The challenges we face reflect the unique conditions of today’s Nevada, and our history. For years, our economy has depended almost exclusively on tourism and gaming, rather than by exporting goods and services. Three out of every four of our tax dollars are collected from sales and gaming taxes; taxes vulnerable to swings in the economy.

Implicit in this tax strategy was a belief that the revenues from gaming and tourism could keep pace with our growing and diverse population. Unfortunately, this strategy has failed.

Nevada, once a small state, has been the fastest-growing state in the nation for 10 straight years. Between 1990 and 2000, we saw our population grow by 900,000 people. These new citizens have brought with them demands for more services; more highways, more medical care, and more schools.

As our population growth was soaring, our revenue growth was sagging. For example, in 1997, the Legislature had $543 million in new revenue to fund expenses for new school enrollments, mandated healthcare, and state services. By 1999, new revenues dropped to $378 million, and in 2001 they were down to $150 million.

This trend has worsened. This biennium, we have just $24 million to pay for the needs of our growing state.

Part of this decline resulted from the nationwide economic slowdown. Another big blow came from the terrorist attacks on September 11th which effectively caused Nevada to lose an entire year of revenue growth. However, while the effects of September 11th were devastating, they only hastened our day of reckoning, and magnified the weaknesses of a system so dependent on volatile revenues.

Another contributing factor to our decline was a result of increased competition from tribal gaming in other states. In the last year, tribal gaming in California alone grossed over $5 billion, compared to Nevada’s $10 billion. It is predicted that tribal gaming will double in just the next few years.My fellow Nevadans, the lesson from the last 20 years is clear; our revenue system is broken because it has relied on regressive and unstable taxes.

However grim our financial situation is today, it would be far worse, if it were not for the steps we have already taken. We started with a Fundamental Review, a top to bottom review of every agency, program, position, and dollar. That process gave us the flexibility to reallocate millions of dollars to areas of high priority such as education, health care, and public safety.

We demanded Flat Budgeting, and only allowed for growth in mandated areas such as Medicaid and school enrollment.

We took bold steps to privatize government services, privatizing the state workers’ compensation system. This resulted in nearly 800 positions being eliminated from state government, and relieved Nevada of a $2 billion liability. Some of you have ideas about additional services that can be privatized, such as the state motor pool and printing operations. I look forward to that dialogue so together we might find other innovative solutions for our state.

Rising to the challenge to seek innovative solutions, Treasurer Brian Krolicki and his staff unlocked cash from an unexpected source; the state’s debt. Brian’s office produced over $30 million in extra revenue that helped us reduce last year’s budget shortfall.

You see, one person can make a difference.

Despite all these savings, our fiscal crisis required us to do even more. Together we made more than $120 million in very difficult cuts at the end of the last regular session. In addition, I cut another $47 million in one-shot expenditures for much-needed equipment and maintenance, and from great community organizations that serve our citizens.

Further, I directed all state agencies to make $38 million in additional across the board cuts. This meant layoffs, cuts to mental health programs, programs for seniors and children, and closing the state’s juvenile detention facility. I then directed my cabinet to make additional cuts of more than $15 million for such things as increased employee health insurance and utility costs.

Tonight I want to thank my cabinet, and all state employees, for implementing these difficult cuts.

Finally, when I first took office, I recognized we could not control spending without addressing the cost of state employment. That is why, in 1999, I implemented a statewide hiring freeze; freezing 1,500 positions has saved us over $30 million.

Leaving these positions unfilled has not been easy. Our employees have made great sacrifices; providing state services, while working harder than ever with fewer resources.

However, we still find ourselves in a fiscal crisis. Therefore, tonight I am asking state employees to make yet another sacrifice, as my budget permanently eliminates 500 of those 1,500 vacant positions.

Fellow Nevadans, we have been innovative in our savings, and responsible in our cuts. As Governor, I believe I have been a careful steward of the taxpayers’ dollars.

However, if I had to build this budget on only our existing revenue, I could not live with myself, and I don’t know anyone who could. The time has come to say, “enough.”

Nevada ranks near the bottom in per pupil spending on education, and spends less per capita on Medicaid than any other state. If those two areas don’t concern you, take a look at where Nevada ranks in high school dropout rates, teenage pregnancy, and children living in poverty.

Ladies and Gentlemen of the Legislature, I refuse to balance this budget on the backs of our children, senior citizens, and the poor.
Moreover, I will not cut programs such as Nevada Check-Up. Cutting a program whose sole purpose is to give health care to 25,000 needy children is wrong. No, it is not wrong, it is heartless. If it is your choice to do so, you will do it over my veto.

Now is a time for courage. It is up to us to face our challenges, and face them we will.Therefore, the budget I am presenting tonight is balanced, fair, and has been built to meet the needs of Nevada, not only for the next two years, but also for many years to come.

Last session, you created the Task Force on Tax Policy. The members of this panel are experts in their field who came from every corner of our state, and are among the most respected citizens in Nevada.

You directed them to examine specific taxes that could broaden and stabilize our tax structure, because you believe as I do that our tax system is broken, and that in order to build a more prosperous Nevada we need to change that system.

After 12 months of hard work and deliberations, the Task Force delivered a set of recommendations that all Nevadans can have confidence in. Those recommendations serve as the foundation of the plan I will unveil to you this evening.

I now ask Chairman Guy Hobbs and the members of the Task Force to stand, so we can thank them for their hard work.

Tonight I have spoken much about the future of Nevada, and my vision of a state where a well-educated workforce fuels the businesses that drive our economy. However, a more prosperous Nevada, and a better educational system, requires an investment by all Nevadans, and all Nevada businesses.

Therefore, I bring to you tonight a budget request for $980 million in new revenue.
This budget is built on a series of broad-based business taxes that move Nevada toward a more stable revenue base.

To begin with, in order for the state to close this fiscal year with a balanced budget, I am requesting an immediate increase in cigarette and alcohol taxes, corporate filing fees, and slot machine license fees. I am also requesting an immediate increase in the Business Activity Tax to $300. This increase will be applied to all businesses, and, unlike in the past, there will be no exceptions. Finally, I ask you to implement these changes by April 1st, so that revenue can be realized this fiscal year.

Second, to meet further revenue needs, I am proposing a 15 cent increase in property taxes, and the creation of an admissions and amusement tax.

Tax increases are never popular. However, let me assure you, the vast majority of these taxes will only provide enough revenue to meet the basic needs of our state’s growth. Growth means the 27,000 new kids in Kindergarten through 12th grade, the six thousand new students in the University and Community College System, the enormous increase in mandated caseloads for Medicaid and welfare, and the rising cost of health care benefits for public employees.

To further address the long-term structural budget problem facing Nevada, I am requesting that the Legislature increase gaming taxes, and enact a new gross receipts tax on all companies doing business in our state. The gross receipts tax will impose a one-quarter percent levy on all Nevada businesses with gross revenues in excess of $450,000. This threshold exempts more than 60 percent of Nevada businesses, and preserves our reputation as a great place to start a small business.

Since the implementation of the gross receipts tax will take two years, the tax will need to be enacted this Session in order to realize revenues in the following biennium. When the revenues from the gross receipts tax are realized, businesses will then see a reduction in the Business Activity Tax.

I want to take a moment to commend the business community in our great state for their hard work and commitment to our prosperity. I know that our business leaders love Nevada as I do. In our hour of need, I know they will honor their commitment to me and this Legislature to invest in the health and safety of our citizens, and the education of our children.

As you know, education isn’t just on my agenda, it is my agenda. Education is crucial to the survival and success of every Nevada business. When I see Nevada’s future, I don’t see a state trailing the pack. I see a state that’s become a vibrant center of learning and commerce. I see a state that competes and excels in areas of health care, banking, science, technology, and tourism.

However, to realize that vision, we need to create a generation of young Nevadans with stronger, sharper and more sophisticated skills. Therefore, I propose that we start at the beginning by providing full-day Kindergarten for our children.

Full-day kindergarten will deliver immediate, as well as long-term academic and social benefits, especially if we begin slowly, and we start in at-risk schools. Research and common sense tells us that full-day kindergarteners perform better on standardized tests, and attain higher levels of achievement in reading and mathematics. Full-day kindergarten truly is the smart start, and I ask for your support.

We all know the quality of education we offer our students will only be as good as the quality of our teachers. Last session, I recommended, and you passed, signing bonuses to attract the best and brightest new teachers to Nevada; look what happened. Those bonuses were decisive in addressing the shortage of teachers, particularly in Clark County, where two-thirds of all new teachers must be recruited from out-of-state. To remain competitive, my budget again contains a $2,000 signing bonus for every new teacher. With the arrival of 27,000 new students, Nevada cannot afford another teacher shortage.

We must also address the immediate shortage of teachers in at-risk schools, and those who have training in math and special education. Therefore, I am asking you to support our superintendents’ and school boards’ requests for enhanced pay for these teachers.

We must also make right an area of chronic under-funding, by investing in new textbooks, technology and instructional supplies. We should not allow our students to go without books, or to stand in line to use a computer. Nor should our teachers have to purchase needed supplies. Therefore, I am recommending, and asking you to support, $40 million to fund these needs.

Nevada suffers from some of the largest class sizes in the nation in grades four and up. Therefore, local school districts need more flexibility in implementing class size reduction. The pilot project in Elko County proves that we can expand the benefits of class size reduction with existing resources. Let us give local school districts maximum flexibility in determining the class sizes that best meet the needs of their students in all grades. I ask you to make this pilot project a statewide standard.

There is no single program I am more proud of than the Millennium Scholarships. Since the scholarships began in 2000, the percentage of Nevada high school students going on to college has jumped from 37 to 48 percent. A total of 15,000 Millennium Scholars are now enrolled in Nevada higher education, and we expect more than 7,000 new students next fall. These are 22,000 wonderful reasons to be optimistic about our future. These young men and women will be on the front line of a smarter, more highly skilled workforce.

Let me take a moment to recognize two outstanding scholars; the first two Millennium Scholarship recipients to graduate from college. First, Melissa Tishk. She earned her bachelor’s degree in communications from the University of Nevada, Las Vegas in just two and one half years. Second, Dan Coming, who, at the age of 19, graduated summa cum laude in computer science at the University of Nevada, Reno.

Melissa and Dan have a few important things in common. They are bright, focused, and will stay in Nevada to help us build a better future. Melissa and Dan, please stand so we may acknowledge your hard work and success; Nevada is so proud of you.

Thank you.

Dan and Melissa are prime examples of why all young Nevadans should continue to have the opportunities that higher education provides.

It is critical that we build on our progress of higher enrollment in universities and community colleges, which are up 32 percent in the last six years. Enrollment in some math, science, and technology classes is up as much as 200 to 300 percent. We cannot afford to lose those hard-won gains. Therefore, my budget provides an additional $80 million for the University and Community College System to fund this growth, and to offset the drop in the federal estate tax. To not provide this additional funding would be devastating to our college system.

I want to see higher education in Nevada become a center for research and new partnerships between business and academia.

A key step to enhance higher education and economic development will be the new Science, Engineering and Technology Center at UNLV. This project will be funded with $47 million in public dollars, and $25 million in private funds; this is truly a wonderful partnership. This project includes the short-term benefit of new construction jobs, and the long-term benefit of an expanded academic facility in science, engineering, and technology; the wave of the future.

However, there are other steps we can immediately take to better the economy and create new jobs.

Therefore, I support your action to combine the two Regional Transportation Commission’s voter-approved ballot questions, and pass them early.

Next week, I will ask the Nevada Transportation Board to approve the sale of $200 million in new transportation bonds to jump start highway construction projects throughout the state. In addition, I have included in my budget $325 million in transportation bonding authority over the next two years.

This $524 million will allow us to complete the widening of US 95 in Las Vegas, complete the Henderson Spaghetti Bowl project, complete the freeway from Reno to Carson City, and finish construction on the Carson City Bypass.

These massive projects will provide a shot in the arm for our economy and create thousands of new jobs, as well as easing the horrific traffic problems in our more populated areas.

Another major priority of mine is the creation of a new mental health hospital in southern Nevada. This facility is crucial in order to meet the needs of citizens in the Las Vegas area, and will provide a long-overdue solution to a chronic problem.

Last session you had the foresight to create the state’s first special court to deal with mentally ill offenders. Now underway in Washoe County, this program offers real hope that these courts can save money, and help some of our more fragile citizens. As a result of this program, the mentally ill are receiving needed treatment and medication, instead of being incarcerated for minor offenses. I ask that we now provide a modest level of funding for this program. This is the right thing to do, and it is the right investment to make.

Tonight I would like to recognize the Legislators who led the charge and the Judge who has helped implement this success. Please join me in thanking Senator Randolph Townsend, Assemblywoman Sheila Leslie, and Judge Peter Breen.

Judge Breen, along with Judge Lehman from Clark County, have been instrumental in another success; our drug courts. These programs provide non-violent drug offenders with treatment so they can stay sober, and stay out of our prison system. This not only saves us money, but it is the right thing to do.

I have included funding for these two successful programs in my budget so their good work can continue.

During the last two Legislative Sessions, you voted to create and improve the Senior Rx program. We can be proud that we are now helping 7,500 senior citizens. However, we can and must do more. I am recommending in my budget that we immediately address the waiting list of some 1,500 senior citizens, and make room for more. Further, we must raise the income threshold for couples, so that married seniors are not denied the benefits of Senior Rx. Therefore, I am asking you for $5 million to expand and enhance this wonderful, lifesaving program.

These are my recommendations to put us on the road to a better Nevada; however, they will not solve our problems indefinitely.

Therefore, to further ensure the long-term prosperity of Nevada, I ask Chairman McGinness and Chairman Parks to carefully consider other revenue measures, such as changing the method of collecting property tax, allowing the state to benefit from the growth and value of real property, and changing the constitution to allow homes, commercial business, and land development to be taxed at different rates.

I further request that the Taxation Committees deliberate and give full consideration to professional, business, and discretionary service taxes to provide adequate revenue well into the future.

My fellow Nevadans, together we have a great and difficult distance to travel. We must now travel a new road, a better road, and a more prosperous road.

For now is the time for courage, and a time for leadership. The popularity of my proposal is less important to me than the rightness of our course.

The state of our state is fragile, but I know our spirit and love for Nevada is not. The people of Nevada are independent, compassionate, and resilient. I have great confidence in their willingness to embrace change, and to see this new road not as just a great challenge, but as a great opportunity, one that fulfills our responsibility to hand to our children a better Nevada.

So, tonight let us all come together as Nevadans in a great spirit of unity and purpose and build a kind of Nevada where future generations will look back on this night and remember, "We seized the moment, we made the tough decisions, we did the right thing."

I am proud to be your Governor.

God bless Nevada, and God bless America.

Thank you, and good evening.

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