Nevada Gov. Brian Sandoval stepped in Wednesday to try to broker an 11th-hour deal between the city of North Las Vegas and labor leaders and stave off the city’s further financial demise and possible takeover by the state.
Sandoval summoned city leaders and bargaining representatives to his Las Vegas office a day before city managers were to present a tentative budget and plan to deal with the budget’s $18 million deficit.
North Las Vegas has been trying to stem its bleeding for several years. The red-ink began to hemorrhage in January when a state judge ruled the city could not withhold $25 million in contractually authorized pay raises to public-safety employees by declaring a state of emergency. In March, the city lost an appeal over a $4 million judgment to a landowner.
City officials last week proposed a $7.7 million settlement with the labor unions, saying the alternative would be steeps cuts and layoffs. At the same time, it is negotiating concessions with police and the Teamsters Union for contracts that expire June 30.
Nevada law does not allow local governments to declare bankruptcy. Instead, if a financial emergency is declared, the entities are subject to takeover by the state Department of Taxation, which would then have broad powers to cut services or raise taxes.
“Effectively, it is state receivership,” said Carole Vilardo, executive director of the Nevada Taxpayers Association and a respected voice on state tax policies and procedures.
“North Las Vegas would be the largest entity ever taken over,” she said. The last receivership was in 2006, when the state assumed control of White Pine County’s finances.
But options for North Las Vegas could be limited or come with big consequences, Vilardo said.
Current state law caps property taxes at $3.64 per $100 of assessed valuation. If a financial emergency is declared, the state could raise that rate to up to $4.50. But North Las Vegas, like the rest of the state and southern Nevada in particular, was hard hit during the recession, when foreclosures skyrocketed and many residents were left owing more on their mortgages than their homes are worth.
Raising property taxes would increase the financial strain on struggling homeowners, Vilardo said. “So the concern is, would you really want to raise their property tax to that amount?” she said.
Lodging taxes could also be raised, but Vilardo noted there are not many hotels in North Las Vegas. Raising the sales-tax rate is only authorized if the local entity is a county government.
Fitch Ratings earlier this month warned that the city, with an overall $430 million in debt, was nearing insolvency, and Reuters reported that all three rating agencies have dropped the city’s general-obligation bonds to junk status.
On Thursday, Moody’s Investors Service issued a statement saying the city’s already weak financial position, combined with legal-settlement pressures, increase the likelihood of state intervention.
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