Assembly OKs bill to exempt unfunded liabilities from cap

CARSON CITY — Nevada could exceed its budget spending cap to help pay off unfunded liabilities, under a bill approved Friday by the Assembly.

Currently, state construction is exempted from the cap, which was enacted in 1975. Also, one-shot appropriations that don’t create a continued burden of spending by the state are allowed.

Assembly Bill 196, introduced by Assemblyman John Marvel, R-Battle Mountain, is an effort to help reduce a $4.1 billion unfunded long-term liability in the Public Employees Benefits Program.

"It will really up our bond rating by addressing the situation now. Without it, we could really lose the capacity we have for bonding right now," Marvel told the Assembly, adding that the measure enables any future budget surpluses to be paid toward the liability.

Lawmakers reviewing a budget for the benefits program voted Thursday to put $50 million toward paying down the liability, which could cause trouble for the state’s credit ratings and result in increased interest rates on money it borrows. An annual contribution of at least $247 million is needed to keep the liability off financial statements.

The liability will continue to grow unless benefits are changed or more money is allotted to pay it down in future budget cycles, legislators have been told.

Beginning this summer, all states must report such unfunded liabilities, and Wall Street bond-rating agencies will be taking note. If states don’t take action to reduce them, a bond-rating agency could downgrade their ratings.

The state spending cap is based on a formula that follows population growth. State revenues never approached the cap until this session.