State commission touts taxing services, lifting property tax caps to fund schools

A report mandated by the Nevada Legislature recommends the state increase per pupil funding beyond the national average at an additional cost of $3.2 billion over the next decade, and pay for it by taxing discretionary services and tweaking the property tax formula.

Nevada spent $9,548 per pupil in fiscal year 2020, below the national average of $13,489 and well below the $14,337 recommended by national experts who have studied Nevada’s education system for the last two decades, according to the report released Monday by the state’s Commission on School Funding.  

The national average, according to the report, “falls short of what the subject matter experts would consider ‘optimal’ for Nevada.” 

The report notes “the funding challenge is considerable, and that it will take incredible will on the part of elected leaders to address it,” adding “the cost of inaction greatly exceeds the cost of implementing any of the funding strategies discussed herein.”

Governor-elect Joe Lombardo, a Republican, announced during his victory speech Monday that he will be “the education governor,” but he did not respond to questions submitted by the Current about the commission’s recommendations.  

Nevada relies primarily on property tax and sales tax to fund education, but the state’s antiquated property tax formula levies assessed rather than market value, and imposes 3% caps on increases in assessed value on residential property, and 8% caps on commercial property. 

“Once heralded as Nevada’s most stable and predictable revenue source, the introduction of property tax abatements has complicated and confounded the calculation of the value of a unit of property tax, while the unique use of depreciation and replacement value has further separated property assessments from a market-based reality,” the report says.  

In recent years, according to the report, the percentage growth of abatements has exceeded the growth of property tax revenue.

Removing the caps in 2024 would generate an additional $80 million, increasing each year of the next decade, up to $540 million in 2033, with $129 million that year allocated to education. The state needs an additional $2.6 billion over the next decade just to reach the national average.

Additionally, the report recommends capturing lost revenue by shifting reliance from taxes on tangible goods to taxes on discretionary services. About two-thirds of the state’s economy is driven by services, which are currently not taxed. 

Nevada’s sales tax rate of 8.23% is the 13th highest in the nation, the report says. 

“Levying taxes upon non-discretionary goods and services gives rise to concerns of regressivity as such taxes disproportionately impact those with less ability to pay for them. The focus, then, should be upon discretionary goods and services,” the report says. 

Two industries – Recreation and Personal Care – generate an estimated $10 billion in annual economic activity, the report says, and would generate $500 million if taxed at a rate of 5% or $685 million at the statewide base rate of 6.85 percent.

“These recommendations are made following a three-year effort on the part of the Commission to not only meet the mandates of SB 543 and AB 495, but to go further in providing the Legislature with a serious and thoughtful work product,” wrote Guy Hobbs, chair of the commission, which is comprised primarily of educators and school district officials. 

The report also recommends lawmakers study the “imbalance” between the number of education graduates in the state each year and school district demand, as well as reviewing teacher pay to determine if it is deterring potential candidates.