The city has promised to fix its budget problems, and if it doesn't, the state will.
Higher fees, a new sales tax and cuts in services are some of the ways Carson City supervisors might make up for a budget shortfall this fiscal year and a slow economy expected to last at least another year and a half.
A financial consultant warned supervisors last week the city would eventually go bankrupt if it didn't act soon.
But if it gets that bad, the Nevada Department of Taxation could declare a "severe financial emergency" under state law and begin managing the city.
The state has done this for a county once before when it declared an emergency in 2005 for White Pine County, which had overspent its budget by more than $1 million.
Carson City is working to fix a $3 million budget shortfall by the end of this fiscal year, but city officials and the department of taxation said Carson City does not have the problems White Pine did.
"We're not in good shape," said City Manager Linda Ritter. "But we're a long way from a severe financial emergency."
Sales tax revenue might continue to drop, but the city will make cuts to make sure it doesn't have an emergency, she said. The city also has a $3.5 million rainy day fund as well as $4.8 million set aside for incentives for car dealers it could use for other services.
Sales tax revenue is a large part of a consolidated tax that makes up close to half the city's $55 million main fund.
The state might also help the city if the economy gets worse by doing something such as removing a cap on local property taxes, said Finance Director Nick Providenti.
To declare a financial emergency the department of taxation has to find problems such as fund deficits, late reports to the state, an inability to pay employees or violations of state regulations.
"When it hits that degree, they're usually appreciative of the help," said Terry Rubald, head of assessment standards for the department of taxation.
The department can take over an agency for several years. It is still in White Pine County where it is helping the county build up reserves from a mining boom, said White Pine County Finance Director Elizabeth Frances.
The city can avoid a financial emergency, said Supervisor Richard Staub, but the board must take "more extreme action" through budget cuts.
City departments have left some positions unfilled and have controlled some spending, but as far as what it needs to do, making major cuts, supervisors "haven't done a darn thing," Staub said.
The state has demanded a 4.5 percent cut from its agencies and the city also needs to prepare for the worst by asking for a 5 percent cut from departments. Some city officials had suggested a 2.5 percent cut for departments with few recourses, but Staub said that wouldn't be enough.
"Tough times dictate tough decisions," he said.