Responsible budgeting
Any excess state cash should be used to avoid state debt
- Monday, May 2, 2011
Today, the Nevada Economic Forum — a panel of five civilians knowledgeable in areas of finance and economics — will deliver new projections for the amount of revenue that will be available for state government over the next two fiscal years. As the Forum's December projections are binding on the governor's Executive Budget proposal, its May projections are binding on the total amount of appropriations that lawmakers can approve.
In the time since the Forum's December projections, key economic indicators in Nevada have recovered slightly from the protracted decline associated with the Great Recession. As a result, state revenues have recently increased from a variety of tax instruments. Most notably, sales tax revenues have begun to tick upward as the total volume of sales receipts has increased.
This has led to widespread speculation that the Economic Forum would increase its December General Fund revenue projections of $5.34 billion by a substantial margin. Last week, a technical advisory group that develops initial projections of revenues resulting from the state's minor tax instruments decided that these minor revenue streams would yield $72 million more than was projected in December.
Governor Brian Sandoval, who has opposed the Left's calls for new or higher taxes on everything from corporate profits to cigarettes and alcohol to dry cleaning, pest control and pet grooming, initially constructed his Executive Budget proposal to include $5.8 billion in General Fund spending. Sandoval's proposal would outspend initial revenue projections in part by securitizing future proceeds from the insurance premium tax — essentially placing $190 million on the state credit card to maintain ongoing spending. Sandoval would also continue to accelerate the collection schedule for mining taxes, receiving future years' revenues in the 2011-2013 biennium, and would allow Clark and Washoe County school districts to use a portion of their bond reserve funds for operating purposes.
The governor's staff included these gimmicks in order to avoid the politically difficult choices involved in reining in state spending — despite the fact that inflation-adjusted, per-capita General Fund spending has increased by 31 percent since 2003, as politicians created a bevy of new programs during the flush times.
A better way is in the budgeting roadmap released by the Nevada Policy Research Institute prior to the unveiling of the Executive Budget. It details how to save more than $3.5 billion in taxpayer resources during the 2011-2013 biennium while improving the effectiveness of many state programs. Gov. Sandoval would do well to incorporate these recommendations into his budget proposal, which would eliminate the perceived need for questionable financial maneuvers such as borrowing against future revenue streams.
Reform often moves at a snail's pace in Carson City, where many lawmakers who already have a direct, personal stake in the status quo regularly imbibe with lobbyists from entrenched interest groups pleading for more and more tax loot. This can make it difficult to muster legislative support for reforms that are in the general interest of the people — such as reforms to collective bargaining, prevailing wage, Medicaid and the K-12 education establishment. However, movement on these issues would allow the state to provide quality services with existing revenues while eliminating any perceived need for borrow-and-spend tactics.
The financial gimmickry included in the Executive Budget would mortgage the future in order to maintain current spending when conditions clearly dictate the need for structural reform and greater spending reductions. Indeed, Sandoval's securitization proposal arguably violates the spirit of the state's constitutional requirement for a balanced budget.
Hence, it is incumbent on the governor to use any additional revenue announced during today's Economic Forum meeting to first eliminate all the dubious financial devices from his own budget proposal. The governor has provided early indications that he intends to use this money to increase spending, beyond the levels in his current proposal by expanding social programs within the Department of Health and Human Services. Yet, even aside from the issue of whether such an approach is in accord with limited, constitutional government, it remains beyond the bounds of prudent fiscal stewardship.
Priority number one should be to eliminate the financial constraints that would be placed on Nevada's future by the governor's borrow-and-spend proposals.
Geoffrey Lawrence is deputy director of policy at the Nevada Policy Research Institute. For more information visit http://npri.org.
