The voluntary special session >> Nevada Policy Research Institute

The voluntary special session

‘Shortfall’ is the result of bigger spending scheme

By Geoffrey Lawrence

Thursday, December 10, 2009

State lawmakers must really love Carson City. After all, the choices they made in February through May of this year virtually guaranteed that they would be returning before the next regular legislative session.

It was clear at the outset of the 2009 regular session that tax revenues were in decline and would continue to decline over the foreseeable future due to the economic recession. Yet, lawmakers made the decision to increase state spending over the 2009-11 biennium despite this decline in revenues.

Revenue collections and projections of future collections were in continuous freefall throughout the regular legislative session. At its December meeting, the state's Economic Forum projected that existing revenue streams would generate $5.66 billion over the 2009-11 biennium. By May, that projection had fallen to $5.28 billion, with the obvious implication that revenue projections would continue to deteriorate.

Surely, lawmakers understood the implications of these fiscal constraints as they passed a $6.86 billion budget anchored by a 19 percent single-session increase in the total tax burden, re-routing economic resources from private-sector wealth creation to less productive government spending. Surely, they understood that a higher tax on employment (payroll) could lead to an even further drop in employment. Surely, they knew that higher taxes on tourists (e.g. room tax, sales tax) could lead to fewer tourists.

As such, they must have known that the tax increases they levied would not necessarily generate the gaudy numbers they projected through their static analysis. They had to know the one universal truth in government finance: Taxation changes behavior. Therefore, they must have anticipated that an increase in tax rates would not necessarily account for a one-to-one increase in tax collections. After all, our state legislators do understand the first principle of government finance, don't they?

Hence, it should be obvious that they intentionally set the appropriated spending level beyond the available revenues because they were hoping for an interim weekend retreat in Carson City on the generosity of state taxpayers. It now appears that those hopes will soon materialize.

Sure, while they are there they will also work to repeal a rancid state law that they handed as a gift to their teacher-union constituency in 2003. Back then, the union opposed on principle evaluating teachers based on their effectiveness at actually educating students. Lawmakers capitulated, enacting legislation that forbids student performance to be used as a component of teacher evaluations.

But now, the Obama Administration is offering federal stimulus money to buy off teacher unions nationwide in exchange for a modicum of accountability. Now, union representatives are supporting a change in the law that would make teacher evaluations subject to collective bargaining and qualify Nevada for as much as $175 million in federal Race to the Top grants. Yet, state executive branch officials have already acknowledged that "there is no way" they can get the application for the grant money completed in time. At best, the change could allow the state to participate in the second round of grants in June.

Still, the true impetus for the coming special session is to curtail the increase in budgeted state spending that lawmakers recklessly approved six months ago. Governor Gibbons has asked all state agencies for proposals that would reduce spending by 1.4 percent and by 3 percent. Reportedly, those changes would save the state between $70 million and $150 million, respectively, over the remainder of the budget cycle.

Even the Gibbons Administration, however, is ignoring one of the basic components of government finance in crafting its proposed budget "solution." Once again, the administration will propose across-the-board spending cuts instead of prioritizing government functions and cutting the least essential functions first. If administration officials lack ideas on how to do that, they need look no further than the Nevada Policy Research Institute's Freedom Budget that was proposed during the past regular session.

As it now stands, though, it is obvious that lawmakers should have known the budget they passed six months ago would land them in Carson City again before the 2011 regular session. Did they make that choice intentionally?

Lawmakers — especially those who voted for increased spending — now have an important question to answer, vis-à-vis their constituents:

Back in May, when looking over the numbers, were they inept or simply unethically indifferent?

Geoffrey Lawrence is a fiscal policy analyst at the Nevada Policy Research Institute.

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Tags: Fiscal, Budget, Taxes