What revenue problem?
Nevada’s budget woes are the result of increased per-capita spending
- Monday, January 4, 2010
We've all heard the horror stories of deteriorating government finances in the Silver State. What we rarely hear is that the supposed "shortfall" in the state budget has resulted directly from higher spending, not from any decline in tax revenues.
Despite all the hand-wringing during the 2009 Legislative Session, the 2009-11 legislatively approved state budget will spend 31.2 percent more on an inflation-adjusted, per-person basis than did the 2003-05 budget. That amounts to $275 more spending per person than occurred just six years ago.
In fact, while the majority of the much-ballyhooed "cuts" to state spending this biennium will occur in FY11, inflation-adjusted, per-capita spending for that year will still be higher than at any point in recent history prior to FY06. Given the recent upward trend in state spending, it is blatantly obvious that any supposed fiscal "crisis" is primarily the result of an undisciplined and unsustainable growth in spending. Consider this chart:
Note that when state policymakers saw the then-record-breaking 2003 tax hikes begin to generate more than $1 billion in additional revenues following economic recovery, they used much of that additional revenue to create new programs and expand the size of government. Now, the panic over "cuts" and the corresponding calls for yet further tax hikes are a direct result of the new spending that fed off that last round of tax hikes.
Of course, this increasing tax burden is also generated by extravagant annual government employee pay raises. Nevada state employees are eligible for a variety of annual pay raises, including cost-of-living adjustments, step increases and longevity pay. The following table shows the cumulative impact these pay raises can have over just a short time. Even if only cost-of-living adjustments and step increases were considered, a state employee hired in FY01 would have received a 75 percent increase in the base rate of pay within eight years — all without any elevation in rank or increase in responsibilities.
|
Year |
COLA |
Step Increase |
Total Raise |
Cumulative Raise |
|
FY02 |
4.0% |
4.5% |
8.5% |
8.5% |
|
FY03 |
4.0% |
4.5% |
8.5% |
17.7% |
|
FY04 |
0.0% |
4.5% |
4.5% |
23.0% |
|
FY05 |
2.0% |
4.5% |
6.5% |
31.0% |
|
FY06 |
2.0% |
4.5% |
6.5% |
39.5% |
|
FY07 |
4.0% |
4.5% |
8.5% |
51.4% |
|
FY08 |
2.0% |
4.5% |
6.5% |
61.2% |
|
FY09 |
4.0% |
4.5% |
8.5% |
74.9% |
Something particularly troubling that this chart makes clear is the arbitrary nature of cost-of-living adjustments. These raises have been set in advance by Nevada lawmakers in complete ignorance of how the cost of living will actually change. Indeed, cost-of-living raises have been awarded to state employees during years in which the cost of living in Nevada has actually declined. From all appearances, cost-of-living adjustments have served as little more than a vehicle for a public-employee-dominated state legislature to funnel patronage to public-employee-union interests in exchange for political support.
The flipside of that coin was revealed in the political backlash when Governor Gibbons initially proposed 6 percent salary reductions for the 2009-11 biennium. The uproar ensued even though such a reduction would have more accurately reflected changes in the current cost of living. Of course, in government, salary reductions due to declining costs of living are unheard of. Given the arbitrary nature of this construct, it is no wonder that it is largely nonexistent in the private sector.
The combination of lawmakers' unending desire to spend on new programs and a budgeting process that is engineered primarily for the benefit of public employee unions has left ordinary Nevadans stuck holding a bill that keeps getting new charges added to it. Sure, revenues are down slightly from the 2007-09 biennium, but that wouldn't have created the current level of panic among policymakers and commentators if there hadn't been such a massive increase in spending in recent years. It is clear that any budget "shortfall" that is experienced in Nevada is primarily the result of attempting to grow the size of government.
In 2009, Nevadans paid for that effort with a 19 percent overall increase in the state tax burden. Now some lawmakers — particularly those on the Interim Finance Committee — are already posturing with schemes to dwarf that amount when the legislature reconvenes in 2011.
Lawmakers should learn to control their appetite for profligate state spending before they even consider coming back to taxpayers with more demands for even higher taxes.
Geoffrey Lawrence is a fiscal policy analyst at the Nevada Policy Research Institute.
