Controlling taxes means controlling spending

(Geoffrey Lawrence/Nevada Policy Research Institute) – As lawmakers head toward the 2011 regular legislative session, the state’s mounting fiscal challenges have induced many observers to question the feasibility of crafting a budget that does not include substantial increases in the state tax burden.

Yet, the context to this debate has been convoluted by frequent misrepresentations about Nevada’s status as a relatively low-tax state. A more accurate characterization is that Nevada is a relatively decentralized state.

On a per capita basis, total state and local tax revenues are above the national median. According to the Tax Foundation (Table 6, page 9), Nevada ranks 25th in terms of per capita tax collections. The Tax Policy Center, sponsored jointly by the Urban Institute and the Brookings Institution, ranks Nevada even higher — 22nd, with almost $6,000 in per capita annual revenue.

Clearly, there is no lack of tax revenue in the Silver State, even if most revenues do go to local governments. This decentralization of services was a conscious decision made by state lawmakers who — this being a Dillon’s Rule state — have ultimate authority over the allocation of tax revenue. Due to the state’s far-flung population centers, decentralization has historically been seen as the most efficient method of delivering public services.

Understanding the true context of current debates over the next state budget is critical for lawmakers, who should make informed decisions.

Also, if lawmakers are to meet the state’s current fiscal challenges, they need a systematic approach to prioritizing spending. A primary reason why Silver State politics becomes so divisive during recessionary periods is because the legislature has no plan in place for scaling back spending when the growth in revenues lags growth in so-called “baseline” spending targets.

This is exactly why the Nevada Policy Research Institute, the Nevada Taxpayers Association and the bi-partisan Spending and Government Efficiency (SAGE) Commission have all recommended that the legislature implement priority-based budgeting. Under such an approach, executive-branch officials rank individual programs in terms of effectiveness and priority. Thus when lawmakers need to rein in spending, a clear plan is in place for doing so.

This is the reason why no savings estimate is attached to the SAGE Commission’s recommendation (#43) for priority-based budgeting: The savings can be whatever sum is required.

However, if lawmakers are unable or unwilling to establish spending priorities — something Frank Partlow, in his recent book, SAGE Nevada, calls the “proper business of legislators” — the Nevada Policy Research Institute has already identified many potentially low-priority expenditures. Nevada’s Freedom Budget 2009-2011: The Road to Recovery provides more than 50 pages worth of proposed line-item spending reductions.

Heading into the 2011 session, NPRI plans to develop an even more comprehensive zero-based budget proposal.

Between now and then, however, there are certain budgeting basics with which Nevada lawmakers should become acquainted. An outstanding example is the fact that, between the 2003 and 2009 legislative sessions, inflation-adjusted, per capita state spending increased by 31 percent. Had per-capita spending remained at the 2003 level, the 2009 legislature would have passed a $5.3 billion budget, rather than the $6.9 billion budget that became law. Hence, an obvious place to begin is with the new spending.

In the 2005 session, lawmakers committed to spending hundreds of millions of new General Fund dollars on class-size reduction, full-day kindergarten and the Millennium Scholarship Program. If lawmakers truly believed these new expenditures constituted priorities, they would have offset those expenditures with reductions elsewhere.

A simple list of recommendations, from which lawmakers can derive ideas for substantial savings, could include:

•Eliminating class-size reduction — $290 million
•Eliminating full-day kindergarten — $53 million
•Raising in-state tuition levels at public universities:
◦To the national average — $205 million
◦Or to a level comparable with Vermont — $614 million
•Eliminating General Fund’s contribution to the Millennium Scholarship program — $15 million
•Establishing a Public Education Tax Credit — $31 million over first two years
•Continuing the employee furlough program — $300 million
•Offsetting the diversion of room-tax revenue to K-12 education with fewer General Fund dollars — $220 million
•Rolling back K-12 basic support per pupil to 2007 levels — $250 million

These and other ideas will be highlighted here in coming months. In tandem with the 44 SAGE Commission recommendations that would save more than $2 billion during the next five years, they will provide lawmakers in 2011 with ample opportunities to control spending.

The Silver State’s economic future hinges on whether or not they do so.

(Geoffrey Lawrence is a fiscal policy analyst at the Nevada Policy Research Institute. For more visit http://npri.org)