(Ron Knecht) – A Nevada legislator says he’s witnessed the “systematic dismantling” of public K-12 education over recent budget cycles, with more than $700-million cut from K-12 during the Great Recession. (Associated Press, March 1, 2013.)
While folks may recognize that “systematic dismantling” is just the next rhetorical step after “draconian cuts” and similar silly buzz phrases from previous years, they typically are less sure whether the numbers claims have any merit, let alone what we should do.
The $700-million-plus figure comes from a claim by the Clark County School District (CCSD) that it cut $564-million from its budgets in recent years, plus estimated cuts of $160-million by the Washoe County School District. These claims are misleading because they do not mean what they sound like they mean. And the budget cuts are not comparable to the income cuts experienced by the Nevada families and businesses that pay taxes to support state and local spending.
If a family or business said it suffered cuts, one would understand that it actually spent less after the cuts. Not so for government agencies, due to their budgeting practices that do not use actual spending as their reference point. Instead, they use inflated reference points (baseline budgets) that have the effect of exaggerating any actual “cuts” and concealing how much has actually been added to public spending.
When actual public spending has increased or has declined only a bit, tax-and-spend politicians, bureaucrats, unions and their mainstream media allies wail about “budget cuts”. But a budget, the dictionary tells us, is just a plan to spend money. By focusing on “budget cuts”, they seek to cover up the actual spending increases and to make their previous wish lists (budgets) sacred entitlements that you are obligated to fund and to increase rapidly via new and higher taxes, despite any decline in your own real income.
The Nevada Policy Research Institute revealed that CCSD’s general fund budget was $2.091-billion in 2007-08 (adopted during the boom before the recession), and it has remained at or slightly above that level since then. So, CCSD’s claimed $564-million cuts don’t reflect actual cuts in spending, despite big play from mainstream media.
CCSD and other school districts do not use the actual spending from a previous year – as any sensible person or business does – as their reference points for computing cuts and increases. Instead, to get their reference figures, they add to their prior spending levels increments for such things as inflation, increased head counts, new programs, full-year spending for new initiatives that started in the late months of the previous year, real increases in pay levels due to new contracts with public-employee unions, etc.
Very seldom do they factor into their reference figures savings due to productivity gains from innovation and technological progress such as those the private sector realizes continuously and that are essential to human and economic progress. Nor do they usually reflect savings from economies of scale, such as head-count increases. They seldom re-examine existing programs to find ones to cut as ineffective or dysfunctional. In sum, they make adjustments that systematically increase their reference figures, and they usually and wrongly ignore needed adjustments that would decrease them.
Via this approach, actual spending of $100-million last year would be transformed into a reference budget of, say, $110-million for this year for purposes of determining how much has been cut or added. Then, if $106-million is appropriated, advocates for the public entity will claim it has suffered a $4-million budget cut, instead of admitting that its spending was increased by $6-million.
Because no such one-sided “baseline” adjustments can be made to the incomes of families or businesses or to the state’s economy, the one-sided adjustments provide cover for the advocates to claim – falsely – that the public sector and its employees have been hit harder than anyone else by the economic problems that have been caused mainly by excess government spending, taxing, regulation and other intervention.
What, then, are the real and central facts of actual state spending in recent years and long term on K-12 and other general-fund (GF) categories, versus the rocky fortunes of the families and businesses that pay taxes to support that public spending, and as compared to Nevada’s economy?
To answer this question, I used all the state’s Comprehensive Annual Financial Reports (CAFRs) for 1994-2012 (which are all the years available on line and which use current budget categories), plus Nevada personal income (PI) data to measure the state economy and the income ups and downs of our families and businesses. Because all these amounts have increased with inflation and population growth, I used inflation and population data to convert all the aggregate values to real, per-capita 2012 dollars.
Nearby, the aggregate nominal dollar amounts are shown in the table, and the changes in per-capita real spending are displayed in the graph. I highlight K-12 (including the state’s funding of local districts), health and human services (HHS, including Medicaid), and higher education (HE) because they comprise 85% of total GF spending. I compare changes in these three categories and total and other state GF outlays to the PI indicator for Nevada’s economy and its families and businesses (the state’s taxpayers).
The graph shows that in the mid-1990s, HE (orange line) grew fastest; but, by 2000, gains in PI (purple), reflecting mainly the private sector, exceeded growth for all major categories of state GF spending (green). In the 2000s, HHS (red) surged and then K-12 (blue) rose even faster, bringing overall state GF spending (of which they comprise 75%) with them. For the entire period, other state GF spending (maroon; public safety, infrastructure, commerce and industry, constitutional offices, cultural affairs, but not transfers out of GF) lagged behind all other categories almost every year.
By fiscal year (FY) 2009 – a time by which the private sector had been hammered by the recession but state spending had not yet felt its full effect – all major state spending categories had grown significantly faster than Nevada’s economy and the incomes of its taxpayers. Because earlier tax increases and the bubble economy fostered very optimistic pre-recession state economic projections, and because the Legislature preferred to spend expected new revenues instead of prudently growing “rainy day” funds, FY09 spending on K-12 grew 20% in real, per-student terms over FY08 levels!
After FY09, state real per-student K-12 spending dropped 11.2%, thus netting a real per-student gain of 6.6% over a two-year period, before holding steady and resuming growth in FY12. HHS spending also surged with continuation of the recession, while total state GF spending eased slightly due to cuts in HE and the smaller budget categories.
With major recent cuts in higher education and other smaller GF categories, their current per-capita real spending levels have dropped below the line for Nevada’s economy, families and businesses, and they have actually fallen back to or below FY94 levels. However, as the diverging sets of lines in the graph show, K-12 and HHS spending in real per-capita terms in the most recent year were 39.5% and 36.3%, respectively, above their FY94 levels. Overall real per-person state GF spending was 28.0% higher, while the state’s economy and incomes of Nevada taxpayers had increased only 6.8%.
If one uses the FY01 figures as a starting point, the trends favoring K-12, HHS and total state GF spending and those showing the declines in HE, other smaller budget sectors and the state economy and well-being of families and businesses are even more pronounced. The progress of all sectors was similar until the recession began, but K-12, HHS and total state GF spending have all risen since that time (despite their declines from the imprudent spending blow-out levels of FY09), while everything else has plummeted.
In sum, the central narratives of the teachers and other public-employee unions and the folks seeking to raise taxes and spending are false – almost completely backwards. Nevada state and local government spending, especially for K-12 and HHS, have grown the most, and indeed they rose quite nicely over the last two decades, despite the recent recession, while incomes of families and businesses that must bear the tax burden for that prosperity have barely grown at all. So much for the “systematically dismantling” claim.
Higher education and other smaller parts of state government have borne the real burden of actual cuts in state spending and are now at or below their real per-capita FY94 levels, trailing even the anemic growth of Nevada’s economy and personal incomes. For HE, the state figures actually understate the net decline in state GF support, because they include the offsetting effects of significant recent increases in tuition and fees. HE has done well, however, on self-help, increasing its yield from grants and contracts and especially from its self-supporting operations (now its largest revenue stream).
Put another important way, from FY94 to FY12, state GF spending as a fraction of the Nevada economy and relative to the incomes of Nevada families and businesses grew by nearly 20%; for K-12 state spending the excess growth was almost 35% and for HHS it was 27.5%. Thus, Nevada taxpayers – families and businesses – have been required by tax and spending increases in the last decade to increasingly fund K-12 and HHS, even as their own incomes stagnated and then declined. In addition to taxpayer largesse, K-12 and HHS were aided by real cuts to higher education, public safety, infrastructure, etc.
The real burden on Nevada taxpayers has grown even though Nevada is not a low-tax state, as tax-and-spend advocates claim it is. Nevada’s total state and local tax burden falls in the middle range — 24th to 26th — for the 50 states, according to the Federation of Tax Administrators, using federal agencies’ data. Since extensive research shows that the government fractions of our economy are already sub-optimally large (that is, contrary to the broad public interest), no tax increases can be justified. Instead, modest re-allocation of current levels of public spending in favor of higher education, public safety, etc. are in order, if not overall cuts in state spending relative to our economy.
Improving education is very important. However, instead of adopting low- and no-cost changes in policies and practices that are available and have been demonstrated effective in improving it, we have continuously thrown more money at special interests (teachers’ unions) and untested (and unsuccessful) trendy programs advocated by the educrats – mainly with the real goal of increasing teacher-union numbers and power.
What we need now is the adults to step forward, dismiss the demagogic rhetoric and misleading budget-cut claims, embrace the real and central facts (starting with those presented here), and propose sober and constructive solutions. We don’t need yet more tax increases to feed the public-employee unions that will be as selfishly predatory upon the public interest as legislatures, administrations, school districts, etc. allow them to be.
Ron Knecht is Nevada State Controller.