Is the tax structure broken?
No, but the spending structure is.
- Wednesday, October 8, 2008
An economic slowdown in Nevada has state and local governments considering tax increases to cover declining revenues. At the state level, much ado has been made about a supposed "budget shortfall" while the Nevada Association of Counties is pushing legislation that would allow counties to increase property taxes. This discussion comes only five years after the largest tax hike in state history. If Nevadans are forced to shoulder large tax increases, they will want to seriously consider what they are buying with their tax money.
A recent publication by the Nevada Policy Research Institute reveals the magnitude of waste in state and local government. The report – along with TransparentNevada.com, a new website – details the excessive salaries and perks given to some public officials, questionable procurement practices, unnecessary expenditures and inefficient uses of taxpayer resources. Millions upon millions of taxpayer dollars are being wasted at the same time that government officials are declaring the need to raise tax rates.
A rethinking of the way government is run in Nevada is clearly in order. State and local governments could likely maintain current levels of services even as revenues were to fall by operating more efficiently. An underlying cause of the amount of waste and inefficiency that exists today is that government in Nevada is organized based on a model that rewards inefficiency. If crime is high, police departments are rewarded with increased funding. If tests scores are low, teachers, thanks to their union, are awarded higher pay nonetheless.
This model of government focuses on funding inputs and not outputs. Instead of funding road construction, for example, state government funds the purchase of trucks, asphalt and labor. This amounts to throwing money at a problem without requiring accountability for how the money is spent. Approaches like these would never survive in the private sector, where competition compels firms to be accountable to the consumer. When the focus of government spending is switched to outputs, executive officials are forced to consider the efficiency and effectiveness of expenditures.
Nevada government should also modify its practices in a way that incentivizes state and local employees to eliminate inefficiency and waste. Performance contracts can be valuable for this – allowing public employees to be hired for the delivery of services, but promoting innovation by granting those employees discretion over the manner in which services are delivered. Efficiency and innovation can be further promoted by allowing agency employees to share in the savings if they are able to fulfill the contract under budget.
Opening government services to private-sector competition can also help to reduce the taxpayer burden. As Thomas Jefferson famously said, "It is better for the public to procure at the market whatever the market can supply; because there it is by competition kept up in its quality, and reduced to its minimum price."
The city of Charlotte, N.C., has used an approach called "managed competition" over the past dozen years to increase government efficiency by exposing municipal agencies to market forces. This approach allows government agencies to compete with private-sector entities for contracts. Each of the 61 contracts that the city has awarded through managed competition has saved local taxpayers money even though only 10 have been awarded to private entities. Public agencies that are exposed to competition are forced to find ways to reduce costs and eliminate inefficiencies. This approach has also been adopted by the states of Florida, Indiana and Virginia, as well as cities such as Indianapolis, Philadelphia, Phoenix and San Diego. According to Florida's Council on Efficient Government, the state has saved $5.5 billion on 289 projects since 1995 through competitive contracting.
A final component of spending reform in Nevada should be to create an independently elected state auditor with the power and mandate to conduct performance audits on all agencies that are requested by the public, the Legislature, or the Governor's Office. As has been done in the State of Washington, the auditor should also have the power to recommend statutory or regulatory changes that would enable better efficiency and effectiveness of government. An independent auditor's office would facilitate government accountability and would be a valuable resource to state agencies seeking to streamline their costs while ensuring the quality of services provided.
Public officials should never issue calls for higher taxes until they have taken steps to ensure that taxpayer dollars are being spent efficiently and effectively. In Nevada, this clearly has not been the case.
Now is the time to implement meaningful reform. Until reforms are achieved, calls for higher taxes should fall on deaf ears.
Geoffrey Lawrence is fiscal policy analyst at the Nevada Policy Research Institute.