Nevada's budget mysteries

Legislators have some important questions to answer.

By Patrick R. Gibbons
  • Monday, December 22, 2008

The more one examines Nevada's budget situation, and listens to the comments coming from policymakers and pundits, the more conflicting information one receives. One newspaper has claimed that general fund revenue is down to $5.6 billion for this biennium, while another claims that number is actually the projection for the next biennium.

Some newspapers report a $1.2 billion shortfall, others a $1.5 billion shortfall, and we have even heard claims of $2.5 billion to $4.5 billion shortfalls (if you guessed Jon Ralston and Jim Rogers, you are correct).

The only thing that is consistent is that nothing is adding up – nothing from the policymakers and revenue forecasters, and nothing from the pundits. And if no one among the political insiders seems to know what is going on, how will the average citizen understand?

From our perspective it appears as though the policymakers are taking advantage of everyone's confusion. There are some important questions that need answers from those responsible for the budget.

In May 2005 the Nevada Legislature approved $5.8 billion in general fund appropriations for the July 2005-June 2007 biennium (See Graph 1). In May 2007, lawmakers allocated $6.8 billion for the next biennium. Then this month, the Economic Forum reported that actual general fund revenue for FY2008 had come in at $3.05 billion and was projected to be $2.78 billion for FY2009 – for a projected total for the entire current biennium of some $5.8 billion.

So the first question is: If the 2005-07 biennium's general fund appropriations totaled $5.8 billion, and the projected 2007-09 biennium general fund revenue will be about $5.8 billion, have we really "cut to the bone," as many are claiming? Even after adjusting for inflation, that is only a 2 percent decrease in spending (assuming Nevada will spend all of the projected general fund).

Question No. 2 is: When the 2007 legislature approved an increase of $1 billion in general fund spending over the previous biennium, what was this extra $1 billion supposed to buy?

It's almost certain that most of that money was for salary hikes. If true, that means we are cutting state services, like Health and Human Services, to fund pay raises for state employees – some of whom received 10.5 percent pay increases.

This presents a serious question about our state politicians' priorities: Which is more important for government to do, fund jobs for government workers, or fund services for Nevada's residents?

Notably, the claimed $1.5 billion shortfall does not square with the difference in approved general fund appropriation figures supplied by the Economic Forum. After all, $6.82 billion minus $5.83 billion is about $0.99 billion.

In June 2008, the Department of Administration's Budget Division projected Nevada's shortfall would total $1.17 billion.

But only $778 million of that shortfall was in the general fund, leaving a $396 million shortfall elsewhere (See Graph 2).  And $275 million of that remainder was simply additional required school support, while another $60 million resulted from more caseloads for Medicaid.

In December 2008, the Economic Forum reported actual FY2008 revenues at $3.053 billion and projected FY2009 revenues to come in at $2.77 billion.

But before the Economic Forum completed its projections, the state was already claiming an additional $340 million shortfallWhere did this shortfall come from, and how was it calculated?

NPRI assumes that $205 million of the shortfall came from additional general fund revenue declines (from FY2009 projections: $2.98 billion minus $2.77 billion equals $205 million) leaving another $135 million either from other government funds or from formula-driven spending. Adding the two claimed budgetary shortfalls ($1.17 billion plus $340 million) gives us the $1.5 billion shortfall we have heard about in the news.

But is this $1.5 billion shortfall the total shortfall for the entire budget?

It's an important question, since the general fund makes up only 37.5 percent of the state's entire biennial budget (See Graph 4). For 2005-2007, the legislature approved a total budget of $15 billion. In 2007, the executive budget recommended $18 billion in expenditures for the 2007-2009 budget (See Graphs 5 and 6). Why is the general fund so important that we never hear about the other $11 billion in revenue and expenditures?

If the total budgetary shortfall is $1.51 billion out of an $18.2 billion biennial budget, then that means the state still spends more today, despite the recession, than it did during the last biennial budget. The current biennial budget was approved at about a 15 percent increase over the last one. The $1.51 billion shortfall would have reduced our current budget down to $16.7 billion, still 5.3 percent larger than the last budget.

We keep hearing that, without new revenues, we'll need to cut by 34 percent to shore up the budget. Where does that number come from?

This is a particularly important question, since the total budgetary shortfall of $1.5 billion is about 8.4 percent of the total budget. Even taking just the general fund, the 34 percent figure makes no sense, since the general fund only decreased by 2.9 percent for FY2008 and by 9.1 percent for FY2009 – a total general fund revenue decrease over the biennium of just 6 percent.

And even a look at current cuts doesn't produce the 34 percent figure. According to Assembly Speaker Barbara Buckley, the state already has cut a total of $257.3 million from education. This represents only 7.1 percent of the general fund appropriations to education and only 5.2 percent of the total budget for education. Buckley also has claimed that $113 million has already been cut from Health and Human Services, but again, that represents just over 5 percent of the general fund appropriations to Health and Human Services and less than 2 percent of the overall budget for Health and Human Services.

Someone needs to answer these questions. Nevada's taxpayers have a right to know what is going on with the budget and what the legislature intends to do about it.

Patrick R. Gibbons is a researcher at the Nevada Policy Research Institute.

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