Sandoval incorporates long-needed reforms
Gov. Brian Sandoval's first Executive Budget proposal, while not perfect, offers a refreshing departure from many poor budgeting practices of the past.
Nevada's state government has long needed a fundamental restructuring. First and foremost, prior budgeting practices, commonly referred to as baseline budgeting, placed spending increases on autopilot and failed to impose meaningful accountability over dollars spent. This implicitly justified unrestrained growth in state spending regardless of changes in Nevada's economy. As revenue growth turned negative during the current economic recession, baseline budgeting's unsustainable nature was immediately apparent. Nevada needs a plan to bring spending in line with revenue.
Second, even as state spending has continued increasing, government performance has lagged across the board. Graduation rates in Nevada's public schools have been in freefall. Test scores have remained flat. Crime rates have consistently outpaced the rest of the nation. Not only does the Silver State need to reconcile its finances, it needs to change the culture within state government to incentivize higher performance.
Gov. Sandoval's budget proposal aims to accomplish both of these objectives. General Fund spending would contract by 8 percent compared to the 2009-11 biennium, after accounting for changes made in the 26th Special Session. Far more significant than the total spending amount, however, are the results that the proposal is designed to achieve.
The Executive Budget establishes a hierarchy of policy objectives and links funding directly to the achievement of those objectives. It is the first performance-based Executive Budget in Nevada history.
The budget proposal, however, does have one shortcoming: Sandoval fails to enumerate policy objectives in terms of priority. Instead, government programs are lumped together in categories labeled "high," "medium" and "low" priority. Oddly, Sandoval's budget team only put $143,914 of General Fund spending in the "low" priority category — while everything else received a "medium" or "high" priority demarcation. This reluctance to establish a clear-cut and meaningful hierarchy of spending undermines the value that this new approach adds.
This shortcoming leads to others. The Executive Budget aims to shift large sums of money in and out of various state accounts in order to maximize spending on the nebulous "medium" priority expenditures. The proposal uses a loan against future revenues from the insurance premium tax — a tax NPRI has recommended phasing out — in order to provide $190 million in immediate funds. It would also replace revenues from a temporary sales tax increase approved by the 2009 legislature, through a one-shot transfer of money from local school districts' capital improvement funds. Finally, the Executive Budget would continue the acceleration of mining tax payments enacted during the 26th Special Session — a move designed to provide an additional $60 million in FY12.
Clearly, these stopgap measures are not sustainable in the long run, nor are they advisable in the short run.
Other aspects of the Executive Budget are extremely encouraging, however. State spending on K-12 education is transformed into block grants for school districts that will create needed flexibility. This will allow schools and school districts to implement education plans that work, and not simply those mandated by state authorities. State requirements to maintain failed programs like class-size reduction and full-day kindergarten are eliminated. At the same time, the governor recommends funding to identify and reward high-performing teachers.
The governor's budget achieves total General Fund spending reductions despite escalating costs for state Medicaid and welfare programs. Medicaid is the fastest-growing expenditure within the state budget, with its caseload estimated to increase by 27.7 percent during the 2011-13 biennium, as more individuals meet the program's eligibility requirements. Due to provisions in Obamacare, state Medicaid costs will balloon even faster over the next few years, and lawmakers will soon need to address this growing liability as well.
The Executive Budget also proposes to grant the Nevada System of Higher Education the autonomy long-sought by regents. State subsidies to the system will decrease, which will mitigate the adverse economic impacts of those subsidies, and, in exchange, regents will gain the freedom to set and keep their own tuition rates.
Finally, the Executive Budget begins to address the Silver State's exorbitant labor costs. In 2009, state workers in Nevada were paid 15 percent above the national median of their peers, while local government workers were paid 31 percent above the national median, according to U.S. Census data. The Executive Budget eliminates the current furlough program for state workers, but reduces worker salaries by 5 percent and continues to suspend merit and longevity pay increases.
Gov. Sandoval's first budget proposal ambitiously tackles many of the needed reforms long stalled in the Nevada Legislature. The plan isn't flawless, however, and proposed spending continues to outstrip revenue projections.
Sandoval's plan represents substantial progress, but there is still more work to be done.
Geoffrey Lawrence is deputy director of policy at the Nevada Policy Research Institute. For more visit http://npri.org.