Bursting the spending balloon

Budget shortfalls should give hope to Nevadans.

By Geoffrey Lawrence
  • Tuesday, October 21, 2008

The current financial crisis and related economic downturn are leading to sharply reduced tax revenues across state and local governments in Nevada.  While the resulting budget shortfalls are frequently viewed as deplorable, they could be the silver lining of these cloudy times.

State and local governments in Nevada have taken advantage of the prolonged economic growth of the past few years to ramp up spending.  Much of this new spending has been wasteful, and some of it has funded programs that at best are questionable for government.  The Nevada Piglet Book 2008, a recent publication by the Nevada Policy Research Institute, highlights some of the most wasteful spending.

Every dollar spent by government is a dollar taken from private individuals – either directly or indirectly.  Free markets direct investment and purchases toward industries that deliver the greatest utility to individuals. Depriving individuals of the resources with which to engage in market transactions most likely will have a strongly negative impact on all Nevadans' quality of life.  For example, less wealth will be available to develop new technologies and cheaper production processes for the products that individuals desire.  By its fundamental nature, taxation hampers the market's ability to satisfy most human needs.  Given this, state and local government in Nevada should have to meet strict standards as to why any new expenditure is necessary.  This level of scrutiny in Nevada has been missing.

State and local tax revenues have risen dramatically over the last decade, more than doubling in some cases.  The state's general fund has grown from about $1.2 billion in 1996 to more than $3.1 billion in 2007.  Similar increases have occurred in county governments.  In Nye County, for example, county revenues rose from $35 million in 1999 to $74.6 million in 2007.  County expenses rose from $35.7 million to about $58.9 million.  Even when adjusted for population growth and inflation, these numbers are over the line.

Looming budget shortfalls across the state have the potential to impose new levels of fiscal austerity.  The City of Las Vegas reportedly will have to reduce spending by $150 million over the next five years.  The City of Henderson, which had planned to increase spending $44 million this year, is now reducing that increase by $28.2 million.  A city spokesperson is quoted as saying, "We're going to have to find a way to be more lean."  Among the programs to be cut by the City of Henderson is a taxpayer-funded cable access television program about the city.

Similar expenditures exist at the state level.  The state maintains a "Nevada Film Office" that tries to lure film production away from other locales and present Nevada as the new Hollywood.  Because other states have similar offices, collectively they have the predictable effect of cancelling each other out.  The state also uses taxpayer money to publish Nevada Magazine, which presumably informs taxpayers that they live in Nevada.

There is a danger, though, that some policymakers will use budget shortfalls as an excuse to increase taxes and protect wasteful government spending.  Already, Assembly Speaker Barbara Buckley is maneuvering for higher taxes and apparently does not think that limits on spending are a good idea.  The Nevada Association of Counties has also requested legislation that would allow counties to increase property taxes beyond limits previously set by the Legislature.  Current caps on property taxes were put in place specifically because rising property values were increasing the tax burden more than was required to prudently operate local governments.

In a time when Nevadans face rising unemployment and declining incomes, they should not be simultaneously burdened by increasing tax rates.  An opportunity exists in Nevada to curtail the size of government at all levels, and this opportunity should not be wasted. 

The proper role of government in a free society is to empower individuals with the opportunity to improve their quality of life.  To do this, government expenditures should be limited to providing strict public goods such as protection of property rights and the rule of law – leaving resources in the hands of private citizens so they can employ their creativity and entrepreneurship to help meet the needs of themselves and others. 

Government should never exist for its own benefit.  Any government that would respond to an economic downturn by increasing taxes clearly does not have the best interests of the public at heart.

Geoffrey Lawrence is fiscal policy analyst at the Nevada Policy Research Institute.

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