Reid’s budget plan: positive, but flawed
Plan plagued by untenable assumptions, absent evidence
- Thursday, September 2, 2010
Democratic gubernatorial candidate Rory Reid offered more substance in support of his "no new taxes" rhetoric last week when he released a tax-neutral budget plan. Silver State taxpayers should be encouraged by Reid's public commitment to opposing tax increases and his willingness to offer specifics on how he would balance the state budget with existing revenues.
Nevertheless, the credibility of Reid's proposed budget plan will remain in question until he can convincingly resolve several important issues. While many of the ideas in Reid's budget plan are good — consolidating, streamlining or even privatizing certain government functions — the plan also features many untenable assumptions and unsupported assertions.
Rather than adopting a more innovative "Budgeting for Outcomes" procedure that would combine zero-based budgeting with competitive sourcing and performance contracting, Reid instead proposes adjustments to the current baseline calculation. That figure, because of uncontrolled "roll-up costs," is likely to balloon from the current $6.5 billion to as much as $8 billion or more for 2011-13. That would constitute a spending increase of around $1.5 billion and establish a new record for state spending.
The Legislative Counsel Bureau, as reported in the Reid plan, currently expects state revenues of about $5.1 billion during the next budget cycle. That implies about $1.4 billion less than current spending levels and a possible $3 billion gap if the automatic spending increases of the baseline approach remain unmodified. To close this gap, Reid proposes reforms that would reduce spending. He also assumes increased revenues.
Reid proposes a major restructuring of state government — consolidating 26 state agencies into 16 — in order to lower fixed and administrative costs. There is merit to this proposal. However, Reid's estimate of the savings that could be achieved through this consolidation — $31.9 million — is too high, according to the state budget director.
At least $400 million of initial biennial savings in the Reid plan are based on recommendations of the Spending and Government Efficiency Commission, appointed by Governor Jim Gibbons. Another $480 million in savings would come from continuing state employee furloughs and postponing merit and longevity pay raises for state workers over the next two years. (Current baseline spending projections assume that the furloughs would be eliminated and state workers would again receive across-the-board merit and longevity pay raises.)
Reid also borrows heavily from money-saving reforms that have been undertaken in other states. While this is an admirable approach, Gibbons administration officials point out that estimates of cost-savings extrapolated for Nevada — based on percentage of savings in other states — may not be accurate, as state commitments to particular policy areas differ.
Many of the potentially worthwhile reforms posited by Reid would also face steep implementation costs — costs that are routinely ignored. For instance, Reid would like to save $41 million by cutting Medicaid fraud in half. Clearly this is a worthwhile goal, but achieving such a goal would require additional control mechanisms for fraudulent claims that themselves could be expensive. These additional costs need to be considered in any serious analysis of the state's budget problems.
Hundreds of millions of dollars worth of alleged savings in the Reid plan suffer from poor or nonexistent documentation. The reform proposals may well be valid, but to be taken seriously, they will require additional support.
It is on the revenue front where Reid makes an extreme assumption that threatens the validity of the entire plan. He assumes a significant statewide economic recovery in which existing taxes bring in a revenue increase in FY13 of $615 million. However, under state law the governor is constrained by the December Economic Forum revenue projections when crafting the Executive Budget. While it is possible Reid's assumption of higher revenues is correct, the governor is legally prohibited from independently "inventing" new money.
On the whole, Reid's budget plan is strong in principle, and any substantive effort to balance the Silver State's budget without resorting to tax increases should be applauded.
However, Reid needs to provide more thorough documentation. In addition, his plan would be strengthened significantly if it were to begin by correcting the method of budgeting through a Budgeting for Outcomes approach.
When it comes to balancing the state budget, Rory Reid still has more work to do.
Geoffrey Lawrence is a fiscal policy analyst at the Nevada Policy Research Institute. For more information visit http://npri.org.