The budget shell game

Nevada’s fiscal structure is routinely misrepresented to justify tax increases

By Geoffrey Lawrence
  • Thursday, October 14, 2010

Pundits and policymakers love to overstate the supposedly impending doom facing Nevada's state government. Citizens are insistently told that the tax structure is inadequate and that lawmakers meeting in 2011 will have no choice but to, once again, shatter previous tax-hike records.

It's a diversionary tactic.

Legislative leadership would like to get its hands on more of our money, sure. But to do so, they've been shifting things around. If lawmakers can convince us that the budget cannot be balanced without record-breaking tax increases, they will gain the political leverage to do so.  And that means they've got to hide any alternative solutions.

Welcome to the budget shell game. 

Nevada statute (NRS 353.230) requires the state budget director to prepare the executive-branch budget proposal using the "baseline" approach. Yet baseline budgeting is a flawed process that, in operation, puts spending increases on virtual autopilot. In recent budget cycles, the flawed picture that baseline budgeting paints has been used to justify state-government spending increases every two years of $1 billion or more.

The reason for this is that the baseline technique, in practice, habitually rubber-stamps all existing expenditures and then adds in new expenses to finance automatic, across-the-board pay increases for state workers, caseload adjustments and inflation. Never is a fundamental review of state spending undertaken to evaluate programs on the basis of need or effectiveness. Every new and failed program that lawmakers have added over the decades is, by rote, absorbed into the baseline calculation and gets a free ride into perpetuity.

Heading into the 2011 regular session, the state budget director says that the baseline calculation would increase spending by more than $1.5 billion — from $6.4 billion to $8.3 billion.  Unofficial early projections put revenues around $5.1 billion, leading to claims of a $3+ billion shortfall. Legislative leadership is using this claim as political leverage to drive for a historic tax increase in 2011 in order to finance their planned spending increase.

That's the cup in this shell game you can see beneath.

Under a second cup, hidden from view, is another budget proposal, one created through a systematic review of state spending, where each thing the state is doing is evaluated on the bases of both need and effectiveness. This budget is balanced without tax increases. 

Even though constrained by statutory requirements to produce a baseline budget proposal, the Gibbons Administration's parting gift to Nevada was to develop an alternative budget using the more rational Budgeting for Outcomes process that the Nevada Policy Research Institute has proposed.

Legislative leaders have consciously avoided any discussion of this proposal. They want to draw Nevadans' attention away from it. They view the baseline figure as their entitlement and want to keep their bogus $3 billion shortfall at the center of the debate.

Under the third cup is yet something else legislative leaders desperately want to conceal.

Nevadans have been told for years that they enjoy the privilege of living in a uniquely low-tax state. Pundits even deplore the depravity of Nevadans unwilling to yield more of their income to tax collectors.

Nevada's citizens have been sold a false premise.

Both the right-leaning Tax Foundation and the left-leaning Tax Policy Center, sponsored jointly by the Urban Institute and the Brookings Institution, show that total per-capita tax collections in the Silver State rank above the national median. Over the years, pundits have lied about how deeply the tax collector's hand was in the people's pockets. Nevada is a high-tax state.

The majority of taxes paid by Nevadans accrue to local governments. Although Nevada's state government is comparatively small, the local governments and school districts in the state's two metro areas, Las Vegas and Reno, are comparatively monstrous. By far, most sales taxes paid by Nevadans go to the local governments. That's true for the federal moneys that come back into the state, too.

Because Nevada is a Dillon's Rule state, however, ultimate authority over the allocation of all tax revenues rests with the state legislature. There, majorities in the pockets of local government-employee unions have deliberately chosen to allow bloated budgets at the local level while at the same time granting those same government-employee unions rights to run roughshod over taxpayers. Over the years, this produced the current privileged class of local-government bureaucrats receiving inordinately high salaries.

Honest lawmakers would tell us they have wasted our money. They would correct their mistakes of the past. They would openly confess that the state budget can be reconciled without taking more from Nevada's hard-working families.

These lawmakers have consistently placed their allegiance to public employee unions over the interests of all Nevadans. They have chosen to mislead the public and to play shell games with the budget. They are complicit with those who essentially see taxpayers as prey.

Maybe it's time to kick the table over.

Geoffrey Lawrence is a fiscal policy analyst at the Nevada Policy Research Institute. For more information visit

Update (10/15/10): Changed $8.1 billion to $8.3 billion to reflect just released Agency Requests for FY 2012 and 2013.

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