Borrowing is not a budget solution
While Gov. Sandoval's budget proposal has many positive elements – lower General Fund spending, significant education reforms, performance-based budgeting and no tax increases – there are a few worrisome items.
One of the biggest is this revenue source in the Executive Budget.
The Executive Budget securitizes a portion of the Insurance Premium Tax for the next five years in order to augment FY 2012 revenues by $190 million.
Basically, the governor is recommending using future Insurance Premium Tax receipts as collateral for a $190 million loan. While this is a better option than the sale-leaseback agreements that Arizona and California have entered into, it suffers from the same fundamental problem – debt is not a budget solution.
Senate Majority Leader Steven Horsford is already jumping all over this short-sighted proposal.
"This is like taking out a second on my house to pay my bills," Senate Majority Leader Steven Horsford said. "I think a lot of families that have done that have seen the consequences of that approach. It's put people in bankruptcy. How is that proposal by the administration any different?"
Of course, Sen. Horsford preferred method of paying Nevada's bills – raising your taxes – isn't ideal, either.
What's the real alternative? Reduce spending, ideally down to pre-2005 levels, through performance-based budgeting.
Why pre-2005? Because in 2005, Nevada raised inflation-adjusted, per capita spending by 30 percent (pgs. 5-6). That level of spending wasn't sustainable then and isn't sustainable now, despite Gov. Sandoval's best efforts.