California stealing Nevada’s budget narrative and talking points

Victor Joecks

So I was reading about California’s budget deficit this morning – now $26 billion – and noticed something interesting. If you tweaked the names and the numbers to reflect the Silver State, the whole article could have been about Nevada’s current budget situation.

A new governor facing a substantial deficit that will force cuts? Check.

California has sunk back into yet another fiscal crisis, this time facing a $26 billion gap that is posing a major new challenge for the incoming governor, Jerry Brown, and seems almost certain to force deep cuts in a state already reeling from three years of financial turmoil.

State officials bemoaning that government has cut to the bone? Check.

“There’s no more easy stuff to cut,” Susan Kennedy, Mr. Schwarzenegger’s chief of staff, said Monday. “We are cutting into bone now.”

Past leaders using budget gimmicks to close the budget gap? Check.

California has a history of recovering from financial crises, riding the wave of national economic growth to fiscal health, and that is one reason state leaders frequently turn to stopgap solutions intended to push the problem up the road.

Previous reductions in funding to public education, universities and social services and worker furloughs (although the cuts in Nevada have been greatly exaggerated)? Check.

This latest crisis follows three straight budgets characterized by deep cuts in aid to public education, the state university system and social welfare programs, as well as repeated worker furloughs as California has tried, in vain, to find its balance.

Two-thirds requirement for tax and fee increases? Check.

The options on the revenue side of the ledger are constrained by a California voter initiative that requires a two-thirds vote by the Legislature to raise taxes; that two-thirds requirement was extended to fees in another initiative passed this November.

Suggestions that local governments be given more responsibilities to provide services and the ability to raise taxes? Check.

Mr. Steinberg said that given all the restrictions the state faced, the best course of action would be a realignment of state services in a way that would require local governments – which might have more flexibility to raise some taxes – to provide them. He said he thought Mr. Brown would be more receptive to that kind of revamping than Mr. Schwarzenegger.

Aside from budget difficulties, what else do California and Nevada have in common?

Is it their tax structure? No. California has an income tax, corporate income tax and sales tax with some of the highest rates in nation. Nevada only has a sales tax.

Well, if California and Nevada’s tax structures are completely different, why are they facing the same budget problems?

As I’ve written before: It’s the spending. Both states have increased inflation-adjusted, per-capita spending by more than 29 percent in the last 15 years.

It doesn’t matter whether a state has a sales tax, a personal income tax, a corporate income tax or all three. When states pass unsustainable spending increases year after year, eventually they’ll run out of gimmicks to employ in order to avoid deficits. Unsustainable spending increases simply become unsustainable.

Nevada’s problems don’t stem from a lack of revenue, either. As NPRI fiscal policy analyst Geoffrey Lawrence has noted, organizations as ideologically diverse as the Tax Foundation and the Brookings Institution rank Nevada’s combined state and local tax collections per capita 25th-highest and 22nd-highest, respectively, in the nation.

The proof that higher taxes can’t solve the problems created by over-spending is literally right next door to Nevada.

The only question left is whether liberals will learn from the example of California – or copy its mistakes in Nevada.