Back-sliding from the abacus

Patrick Gibbons

The Silver State's alleged $2.3 billion shortfall has many Nevadans worried. Democrat and Republican politicians alike seem poised to address the shortfall by raising taxes.

But several important questions need to be asked. First, that $2.3 billion figure: Where in the world does it come from?

"[T]o keep general fund services at the levels anticipated two years ago," reported the Las Vegas Review-Journal recently, "the state would need $8 billion in revenue, said Budget Director Andrew Clinger, about one-third more than the $5.8 billion that is available, according to the latest projections."

So the "shortfall" is simply the difference between what state government wants to spend—about $7.9 billion, actually—and the money expected to come in ($5.65 billion, according to the Economic Forum).

And that $7.9 billion figure? Where does it come from?

Therein lies the problem. The administration's budget office calculated its new general fund base budget for the state by taking the amount the 2007 legislature expected to spend and ignoring what actually came in. Next, state budgeters added in several "adjustments" they've repeatedly declined to explain, which increases spending for the 2009-2011 biennium to $7.35 billion. Then they added in an additional $568 million allegedly for inflation and population growth—making the grand total the $7.9 billion figure. Coincidentally, $7.9 billion is also the maximum general-fund spending that Nevada law allows the governor to propose for the next biennium. A statutory formula, based on 1974 spending ratios, limits the general-fund spending increases that governors can propose in their executive budgets (but not elsewhere).

The $7.9 billion number is 17 percent larger than general fund appropriations for the 2007-2009 biennium, a large increase considering the nation's economic woes. In effect, the state's previous "shortfall" is being combined with a new "shortfall" simply because Nevada's political class continues to demand we spend more money than we take in. The state is not facing the "$2.3 billion in budget cuts" we repeatedly hear about. Rather, the new executive budget submitted to the legislature is just 0.9 percent smaller than what we are currently projected to spend in the 2007-2009 budget.

Now, let's turn to the more basic question: Why is it always assumed that government must continually increase spending? A close look at lawmakers' statements and behavior suggests the real goal is not to merely maintain services, but to maintain spending levels.

This mindset completely ignores how many new inventions and innovations have come along since 1974, dramatically increasing efficiency and productivity while lowering costs of doing business.

The personal computer is a classic example. Since 1993 alone, the price of PCs has fallen by as much as 75 percent, even as processors have become 7,500 percent faster and hard drives have become 150,000 percent larger. Over time, computers have become faster, more useful … and cheaper. In turn, they have helped workers become more productive and more efficient, allowing millions of companies to lower costs, expand productivity and add trillions of dollars to the global economy.

Unless Nevada's government still uses the abacus, one would expect its productivity to increase over time, as government costs decrease. Instead, we see the opposite: The state constantly presumes expenditures must increase to "maintain services."

Perhaps if Nevadans were less wealthy today than in 1974, one could make the case that more government services were needed. But according to the Bureau of Economic Affairs, average personal income per capita in Nevada increased roughly 37 percent between 1974 and 2007—from roughly $29,000 in inflation-adjusted dollars to $39,641. Similarly, the Tax Foundation ranks Nevada's personal income per capita seventh highest in the country, and personal income per household 17th. Nor do those per-capita figures mask hordes of poor people being averaged out of the stats by the exceptionally wealthy. According to the U.S. Census Bureau, the Silver State has the 14th-lowest poverty rate in the country.

Nevadans are simply better off than they were in 1974. Yet despite this, and despite the increases in technological innovation, government continues to get more and more expensive.

The accurate way of describing our budget "shortfall" is this: Nevada is about $2.3 billion short of being able to maintain current government inefficiencies.

Addressing the shortfall through new revenues—i.e., tax increases—would only provide our politicians yet another excuse to avoid seeking the kinds of innovative solutions that can make government more efficient and less costly.

Patrick R. Gibbons is education policy analyst at the Nevada Policy Research Institute.