Nevada’s hidden spending

Subpar accounting practices in Nevada government are making it difficult for taxpayers to learn how hundreds of millions of taxpayer dollars are spent.

Months of inquiries by the Nevada Policy Research Institute found that off-budget spending practices are chronic at both the state and local government levels in Nevada.

In likely the largest area of covert government spending, while more than one hundred million dollars are paid each year via outsourced contracts, record-keeping on the spending is often haphazard and confused, when done at all.

In the six months from July to December of 2007, open records requests show that the state purchasing office spent about $40 million on 107 contracts. Information – firms hired, amounts spent per firm, or even total amounts spent – on 23 other contracts would not be made available, because officials declined to provide any data in those cases, pointing out that "state agencies are not required … to provide information that is not compiled or tracked as a standard report."

Even for known contracts reported, however, records are often vague or confusing. Vague, as in "Partners in Business" (which received $657,748) with no accompanying explanation of the budget items. Confusing, as in one line item showing that the state paid a private firm $56,900 over 11 years for a total of 822 units of vitamin D – with no information available on the size of these units. Were they 822 single capsules of vitamin D, 822 boxes of vitamin D, 822 boxes of bottles of vitamin D or, perhaps, some combination of these?

A second area of spending not apparent in state budgets is the money that Nevada lawmakers allocate to nonprofit organizations with scant reporting requirements. According to Paul Townsend, head of the Legislative Counsel Bureau's Audit Division, nonprofits that receive one-time appropriations from the Legislature may be required by the appropriating statute to have an audit, but the audits are otherwise not mandatory.

Significantly, state and local governments do not produce any comprehensive lists of the nonprofits they fund or the total sums given them. In this context, it is relevant that, though some members of the state Legislature have tried for approximately two decades to tighten auditing requirements in the executive branch, their bills have been regularly rejected by the full Legislature.

The third important channel through which Nevada's state and local governments inhibit public knowledge of spending is through off-the-record transactions. Frequently in the news last year was the Nevada College Savings Program, which had sidestepped legislative oversight by routing some $6 million in fees paid by program participants to private firms managing the program – rather than through the state accounts that lawmakers specified when authorizing the program. Millions were paid to program advisors, a law firm, and a marketing firm, all of which received several times the amount of money allocated to them by the state Legislature.

Although Nevada ethics commissioners subsequently found no violations by former State Treasurer (now Lieutenant Governor) Brian Krolicki, legislative auditors found numerous grievous accounting practices by the college savings program, and the Legislature's audit committee recommended numerous changes in Treasury practices. And because the private program manager held millions of dollars earned through fees in non-interest rather than interest-bearing accounts, auditors estimate that the state lost $38,000 in otherwise easy income.

To put these problems in context, every dollar that the government wastes is a dollar that a taxpayer cannot use for her or his pressing problems.

In today's difficult economic times, with Nevada's unemployment rate over the national average, with home values falling and food and gas prices soaring, transparency and financial accountability reforms should be a higher priority for the State of Nevada.

Louis Dezseran is fiscal policy analyst at the Nevada Policy Research Institute. This commentary was first published in the July 2008 issue of the Nevada Business Journal.