If you suddenly discovered your household income for 2009 would be about 30 percent less than what you had budgeted to spend, what would you do? Wouldn’t you sit down with your family and look for ways to drastically cut expenses? This is the same situation the state of Nevada is in, but when Governor Jim Gibbons proposed making painful cuts to the state budget for the 2009-2011 biennium, he received very little support, even from people in his own party.
Lawmakers were planning to spend around $8 billion this biennium. That included $6.8 billion in the previous budget, plus an additional billion-plus dollars to cover guaranteed pay raises for state workers and built-in spending increases to keep up with inflation and population growth.
The only problem with this plan is that we don’t have the money for it. Gaming revenue is down, sales taxes have decreased and fee income for everything from real estate taxes to car registrations has been reduced as people spend less. General fund revenues over the next two years are expected to total only $5.7 billion, about 28 percent less than the $8 billion figure.
The governor called two special sessions of the Legislature, one in June and another in December of 2008, to find creative ways to cut expenses, transfer money from reserves and arrange for short-term borrowing. All the easy ways of cutting back have already been done, leaving Gibbons to face difficult choices in dealing with the current budget shortfall. The budget he presented in January contained several controversial proposals, including reducing funds for higher education, cutting salaries for state workers by 6 percent and eliminating merit raises and longevity bonuses for state employees.
The resulting outcry was predictable, if disappointing. All the constituencies that benefit from state spending accused Gov. Gibbons of taking money out of their pockets. The reaction of “progressives” throughout the state brings several thoughts to mind. First of all, why were they surprised that the governor presented a budget that attempts to balance revenues and expenses? It’s his job to do exactly that.
Secondly, why were they apparently shocked that the state is facing a budget crisis? It has been no secret for the past year that revenues would not be enough to pay for their wish list of government programs. And yet, Democrat lawmakers apparently waited until receiving the governor’s budget on January 15 before they considered what budget proposals they might make when the Legislature convened on February 2. Assembly Speaker Barbara Buckley said immediately after the budget was delivered that legislators would review it, and they hoped to have something of their own ready by May 1.
In the intervening weeks, we have heard plenty from Democrats about how the governor’s budget would cut funds from vital programs, devastate the education system and destroy the state’s social service network. However, we have not heard anything about what they plan to do to bring expenses in line with revenues. Since they obviously don’t want to make drastic cuts in expenses, they must plan on raising taxes, although it would be hard to find anyone willing to admit that.
Liberal groups have been critical of the state’s dependence on gaming and sales tax revenue, and they would like Nevada to adopt more broad-based taxes, such as personal income tax, corporate income tax and a gross receipts tax on businesses. The theory is that a different tax system will help Nevada avoid the boom-and-bust cycle in state budgets. This sounds plausible at first. However, consider that our neighbors California and Arizona have the kind of taxes liberals want, and they are facing problems at least as great as ours. Unfortunately, there’s no guaranteed way to make any state’s income recession-proof.
Changing our tax system would not solve our immediate problem, and in the long run, it would be a disaster. It would undo all Nevada’s attempts to diversify our economy by attracting companies with a business-friendly tax structure.
The best we can do is to control expenses, which is what Gov. Gibbons has proposed we do. If legislators can find better ways to reduce expenditures, Nevada voters deserve to see them. If not, we should all tighten our belts and support the governor’s budget.
View the entire budget and supplemental materials at: www.nevadaspending.com.
Originally published in Nevada Business Magazine: