Lower-than-expected tax revenue growth. State agency chiefs declaring targeted reductions in their increasing budgets impossible. Solemn public officials and special interests claiming tax increases are the only solution. Where have we heard all this before?
It’s starting to sound a lot like 2002. If you’ve lived in Nevada more than four years, you remember what happened during the 2003 Legislature: lawmakers’ insistence that the state’s tax structure was broken and outdated, the constitutional crisis, the record tax increases. And you remember what followed: the unprecedented growth of the state bureaucracy, the economic recovery that produced more than $600 million in surplus tax revenues — and the specter of having to repeat the entire drama at the next economic slowdown.
It hasn’t even been five months since the Nevada Legislature wrapped up business on the current, two-year budget cycle, and state government is sounding the alarm of a fiscal crisis.
The problem: Lawmakers, following the binding recommendation of the Economic Forum, counted on 5 percent overall revenue growth this year and 6 percent growth on top of that next year to fund $6.8 billion in state expenses through June 30, 2009. Revenues are still flowing into the treasury faster than last year’s levels, but not at the rate lawmakers had planned.
Through the first quarter of the current fiscal year, gaming tax collections were flat, about $15 million below projections. Sales tax receipts have actually dipped when compared with the prior year’s collections. Property tax receipts and other levies are up, however.
The hiccup in two of the state’s biggest, most important revenue streams compelled Gov. Jim Gibbons to ask most agency heads to formulate contingency plans for spending reductions. In the event that the tax slump continues into the new year, he’s seeking 5 percent reductions this year and next — essentially warning agencies that they might need to shed the budget increases passed by the 2007 Legislature and return their operations to last year’s spending levels.
Many state governments dealing with longtime economic woes would kill for Nevada’s prospects: flat or slightly increased revenues amid a sagging housing market, billions of dollars in private construction projects nearing completion, the promise of tens of thousands of new jobs being created in the years ahead.
Of course, one reason Nevada’s long-term outlook is so bright is its relatively low taxes. And one reason states such as Michigan, California, New Jersey, Illinois and Massachusetts are in perpetual crisis is their increasingly high tax burden.
Why are their taxes so high? Because at the slightest hint of economic trouble, they raise taxes so governments won’t be subjected to the same belt-tightening that households and businesses endure in lean times. When the public sector continues to grow amid unfavorable fiscal conditions, new programs and personnel boost the baseline, making them harder and harder to cut, setting up taxpayers for ever-bigger bills down the line.
Many in Nevada still choose to ignore the struggles of these states and the lessons of 2003. Chancellor Jim Rogers, the chief executive of the state’s public higher education system, has defiantly told Gov. Gibbons that he won’t comply with the request.
Mr. Rogers, who wants the state constitution amended to impose individual and corporate income taxes, went so far as to suggest that the governor call a special session of the Legislature to enact immediate tax increases. The governor refused.
Said Mr. Rogers: "You just can’t say to somebody, ‘You’ve got ten dollars today. How would you do with seven?’ "
Mr. Rogers might want to consider taking a remedial math class at the Community College of … er, the College of Southern Nevada. Gov. Gibbons isn’t asking state agencies to absorb a 30 percent budget cut. Rather, after bumping the system’s allowance from $9.20 to $10, he wants them to figure out how to make do with $9.50. And that’s only hypothetical at this point.
That said, Gov. Gibbons’ suggestion is a bit too broad. Making blanket, equal cuts across the board in any operation, especially one as large and complex as the state government, ignores the fact that some offices are more important than others. Yes, the governor has exempted public schools, prisons and the Department of Public Safety from his request, but his administration can do more to prioritize cuts if they become necessary.
That’s what chief executives do.