Bad times inevitably lead to a bounty of bad ideas from elected officials. But the state’s worsening budget outlook has at least one Nevada politician considering the grand whopper of poor fiscal policy: going into debt to fund operating expenses.
Gov. Jim Gibbons has already ordered about $400 million in cuts to the planned rate of growth for the state’s public schools, public safety agencies and welfare and social programs. Those spending reductions were met with calls from some state lawmakers for immediate tax increases to spare government from the kind of belt-tightening going on in households and businesses from Boulder City to Battle Mountain.
On Friday, the Department of Taxation announced statewide sales tax collections for January were down nearly 5 percent from the same month a year ago. So a new round of budget cuts, expected to include layoffs, is expected in the weeks ahead. Officials now estimate that the two-year, $7 billion budget passed last year will wind up almost $900 million in the red by next summer.
Senate Minority Leader Dina Titus, D-Las Vegas, wants alternatives to more across-the-board budget cuts. Among her ideas: floating bonds to cover part of the revenue shortfall.
That’s the equivalent of putting general fund expenditures on a giant credit card.
And what can be said of every person who carries big credit card balances from month to month without paying them off? They’re living beyond their means.
Nevada is not alone in addressing a budget deficit. About half of the states have revenue shortfalls as a result of the stalled economy and a housing market that apparently has not hit bottom.
But the two states with the worst budget problems have one thing in common: billions and billions of dollars in bond liabilities. California and New Jersey have borrowed money to balance their budgets in good times and in bad, and unlike school and welfare spending, these expenses can’t be made to go away with the stroke of a pen. Debt payments must be accounted for before new budgets are funded.
California Gov. Arnold Schwarzenegger, facing a $16 billion budget deficit that could reach $20 billion, is slashing Medicaid and education spending — tens of thousands of teachers and other school workers could be laid off.
Those measures are necessary, in part, because the state has more than $100 billion in outstanding and unissued bond debt, including a $15 billion bond approved by voters in 2004 to “balance” California’s budget. New Jersey Gov. Jon Corzine, addressing a $3 billion revenue shortfall and more than $30 billion in bond debt, wants to boost tolls on the state’s highways to cover most of the costs. Both states are considering park closures as well.
California and New Jersey have learned the hard way that issuing bonds to prevent program cuts doesn’t prevent pain, it prolongs and amplifies it. If Nevada makes the mistake of going into debt to put off the shrinking of bureaucracies today, lawmakers will doom the state to brutal cuts when the next slowdown rolls around.
Sen. Titus frequently complains that Nevada has scores of needs. She should imagine trying to prioritize and fund those needs knowing that millions of dollars of each year’s available revenue must first be set aside to cover the financing costs of reckless spending in years past.
Unlike California and New Jersey, Nevada’s economic prospects are promising. Tens of thousands of new jobs will be created on the Las Vegas Strip in just the next few years. Because of Clark County’s resilient resort industry, Nevada tends to emerge from economic downturns faster than its neighbors.
Assembly Speaker Barbara Buckley, D-Las Vegas, said there was no discussion of a special legislative session or tax increases during Monday’s budget meeting. Good. Gov. Gibbons will meet with lawmakers again next week to discuss how to bridge the state’s remaining budget shortfall. They need to weather this fiscal storm by cutting spending — reduce operating expenses, delay the construction of new buildings and lay off nonessential personnel.
Debt must remain off the table.