Handicapping the debate

Manufacturing a budget crisis

By Patrick R. Gibbons
  • Wednesday, March 4, 2009

Gov. Jim Gibbons either surrounded himself with people giving him bad advice or he never intended to seriously fight tax increases—or both. If your goal is to fight tax increases, you don't frame the debate by starting with highly bloated budget estimates while calling insufficient revenues to meet those estimates a "crisis."

It started with Budget Director Andrew Clinger suggesting that Nevada needed to increase appropriations 17 percent above the spending initially projected under the last budget. This backward approach to budgeting basically created a "shortfall" by demanding 40 percent more spending above estimated tax revenue.

The budget director's $2.3 billion shortfall was, thus, an illusionary number: It was merely the difference between what the government had wanted to spend and reality.

The figure itself was calculated—an administration website shows—by taking a base budget (what the state actually spent) and adding well over a billion dollars in unknown adjustments. Then was added another $568 million for inflation—a number that well may be over-inflated, given today's deflationary economy.

By creating the $2.3 billion figure, rather than holding the line on the budget, the Gibbons administration gave ammunition to those wanting to raise taxes. It gave big spenders a tangible target and an effective excuse for a tax hike. In effect, the administration, by manufacturing this crisis, established an entirely self-destructive frame of reference for any discussion on taxes.

Making matters worse, the administration has done little to set the record straight in the media or with other policymakers. Many people assume that the requested budget cuts are in addition to the previous round of cuts. They are not. While one perceptive legislator caught this during Clinger's testimony, media reporters and pundits largely missed it. Instead we are still inundated by talk of budget cuts and more budget cuts. No wonder that Nevada citizens are under the impression that we really are facing a crisis.

In reality, the "crisis" is a mere 1-3 percent decline in overall spending (depending whether or not you include the governor's proposed tax increase).

The situation is hardly a crisis, but there are real problems—namely the Nevada Legislature, which put off any real budget cuts, hoping the economic problems would vanish overnight. According to a recent response from Clinger's office to a FOIA request, the administration estimates the state will spend $3.8 billion from the general fund in FY 2009. That's $300 million more than was budgeted and $1 billion more than estimated revenue collection for FY 2009. In fact, it appears as if Nevada will spend about $40 million more than was budgeted for the entire biennium. This means that the "cuts" to date were most likely fund sweeps, cuts to one-time expenditures, and accounting gimmicks—not the "end-of-the-world, cutting-to-the-bone" budget cuts we heard repeatedly in the news.

The reason why Nevada's government is facing a tough time now is because our leaders chose to put off real budget cuts in the hope that the economy would rebound sooner. The new $2.3 billion "shortfall" does not mean the state has to cut $2.3 billion on top of the $1.5 billion in "cuts" it made for FY 2007-09—it means the state made no real cuts at all and wants to drastically increase spending.

Nevertheless, the Gibbons administration continues to foster the idea that we are in a crisis. "Our budget crisis is very, very severe," Gibbons spokesman Daniel Burns said recently. Since when is a 1 percent decline in spending a crisis, let alone a "very, very severe crisis"?

If the governor's goal was to ensure "no new taxes," he not only shot himself in the foot, but he blew both legs off. How, as a state's executive, do you fight tax increases by presenting an artificially inflated budget that demands 40 percent more appropriations than revenue estimates will allow?

By the way, with the stimulus package coming to Nevada, overall spending will be up at least 5 percent while general fund spending will be flat in the worst-case scenario—and that is without any tax increases. So is a 5 percent increase in spending really a "crisis"?

It definitely is—but for taxpayers. An eventual tax hike on Nevadans now is assured, unless they realize how drastically the stimulus package will increases the ranks of politically powerful tax consumers.

More information about the budget situation can be found at the links below, and the budget itself can be viewed at http://www.nevadaspending.com/.

How did Andrew Clinger calculate the budget?
Nevada is not facing a budget crisis
Dissecting the budget numbers

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

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