How a 10 percent ‘cut’ equals a 15 percent spending increase
Government ‘cuts’ are often simply smaller-than-desired increases
- Tuesday, December 14, 2010
Do you want a pay increase? Then ask your boss for a "Nevada-government style" 10 percent pay cut.
Doesn't make sense, does it? Well, neither does the common way of referring to increases in Nevada's government spending.
Often when politicians talk about "cuts" in government spending, they are actually referring to a reduction in the increase of spending on the program, not a reduction in overall spending.
For example, Nevada's General Fund allocated $3.6 billion for K-12 education in the last biennium. When the agencies within education submitted their FY 2012-13 budget requests, they asked for $4.69 billion for education — a 30 percent increase over the previous biennium. (Note: This doesn't mean that the overall amount of state and local dollars going to the classroom would increase by 30 percent, because of factors including a decline in the Local School Support Tax and a statute moving the $200 million room tax out of the General Fund.)
When Andrew Clinger, Nevada's budget director, at the direction of Gov. Jim Gibbons and now governor-elect Brian Sandoval, requested that state agencies submit budget cuts of 10 percent, the budget reductions came, not from the current budget, but from the requested General Fund budgets that were, in total, 30 percent higher than in the previous biennium. So in the case of education, the 10 percent "cut" doesn't come from the $3.6 billion in current appropriations, but from the requested education spending, which is $4.69 billion.
To the general public, a 10 percent spending cut means you take the current level of spending and decrease it by 10 percent. A simple example: $50,000 - $5,000 (10 percent) = $45,000.
But the equation used in a Nevada-government-style 10 percent spending cut is more complicated: (current budget + spending increase) - 10 percent of new spending total = total budget.
Applying this equation to Nevada's education spending gives us: $3.6 billion (current spending) + $1.09 billion (spending increase) = $4.69 billion (new spending total) — from which $.54 billion is proposed to be cut (which actually equals 11.5 percent of the new budget, not 10 percent), yielding a final figure of $4.15 billion.
Before your eyes glaze over, don't miss the key point: This supposed "cut" of $.54 billion in Nevada's education funding means that state General Fund spending on education would actually increase from $3.6 billion to $4.15 billion — a 15 percent increase.
Imagine having the following conversation with your spouse:
Spouse: It was extraordinarily painful, but I cut our budget by 10 percent.
You: Wow, honey, that's great. What should we do with the extra money? Invest it, pay off our debt—
Spouse (interrupting): No, I don't think you heard me. I cut our budget by 10 percent.
You: Right, so what are we going to do with the savings?
Spouse: Savings? You don't understand — you need to bring in more money to fill this 15 percent hole.
Now, just as there are legitimate reasons that a family's budget can increase (a new baby, medical bills, etc.), there are justifications for increasing government spending as well. However, a big difference between a family's budget discussion and the government's is that, in a family's discussion, spending increases and decreases are defined accurately.
Government officials, on the other hand, can claim that spending is being "cut," despite an overall spending increase, because of an assumption that is built into the state's fundamentally flawed, "baseline" budgeting system. In baseline budgeting, the government simply takes all of the previous year's spending and increases it by a certain amount, based on estimates it chooses to make regarding salary increases, caseload adjustments and other factors. For the next budget cycle, these "roll-up" costs come to around $2 billion. This process has led to the myth that Nevada currently faces a $3 billion deficit.
Fortunately, most of Nevada's journalists, as well as Clinger and governor-elect Sandoval and his team, have done an admiral job lately of noting the actual size of Nevada's deficit — around $1 billion, or 17 percent of current General Fund spending, which is $6.4 billion. And many journalists have done a great job explaining how a spending cut can result in spending more money as well.
Of course, greater public understanding of the budget numbers won't guarantee victory for either side in this debate. But it should at least provide for a more honest discussion.
Those who want to increase government spending should make the case for higher spending, rather than pretend they're fighting against cuts. Then they should explain how they plan to fund those increases — with tax hikes or cost-saving measures in other areas.
Victor Joecks is the deputy communications director at the Nevada Policy Research Institute. For more information visit http:www.npri.org/.