Less spending, more bites

By J. Patrick Coolican, David McGrath Schwartz

Thursday, April 3, 2008 | 2 a.m.

Gov. Jim Gibbons and other anti-tax crusaders have long asserted that Nevada’s budget shortfall will not require real spending cuts. Rather, the deficit will merely cut into the 16.8 percent spending increase passed by the Legislature and signed by Gibbons in 2007.

A Sun analysis shows that argument collapsing, however, under the weight of population growth, inflation and new revenue shortfall projections of $900 million.

Once population growth and inflation are considered, Nevadans face the prospect of a government that does less.

In 2001, for instance, state government spent $2,118 per capita, which increased to $2,455 in 2005, with the spending hike going to teacher raises and increased health care costs. With the latest round of troubling fiscal news, though, state spending per capita will tumble back to $2,269 per capita, or a 7.5 percent decrease from the 2005 high, after adjusting for inflation.

The governor will appear this morning at an event sponsored in part by Applied Analysis, a Las Vegas consulting company, to discuss state government finances and the economy.

Although Gibbons has staunchly opposed any tax increase, he reached out to Democratic legislators this week for help in solving the budget mess.

Jeremy Aguero, an economist with Applied Analysis and an expert on state government finances, said he hadn’t run the most recent numbers, but thinks per capita government spending is indeed dropping.

For many Nevada conservatives, a government in contraction is a welcome development.

“A portion of the citizenry says we don’t spend enough, but that portion gets noticeably smaller when you ask them to identify whose taxes are going to be raised to pay for it,” state Sen. Bob Beers said.

Advocates for poor people and children, such as the Progressive Leadership Alliance of Nevada, say the prospect of real spending cuts arrives at an inopportune time because many Nevadans are suffering the effects of the economic downturn and will likely look for help with affordable housing, health care and social services. These are all areas in which Nevada lags behind national averages in any event.

Launce Rake, a spokesman for the alliance, said the latest round of bad fiscal news points to the need for a stable and more robust tax base, including a corporate or personal income tax and a bigger share from gold mines, which are enjoying a record price for gold.

The situation for state government is actually worse than it seems because health care costs have risen much faster than inflation. Annual health care spending in the United States has increased two to five times the rate of inflation since 2000, according to the National Coalition on Health Care. Because health care is a leading government expense, policymakers will have to find ways to cut other areas deeply to compensate for those exploding medical costs or cut back on health care provided to employees and poor residents, according to Henry Aaron, a senior fellow at the Brookings Institution.

Moreover, typical government costs often outpace conventional measures of inflation, such as the consumer price index. The Sun used the CPI — a basket of consumer goods — in its analysis because it’s a conventional, easy to use and well-known measure of inflation.

But the CPI isn’t the best measure because governments buy commodities that go up in price much faster than typical consumer goods, said Guy Hobbs, a former Clark County comptroller and adviser to Gov. Kenny Guinn who’s now a financial consultant.

Here’s why, according to Arturo Perez, a fiscal analyst at the National Conference of State Legislatures: The average state government spends nearly 60 percent of its budget on K-12 education, higher education and Medicaid, which provides health care for poor people. Those programs are not prone to the same technology-inspired cost-cutting as other areas. (Students still need a teacher in the classroom no matter how many computers sit on the desks, and medical technology often increases costs.)

Assembly Speaker Barbara Buckley, a Las Vegas Democrat, said she is also concerned about the state’s regressing and has asked the Legislature’s fiscal analysts to complete a review of per capita spending.

She and Senate Minority Leader Dina Titus, a Las Vegas Democrat, said by delaying construction projects and cobbling together some other fixes, policymakers can fill the budget hole without cutting crucial services.

Budget woes are not new to Nevada. This decade a state task force examined per capita spending and found that even as urbanization forced Nevada to consider new and more robust services, per capita spending decreased slightly, said Hobbs, a member of the task force.

The Legislature took up some of the task force’s recommendations in 2003, the last time Nevada raised taxes.

Carole Vilardo, president of the conservative Nevada Taxpayers Association, said per capita spending is not a good measure of the size of the state’s budget.

General funds often include one-time payments for things such as prefunding employees’ retirement accounts and buildings.

“There are so many influences in play when determining if there’s a need for more revenue or a change in revenue,” she said. “That’s not to say we shouldn’t be putting more money in certain areas. The question is, should we do that without taking a look at” spending.

She said a member of the governor’s staff has contacted her about being a part of a Nevada version of the Reagan-era federal Grace Commission, which tried to find waste and fraud in the federal budget.