State’s fiscal house in need of overhaul

Guy Hobbs

Sunday, Aug. 17, 2008 | 2:02 a.m.

In August, Brian Greenspun turns his Where I Stand column over to guest writers. Today’s columnist is Guy Hobbs, a fiscal analyst who is president of the consulting firm Hobbs, Ong & Associates.

Given the recent stresses and strains experienced by Nevada’s budget, it seems sensible to question whether our state’s fiscal system is working to meet our ever-growing and changing needs.

Of course, how well our needs are being met or should be met is in the eye of the beholder. However, some disturbing facts about where our system is headed strongly suggest that the system is failing to keep pace, and these facts also suggest that the situation will continue to deteriorate as time goes on.

What is most concerning is that we have known about the flaws in the system for many years, yet little has been done to address these very predictable problems.

Five short years ago, under the administration of Gov. Kenny Guinn, a detailed and comprehensive study of Nevada’s tax and budget system was undertaken. This study, which I chaired, took a year to complete and resulted in a thorough documentation and analysis of Nevada’s fiscal health, unprecedented in scope and detail.

The findings of this study were clear: Our state’s revenue per person, when adjusted for inflation, is declining over time. Simply put, there is less revenue per person being generated each year to provide services to the state’s population.

Unfortunately, the cost per person to provide these services is not declining. This is not a matter of opinion; it is fact.

At the same time, it is becoming clearer that our ongoing fiscal reliance upon narrow sectors of the economy, such as gaming and construction, is not serving us well.

So, what are the solutions being proposed? On one hand, there are those who think the answer is to add new, selective taxes — albeit only for very specific purposes. The increase in the room tax proposed by the schoolteachers to fund education comes to mind.

On the other hand, an aspiring northern Nevada politician, Sharron Angle, is proposing a completely unnecessary amendment to our constitution that would further limit property tax revenue (which is a primary funding source for education).

I have read that Sen. Bill Raggio feels the answer may be to move revenue from our local governments to the state to fix the state’s fiscal problems while, presumably, doing no harm to local services.

At the same time, we have an ultraconservative leader, Sen. Bob Beers, who feels that the answer would be to cap all government spending and look to cut further following the largest reduction in state programs in Nevada’s modern history.

Most perplexing, we have a governor who feels that the panacea for all of the financial woes is to simply repeat a mantra of no new taxes.

Individually, most of the foregoing populist “ideas” are simply bad public policy. Taken together, they hardly represent a cohesive plan aimed at righting Nevada’s ship.

What many of the mind-sets noted above seem to overlook is that government has a duty and a responsibility to its citizens to provide services that are needed and demanded, regardless of whether times are good or bad.

Unfortunately, when times are bad, a large number of services provided by the government are demanded and needed more than when times are good. This requires management of resources during the better times to ensure adequate resources in the more challenging times.

It also requires a revenue system that does not exacerbate the situation by leaning on more volatile and less reliable revenue streams, such as Nevada has designed, which leads to deeper shortfalls in revenue than should otherwise occur.

This isn’t to say the answer is more taxes; Nevada cannot tax its way to prosperity. That said, it is an equally tenuous notion to suggest that prosperity will be found by reducing our state’s investment in essential programs such as education, transportation and public safety.

The answer lies in designing a system that funds essential services with a broad spectrum of sources that look like the Nevada economy and not merely a fraction of it. The answer is certainly not to tie our hands further through fiscally irresponsible caps and revenue limitation proposals.

The answer also includes the prudent management of resources over time, through the maintenance of sensible reserve funds and contingency plans. This is not a matter that requires further study; the facts are already well known.

The opportunity and means to fix the system, and thus avoid these periodic deep and painful cuts and interruptions in services, are before us. The responsibility to accomplish this task is also before those who lead us at the state level.

Failure to address this undeniable and serious problem is a failure to uphold the responsibility the state has to provide for the public’s health, safety and welfare during both good times and bad.