Las Vegas Sun

July 27, 2014

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GUEST COLUMN:

Comparisons show spending isn’t Nevada’s problem

When the Nevada Legislature meets next month, some believe its objective should be to dramatically reduce state spending. Gov. Jim Gibbons says we have a spending problem in this state, not a revenue problem, and his opinion is shared by more than a few others.

Any government is too much for some people, but we can get some perspective on this issue by comparing Nevada’s government to those of other states.

According to the most recent version of the Statistical Abstract of the United States, only 5.5 percent of Nevadans work for the state or local governments, the lowest share in the 50 states by far. Only a fourth of these are state employees; the rest work for local governments. Almost half of the total are employed in K-12 education, and 10 percent in higher education. The rest work in local police and fire protection, corrections, parks, highways, etc.

The shares of the population working in K-12 and in higher education are also the lowest in the country, and the primary reason that the total number of government employees is so low.

Nevada also spends relatively less per person on government, even though both our average income and our cost of living are about 10 percent higher than the national average. As a share of total state income, Nevada’s state government spending is lowest in the nation.

Adding in spending by local governments, Nevada ranks 48th in government spending as a share of income. This is especially surprising because smaller states tend to spend relatively more because of diseconomies of scale.

The Tax Foundation reports that Nevada has the next-to-lowest tax burden in the nation, just slightly above Alaska. That ranking is roughly where we have been since the 1970s.

We also received less federal aid than all but one other state, as either a share of income or per capita. Alaska received the most per capita and spent the most, except for Wyoming. Alaska also derives significant tax revenues from the production of petroleum, while Nevada’s government derives very little from mining.

Even though our overall tax burden is low, because we don’t have a state income tax, either personal or corporate, we have to collect it from somewhere. As a result, we pay about 60 percent more in both property taxes and sales or gross receipts taxes than the average person in other states, and our state collects about twice as much in license fees. The rest, of course, comes from taxes on gaming.

This tax structure also results in a pretty regressive system, in which poorer Nevadans pay relatively more tax. According to a recent census estimate, a family of four in Los Angeles would pay almost 10 percent of its household income in state and local taxes, regardless of whether it made $25,000 per year or $150,000 per year.

In Las Vegas, by contrast, the poor household would pay the same 10 percent in taxes, but the better-off family would pay only 4 percent in state and local taxes. In other words, a family with six times as much in income would pay only 2.4 times as much in tax. In only four other states — Florida, Missouri, Wyoming, and Alaska — do the wealthier pay a lower share of their incomes to their state and local governments.

A popular report from the Las Vegas Chamber of Commerce suggests that Nevada’s government employees are overpaid, but that report compares apples to oranges — there are few keno runners in government, and few professors in casinos — and the Statistical Abstract suggests other conclusions.

Though local governments seem to pay more, Nevada’s state employees earn almost exactly the national average, even though our cost of living is higher. At UNR, where I teach, the average employee is paid only slightly better than at comparable universities, but not enough to make up for the higher cost of living.

Nevada’s two universities are striving to improve the quality of the education we offer our students, and trying to keep more of our best students in Nevada. Unlike most other states, Nevada has no private universities, so this is an important responsibility.

As my colleague Stephen Miller, chairman of UNLV’s economics department, has pointed out, when our best high school graduates think they can get a better education elsewhere, they go out of state and rarely come back. This affects our state’s future economic growth as well as its future tax revenues. We can’t get those good students to stay in state if we can’t afford to hire and keep smart professors from out of state.

We have some smart students studying at our two universities, but Nevada is last in the percentage of its population graduating from high school, last in the number of students who attend college, and only three states — West Virginia, Arkansas, and Kentucky — have a smaller portion of the population with college degrees.

Although inadequate state funding is not the only reason for poor educational attainment, it does not help, and dramatic cuts in what funding we do get are likely to leave us at the bottom. The social return on investment in higher education is significantly higher than the cost. Unless we can better educate our workforce, we are simply not going to be able to compete.

As an economist, I have no particular love of taxes, and there are usually ways any state organization could better manage the taxpayers’ dollars. But there are also many things the private sector cannot efficiently provide. Like national defense, affordable and available public education is one of these. Too little government can be just as bad for economic growth as too much.

I don’t really want a big state government, but we shouldn’t make the smallest state government in the country even smaller. Further significant budget cuts will severely damage our state’s educational system and its economy.

We should not make our problems even worse, not if we want Nevada to stay a desirable place to live.

Elliott Parker is professor of economics and chairman-elect of the Faculty Senate at the University of Nevada, Reno.

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