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twitterState Budget:
Rainy day fund is empty but new regulation could provide stability
Thursday, Nov. 13, 2008 | 2 a.m.
State Assembly Speaker Barbara Buckley now has a specific state budget change she is championing: revamping the rainy day fund.
In Today's Sun
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“We had $276 million in it and it was drained,” Buckley said, blaming the depletion on state revenue shortfalls.
One of the biggest problems with Nevada’s emergency reserve, she said, is that money is not earmarked for it.
So when times are good, state legislators and the governor can choose to squirrel away just-in-case money, but they don’t have to.
Buckley said Wednesday that in the upcoming legislative session, she will propose a “forced savings account” into which 2 cents of every “new dollar” of state revenue would be deposited. New dollars would be any money that comes in above existing revenue levels.
Taking the pennies from new dollars would prevent this system from siphoning funding from existing programs, she said.
Having talked with state Sen. Bill Raggio, R-Reno, and Democrat Steve Horsford, the state Senate’s new majority leader, among others, Buckley said she has not “found one person who does not think it’s a good idea.”
Even the Las Vegas Chamber of Commerce agrees the fund needs to be strengthened.
Hugh Anderson, chairman of the chamber’s government affairs committee, noted last week that the analysis of ways to improve the state budget process “should include a look at the rainy day fund size and process.”
“The fund we have now,” Buckley said, “is not sufficient in amount and it’s not sufficient enough to address the boom and bust cycle we’ve seen for the last several decades.”
Though she hasn’t worked them out, new restrictions on access to the fund would also be put in place. “You could tie it to a specific shortfall level,” she said.
At least one other lawmaker has another idea about how to replenish the fund. Democratic Sen. Bob Coffin said that since about January, he’s been touting the idea of a “temporary” tax that would cease when certain thresholds are met — a set amount for the rainy day fund, for example, or the state coffers’ 2007 amounts.
Coffin’s idea even seems OK with Gov. Jim Gibbons. The “no new taxes” governor said last week that while he won’t introduce any new permanent taxes, he might approve a temporary new or increased tax if it has an expiration date.
Discussion: 15 comments so far…
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A rainy day fund is only half the necessary solution.
THe government needs spending limits because it has shown no ability to truly prioritize when it gets excess revenue.
http://lvbusinesspress.com/articles/2008...
At least that nearly confirms my nagging suspicion that KDR81 is Patrick Gibbons from NPRI. Self-linking without a disclaimer? Tsk-tsk!
...I've posted hundreds of NPRI stuff on here. Have you not noticed?
By the way, did you read the article?
Yes, Gibby, I've noticed you spamming recently.
Spamming not only the Sun's website and comments, but the RJ's, RGJ's, the Gleaner and Wikipedia, of all places. It's common netiquette to identify yourself when linking yourself.
A question for NPRI: is it your position that the rainy day rebate scheme put forth by Bob Beers a few years ago greatly exacerbated this current budget crisis?
Would that be a solid, stark example of, "show[ing] no ability to truly prioritize when [the State] gets excess revenue?"
1) The current budget crisis was exacerbated by the government increasing taxes on a recovering and soon to be booming economy and then spending every dime.
2)Expanding state funded everything, hospitals, parks, SCHIP, increasing funding for schools when the revenue stream was a direct result of a massive economic bubble.
Where was the complaints for a restructuring of the budget from 2004-2007? There wasnt one. THat taxcode worked wonders for the big spenders but now the bubble burst they want to hop off that train and ride a new one.
Here are some others for you to read:
http://npri.org/blog/facts-are-meaningle...
http://npri.org/blog/why-is-nevada-short...
my fav: http://npri.org/blog/pictures-are-worth-...
http://npri.org/publications/new-taxes-s...
by the way,
The government was either irresponsible (spending money without regard to a future when the money wouldn't come in as strong)
or
ignorant (assuming the good times would just keep on going).
Which is it?
Sorry, that's a failed binary choice, Patrick.
The legislature and Governor used the budget projections to set their spending and priorities. It was not "irresponsible," as the Rainy Day fund survived what you seem to think was a spending bonanza, nor was the government "ignorant," as it was a biennial budget based on the projections.
One can argue that the projections failed to take into account a dramatic drop in revenue, but that fault falls on the shoulders of those making the projections, and the man who appointed them.
The budget, and associated spending, was balanced based on those projections.
I'm just trying to square your position of "The government doesn't prioritize excess revenue" with NPRI's position on Beers tax refund that paid out a substantial chunk of the rainy day fund.
So take me back in time, what was NPRI's position on Beers' Rainy Day rebate? Surely you had one...
I don't know what you mean by a failed binary choice. Yes, there are only two possibilities, let me explain again.
They made projections (and there are two government entities that do this). The projections assumed the good times would continue (And again, no one complained about the tax structure then).
There was no attempt to limit government spending. No one sat back and said "wait we might be in a bubble." The MBT was not scheduled to bring in $800 million, it was only supposed to bring in about $200 million, that extra $600 came from Guinn's people's attempt to underestimate tax revenue in 2002-2003 and that turned out to be horribly miscalculated as the economy not only recovered but soared.
So we hit this massive economic bubble which turns into a government revenue bubble and no one thinks to pull back on the spending lever.
Bad planning or irresponsible spending. Plain and siple.
In regards to the refund here is the short story:
The more money the government witholds from the economy the more deleterious the effects are on our economy. Taking money from taxpayers and wastefully spending is bad, but taking money from taxpayers and not doing anything with it is worse. Meaning you can't let your rainy day fund get too big or you retard economic growth.
As far as returning surplus tax back to the taxpayers this is one of the best things a government can do. People spend their own money more wisely than government (people know how to satisfy their needs, at best government just guesses).
<b>And no, it is impossible for a tax refund to contribute to less revenue and a larger shortfall.</b> If the money had not been refunded to the taxpayer, the government would have allocated the money to a new spending program. Thus AT BEST we would be no worse off than we are today. Likely we would be short even more (by an amount equal to what the rebate would have been).
Think about that for a second. A rebate puts the money back in the taxpayer hand. Lets say $200 million. Now if the government spent that $200 million that would have been $200 million dedicated to government spending. At best there would be no additional refund therefore the deficit for the next year would be no different.
At worst, that spending would have added $200 million to government spending thus the government would be short an additional $200 million in the next years deficit.
So no, Beer's rebate didnt contribute to the shortfall.
Let me repeat myself, a tax rebate cannot contribute to a revenue shortfall. Especially if you are mandated to balance your budget.
In order to assume that the revenue shortfall that occured resulted, in part, from a tax rebate you have to prove that that money would have been saved for a shortfall.
There is no evidence the legislature was even interested in that. (Further proof that they believed the good times would keep going).
It is very likely the state would have spent that money (just as they spent the $800 million in 2004 and the extra $1 billion in 2005 and in 2006).
If the money was spent, it CANNOT be used to cover a shortfall. Period.
At worst, if the money was spent it would be ADDED to the budget, meaning the following year's budget would become that much bigger and thus, a shortfall would be that much bigger.
Again, the rebate did not contribute to the shortfall.
the same point is made by liberal democrats in Arizona, its such an invalid point that Gov Napolitano (D) doesn't even make it. She knows its blatantly false. Instead she makes the claim that Federal matching grants for state programs had not come in as strong.
That, at least, was true. Not that states have to take the Federal money and do the program (half the time the states would be better off not doing the program and not taking the money...invariably the federal government falls short of its commitment).
Yes, you gave a false binary choice. You said the actions of the government were "either" irresponsible "or" ignorant. That's a binary choice, and you've failed to meet your burden of proof that their actions were either.
Also, your assumptions are faulty. Here's how:
"There was no attempt to limit government spending." Yes, there was. The budget was balanced and we had a Fund to Stabilize Operations of State Government of $276 million, post-Beers refund, post-spending.
"And no, it is impossible for a tax refund to contribute to less revenue and a larger shortfall. If the money had not been refunded to the taxpayer, the government would have allocated the money to a new spending program. Thus AT BEST we would be no worse off than we are today. Likely we would be short even more (by an amount equal to what the rebate would have been)."
Again, your assumption is wrong. We had $276 million prior to the budget meltdown. The government (Governor and Legislature) instituted programs but did not spend that money. Your assumption that "the government would have allocated the money to a new spending program" does not follow the facts. If that were true, there would have been no rainy day fund to begin with. If they always spend every last time (your assumption), we wouldn't have had a rainy day fund to being with. You're negating the reality that is outlined in the article above. Or, are you somehow arguing that we never had a rainy day fund?
"In order to assume that the revenue shortfall that occured resulted, in part, from a tax rebate you have to prove that that money would have been saved for a shortfall."
It WAS saved for a shortfall, therefore your house of cards, all based on your faulty assumption that the Governor and Legislature would spend every last penny, is blown to smithereens. In fact, the rainy day fund had only been tapped once between its creation in 1991 and 2006. It was tapped in 2003, by Governor Guinn, to help pay for the shortfalls after 9/11.
The amount of the Beers refund fluctuates, but based on some RJ numbers, it was around $270 million. Had we kept that $270 million that Beers pushed back through an arbitrary refund through the DMV, the current shortfall would have been LOWER because we paid out the entirety of our existing rainy day fund.
Or, in your words, "While a large rainy day fund is a must for a state dependent on a strong global economy, this approach only fixes the "bust" part of Nevada's revenue problem."
Had Beers, with the support of Steven Miller and NPRI, not pushed the rebate through, the rainy day fund would have stretched much further in covering the shortfall. In effect, your organization supported draining the fund, while publicly arguing that a large fund is critical for "a state dependent on a strong global economy."
You're not doing much to help the public image of NPRI, Patrick.
I disagree and I believe you have made some errors.
Please explain the following.
1) How much was added to the Rainy Day Fund in 2004? 2005? 2006? 2007?
2) Are you stating that the Rainy Day Fund itself was depleted by the rebate?
3) From 2004-2007 the state took in an extra $4.6 billion in revenue (inflation adjusted and general fund ONLY) over pre-mbt tax revenues in 2002-2003. Of that ONLY!!!! $276 million went in a Rainy Day Fund. Explain how that does not constitute the government spending nearly every dime?
4) Of that $4.6 billion only $270 million goes back to taxpayers in the form of a Rebate. From my understanding, this did NOT come out of the Rainy Day Fund, this came out of the $4.6 billion additional revenue.
5) Had the $270 million been spent (And we DO NOT know if it would have been added to the Rainy Day Fund, you have failed to prove that...and honestly neither of us can) then that $270 would have been added into the budget and each budget there after as dedicated spending.
Thus, that $270 million in rebates CANNOT contribute to the shortfall.
This is simple math logic. As far as not doing much good for the public image of X business you work for (hypocrite)...
So YES, in fact the binary choices are both possible and either can be correct. Poor planning or ignorance. If we had of planned better we would have given a larger tax rebate back to cut back on the growth in government spending.
I suspect I don't think I will get you to understand the math logic part and you will keep assuming that every $ given to the taxpayer is a $ that would have gone into the rainy day fund, or that every $ given back to the taxpayer is a $ the state would magically have today.
Yes it seems to me that you believe the Rainy Day Fund was depleated by the refund. It is my understanding that the Rainy Day fund was depleated this past budget correction cycle to shore up the budget not to pay a refund.
Thus you don't have proof (nor can you prove) that the refund would have gone into (or come out of) the Rainy Day fund.
The state made its allocation to the Rainy Day fund, that money was not part of it. Had it not been returned to the taxpayer, it is very likely that it would have been spent by the government somewhere else. There is little evidence to suggest otherwise.
A worthy effort, I applaud you, people rarely make me think hard on these things.