Nevada’s government among the smallest

By J. Patrick Coolican, Alex Richards

Sunday, March 8, 2009 | 3 a.m.

A central question faces the Legislature as it tries to close a $2.3 billion hole with spending cuts, tax increases or some combination of both.

Is Nevada state government too big, too small or just right?

That’s the question legislators must confront.

All else is noise.

If legislators believe our government is too big, they must cut. If they believe it is too small, they must raise taxes or introduce new taxes.

Unfortunately for them, even if they believe our government is the right size, they are in a bind. Unless they raise taxes they cannot pay to continue services at current levels, even as more people require government services because they have lost their jobs.

Gov. Jim Gibbons proposed a budget with only one small tax increase, on hotel rooms, and deep budget cuts, including a 6 percent pay cut for state employees and teachers, and a 36 percent cut in higher education.

So the size of Nevada’s government is a big issue. It is also a subjective one, although legislators can look at some measurements and draw conclusions.

Economists usually measure things by what portion of the total economic pie they consume. By that measurement, as a percentage of gross domestic product, which is essentially the state’s total economic output, Nevada has the leanest state government in the country, according to a Sun analysis.

Even thrifty New Hampshire and deeply red states South Dakota and Texas have bigger governments.

Another way to measure the size of the government is to determine what the state spends per capita. By this measurement, Nevada has the third leanest government in the country, at $1,136 per person in 2007, ahead only of flinty New Hampshire and impoverished Michigan. Despite the small-government rhetoric of Republican Gov. Sarah Palin, Alaska has the highest per capita spending at $6,364 per person.

Here’s another measure of government size: Public employees per capita. On this score, Nevada is the leanest state government in the nation, with 3.86 percent of the population working in the public sector. (That number includes local governments, which tend to be more robust than state government here in Nevada.)

The comparison shows that Nevada is not even close. Nearly half of all states have at least one-third more public employees per capita than Nevada.

What about trends? Economists tend to care more about trends than they do about the state of things at any given moment.

So, for instance, economists are very concerned about health care costs because they are rising far faster than inflation and eating a larger and larger portion of the nation’s total economic output every year — bad trend lines.

What are the trends in Nevada? Is the growth of the public sector unchecked?

Our rate of public employees per capita has remained stable since 1997.

As a percentage of GDP, Nevada government is leaner now than at any time in recent history, according to an analysis by University of Nevada, Reno, economist Elliott Parker.

Parker has become something of a lightning rod in the current debate, having published his own analysis with findings similar to the Sun’s. He’s been attacked by libertarians, including former state Sen. Bob Beers.

Parker, who said he was a Republican until the party moved too far right for him, said he’s no fan of big government, but cannot see cutting our way to a balanced budget.

“I’m not saying we need to be California,” Parker said. “I’m not even saying we need to be average. But we have the smallest government in the country, and cuts would be very damaging.”

Nevada libertarians are happy to acknowledge the numbers, but they say Nevada can still get leaner.

“My response is that it shows Nevada historically has been a leader in allowing the private sector to drive economic growth,” said Geoffrey Lawrence, a fiscal policy analyst for the libertarian Nevada Policy Research Institute. “Compared to other states, we’ve encumbered the private sector much less, but we could do better.”

Lawrence said he and his colleagues haven’t gone line by line through Nevada’s budget or tried to craft their own balanced budget, but he did throw out some ideas.

One is to eliminate the Business and Industry Department. For libertarians, this is a twofer: It would save money — Lawrence said $390 million — while fulfilling a libertarian policy goal of deregulating business.

Lawrence also suggested privatizing our prisons and greater use of competitive bidding.

“When government takes a more extensive role, they crowd out the private sector. Government is not exposed to the same competitive pressures as private health care or education, so overall quality may decline,” he said.

So Lawrence proposed tax credits to businesses to encourage them to set up their own on-site schools.

Harrah’s High School?

“Yeah, something like that.”

Sun reporter David McGrath Schwartz contributed to this story.