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Nevada’s future depends on a broader tax base
Tuesday, Aug. 31, 2010 | 2:01 a.m.
In August, Brian Greenspun turns over his Where I Stand column to guest writers. Today’s columnist is Guy Hobbs, managing director of the financial consulting firm Hobbs, Ong & Associates. He chaired Gov. Kenny Guinn’s Task Force on Tax Policy in Nevada from 2002 to 2003.
Imagine you are part of a family that has cut back on all but the most essential expenses over the past couple of years to make ends meet. This situation is not farfetched for many of the more than 190,000 Nevada residents actively looking for work.
Even though you have cut spending, you were still forced to exhaust your savings account, borrow from family members, and sell a few of your possessions to make things balance. Your remaining expenses, for the most part, are nondiscretionary necessities, including education, health care and the basic protection of your family’s welfare.
You have scraped through this past year and were able to make things balance by liquidating your savings and other actions, but you are keenly aware that next year will be far more challenging. The resources you will have available to pay your expenses, because of the economy, will be roughly half the cost of your family’s necessities.
You are now faced with some extremely difficult decisions. Do you accept that your family members will have to do without half of the things that guarantee their current and future welfare, and place them in a precarious position of risk?
Do you seek ways to supplement your income to help make up for the loss of resources that can help you better ensure your family’s welfare, even though generating additional income will not occur without facing some very difficult choices?
That’s the situation Nevada finds itself in. The state, as the head of the household in the above scenario, has dramatically cut back the services it provides to us, its family members, over the past two years. The services that it is able to continue to provide — for the education, health and safety of its residents, or family members — are significantly reduced and are, arguably, insufficient.
It has liquidated its savings from all sources, taken money from other family members (Clark County) and handouts (from the federal government), among other things, to help make ends meet. It has also supplemented its income to a degree, though this extra income is only temporary.
All of these actions allowed the state to make ends meet for the time being, but many of the extraordinary measures that have been taken will no longer be available. Going forward, what can or should the state do to balance its budget and provide for the welfare of its residents?
To provide the same level of services, even at the current greatly reduced level, the state is expected to be between $2.5 billion and $3 billion short over the next biennium to fund education, health and human services, public safety and other services. Education, health and human services and public safety alone represent over 92 percent of the state’s general fund spending, which was $6.6 billion for the biennium before the past round of cuts.
To provide these services at pre-recession levels, the deficiency would be far in excess of the numbers noted above. Without any of the begging, borrowing and stealing done in the past budget cycle, including temporary revenue measures ($1.1 billion), federal stimulus dollars ($541 million), diverted room tax revenues ($220 million), payroll cuts to employees ($504 million), and/or other expenditure reductions, account liquidations and diversions of local government revenue ($888 million), the state will find itself facing this unprecedented funding gap as it attempts to assemble its next budget.
Because many of these cannot be continued into the next year (e.g., federal stimulus, one-time account liquidations, room tax diversions), and many of the remaining are politically or practically difficult to continue, the challenge ahead is formidable and, politically, frightening.
The solution to this daunting problem may be surprisingly simple, although the political barriers are anything but simple. The state’s tax structure is inefficient and outdated. We have known this for more than a decade and, with the exception of Gov. Kenny Guinn’s courageous effort to fix the system in 2003, nothing notable has been done to correct the problem.
Further study is not necessary and would be merely a pretext to delay difficult decisions, as the structural problems with our system have been well-documented by numerous credible and well-intended studies. Those who argue that there are no problems with the current tax structure are either beneficiaries of the current system, or they have taken no time to observe the obvious.
Efforts to contain and reduce the long-term costs of labor, both in government salaries and benefits, need to continue and must be embraced by current and future generations of decision-makers. This is not a slight to the multitudes of public employees who do great work to improve the quality of life for Nevadans, but rather it is acceptance that these costs are simply unsustainable over time.
There must also be recognition that the state’s system, which relies on a very narrow sales tax base to produce a lion’s share of revenue for state and local government, is fundamentally and undeniably flawed, and it needs to be replaced with a more broadly applied system of taxing transactions.
No longer should we rely upon only selected sectors of our economy (such as gaming and construction) to carry the funding burden for the entire state. This antiquated and failed approach must be abandoned and replaced with a system that, from a standpoint of taxation, better emulates the economy as a whole and is more equitable for those who bear the burden.
Temptation to continue transferring the state’s problem to local governments through the shifting of local money to the state must also be avoided, as this jeopardizes the quality of services at the local level and does nothing to solve the underlying problem.
The lessons learned during the Great Recession must be viewed as an opportunity to finally correct and improve the system, or we will be destined to relive the consequences of continued inaction.
Discussion: 5 comments so far…
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It's time for the State and local governments to start living within their means, The Tax structure is already as burdensome as it needs to be. There is no need to punish the public for the failure of the political class to meet their fiscal responsibilities.
The Problem would be that if there is a new punishment tax inflicted on the public it would necessarily be formed on socialist/progressive principles therefore not spread across the entire population.
"Efforts to contain and reduce the long-term costs of labor" Yes Mr. Hobbs, you are correct. Yet, you as well as other public figures continue to either fail or refuse to write the obvious solution. Costs of labor have continually risen because Politicians are in bed with the Unions and count on their votes. You should advocate either an extended moratorium or completely rescinding paragraph 2(a) of NRS 288.150 which makes it mandatory that local governments to include school districts bargain pay and benefits with public employee unions and teachers unions. If the mandatory bargaining fails, the arguments go to arbitration where the local government always looses because the arbitrator will simply tell the government to make the pay increases and raise taxes. If the mandatory bargaining is not rescinded or have a moratorium placed on it, increasing the tax base will have little effect on our budget problems as the increases will only go to more increases in pay and benefits to teachers and public employees. You have to stop the bleeding rather then just pumping new blood into the patient.
4th richest place in the world in gold mined and it leaves the state virtually untaxed (1/4 of 1%).
Reid forbids equitable taxes.
Connect the dots for yourself.
The previous biennium saw a $6.9 billion before the $1 billion shortfall for 2009-11 reduced it to, yes, $6.9 billion. A 2010 special session was called to fix the $800 million shortfall and our budget fell from $6.9 to about $6.6 billion.
As for tightening our belts, government doesn't do that very well because it has the ability to tax at will. Individuals in Nevada have a strong incentive to economize while government rarely does. Nevada needs tax and spending controls to encourage government to efficiently and wisely spend our scarce resources.
By the way, pre recession spending levels sat a top a tax hike that was fueled by a housing buying binge (this is bogus accounting btw Mr. Hobbs). Still, cutting education back to 2005-07 levels would actually save the state money - even if we adjusted for inflation and student population growth...
OK, I get it. No new taxes. Make the State live within its means.
So let's take the biggest pieces of the state budget, cut those and see what might happen: Education. Medicaid. Prisons.
Education. We who have education don't need it. So (a) let's cut back to one University and close the other university and all the colleges. We'll save a bundle -- ignoring the capital lost because the buildings that cost so much to put up and furnish go empty and have no other use (and even if they had a market use, they will depress the already depressed market for commercial buildings further reducing the tax base and further increasing the deficit). But let's ignore that. Who cares if we cannot attract any new industry or companies because our education will be so bad that no one will relocate here? Why would anyone care if the gaming companies started to move their headquarters out for the same reason? Will our tax revenues be higher or lower with them gone? Close the Community Colleges. We care only about taxes now. Who cares that we will not have a local source of skills, and market forces will cause us to have to pay more for people with needed skills to come here. Are we better off if government lives within its means and does not tax us an extra $20 but each auto repair costs us an extra $50?
(b) Cut K-12. We can save a lot of money there, can't we? This is all about taxes today, not cost of living here in the future. What is the cost of not having people who can make change, count inventory, read simple instructions, measure things, etc? Small businesses will either lose money they can't afford to lose from employee errors or find themselves having to pay more for employees who can actually do work correctly. Are we better off with higher prices and fewer small businesses? Ignore the future. No new taxes now is the point.
Medicaid. We can tell the Feds to keep their money because we are saving the small part of the Medicare money ponied up by the State to get Medicare funding. Besides, Medicaid recipients are spoiled by health care. Someone who gets sick should either heal themselves or just accept their fate. We're going to live within our means as a State -- and pass the burden of health care to the Counties, and most Nevada counties are completely unable to carry that burden. So we will create a Nevada in which the rich and the Medicare'd and the Obamacared live and the poor die, which is fine as long as we Sun readers can afford to go to the airport for health care and whatever ails the poor is not communicable.
Prisons. We spend a hunk of money on these. We can save a bundle by closing 'em.
See how easy it is to solve the budget deficit without new taxes? Eliminate education. Get rid of Medicaid. Close the prisons. If we just did those three things, we could have a surplus which we could give back to the taxpayers. This way we would face no hard choices.
With the expanded use of capital punshment we could empty the maximum security prisons and put the savings toward the prevention of state and local governments.
Leric,
Most government agencies are bloated with unnecessary staff, many of whom are highly paid, protected, and guaranteed large, generous benefits.
Washoe County School District employs 1 adult for every 7.2 students.
Clark County School District employs 1 adult for every 8 students.
UNLV employs 1 adult for every 8.6 students
UNR employs 1 adult for every 5.9 students
Why?
Why shouldn't government tighten its belt? Why shouldn't government be forced to innovate? Why shouldn't government be required to efficiently use scarce resources?
There is a direct and well-studied correlation between education and incarceration. If we choose not to invest in education, then we better invest in more crow-bar motels.
Futhermore, each new high school graduate yields $209,000 in net economic benefit through increased government revenues and lowered government spending. (Levin, Belfield, Muenning and Rouse, 2007).
In other words, treating education like puppy-mills leads to a larger mess when they all growed up.
The ratios of adults to students that Gibbons mentions may very well be correct. However, he fails to indicate the teacher to student ratio. I know in my school the ratio can be over 21/1. If you remove the special ed teachers from the average, the number goes to 28/1. If you just look at an individual teacher in a high school setting, the ratio becomes 200/1. Some middle school ratios can be higher. Those ratios are too high if you want to give each student some attention.
Most people have no appreciation for the dedication of teachers. The time and energy put in by many teachers is beyond the comprehension of most of the general public.
Unfortunately, when schools face budget cuts, the cuts are made at the classroom level. It won't be long and all teachers will be completely burned out and leave the profession out of frustration.
Perhaps that is the goal of many in this state. Gee, having no education taking place here will sure save a lot of money. I sure hope Nevada doesn't end up in that situation.
I feel sorry for my daughters. My oldest is already expressing frustration at what is happening. What future awaits her here?
Since the 1950s the teacher ratio in the U.S. has fallen from the high twenties to the mid teens. There has not been a staggering increase in achievement. At best it has been statistically flat.
Furthermore, 72 percent of the studies on class size reduction show that nothing happens. Another 13 percent show that students are hurt by such programs.
Nevada's teacher to student ratio is 1 teacher for 18.4 students I believe...
@Gibbons.
So just pile them in. Herd them in like cattle. I was lost in a large classroom. Many kids are. I really don't care about your wonderful stats. Lies and statistics I believe is the saying.
It is deceiving to say 1-18.4. That may be a good elementary number but most teachers I am aware of have the 200-1 or much higher ratio individually. Every day. Correcting papers at night. Preparing for the next day ... contacting parents.
I suppose you could work magic with those numbers. Come back to the classroom.
It would be nice if you say something positive about educators. All the negative gets old. But, that wouldn't go with you politics.
Wondering,
Something magical called computer technology enables great teachers to teach hundreds of students. In Korea, they can reach thousands (incidentally those teachers are also paid in the millions of dollars)...
American education doesn't innovate because it is a monopoly. As everyone knows, monopolies provide inferior service and shoddy products and a high price.
Oh the hatred that some posters have in their hearts. So sad.
The End.
The need for improved education in our state is well demonstrated by the posts from a couple of wingnuts who repeatedly post the most amazing claptrap which even Glenn Beck would blush to speak -- claims with no basis in fact and wild opinions that are down right scary. They do however, help demonstrate that better mental health and educational facilities for adults suffering from right wing delusions are essential -- failing that, our prison system may be the only alternative.
Thanks for the good commentary, Hobbs. Mining taxes are particularly ridiculous. And for those who are dumping on teachers, I'd like to see you last a day at my job. By the way, during the school year, those days generally require well over eight hours of work, not to mention what weekends are like.
"Nevada's teacher to student ratio is 1 teacher for 18.4 students I believe..."
More anti-education misinformation from Patrick Gibbons, twisting stats to his own liking, and the interests of his masters. Must be you're counting as teachers many staff people who are not. I have a couple of hundred essays to score this weekend, Pat. I'll find half my students below grade level, and I'll be criticized and complained at for giving those students D grades. Want to help and see what teaching is actually like, walk a mile in my shoes, as the saying goes?
If you Republicans could do more than try to enslave and exploit your labor, I might be more interested in school reform. My job is not good, and the system needs some major change, but when change means scapegoating teachers, blaming them for many things well beyond their control, and trying to make them work eighty hours a week for forty thousand a year, I'm not interested. It's bad enough as it is. As it gets even worse, I honestly don't know what to do, but I know I want out.
Teacher, I don't see one darn figure from you, just anecdotes and that doesn't paint a true figure. Btw, if my numbers and stats are wrong, prove it, don't just claim it.
Btw, I only blame bad teachers, as we all should.
SOLUTION SIMPLE; BUT THE UP-COMING PROBLEM IS THAT AS BARBARA BUCKLEY LEAVES AS SPEAKER IN CARSON CITY, she is expected to be replaced as speaker by John Ocequera, 42, assistant fire chief for North Las Vegas who made in total compensation in 2009 $151,772. He has been a legislator and double dipper since 2000. IS JOHN GOING TO DO WHAT IS NEEDED?
The real solution is SIMPLE; file BANKRUPTCY, ADMIT we are BROKE, FIRE all public personnel and RE-HIRE any who wish to work for the NATIONAL AVERAGE OF PRIVATE SECTOR (NV cost-of-living is 100 or exactly national average) GIVE same benefits , pay, pensions or- lack- there- of;; that are paid in the private sector. AND for those who whine say "thanks 4 your service and BYE- BYE" and get rid of the wh0res called politicians who put the citizens in this place by selling themselves for the public union's votes to keep them in office!
THIS is 1st STEP= PUT AN END TO OVERPAYMENTS. There are thousands of workers willing to take the private sector national average wage and benefits.
Contact NV legislature
http://www.leg.state.nv.us/general/feedb...
state senate info w/ e-mail
www.leg.state.nv.us/Senate/Current/Senat...
assembly contact w/ e-mail
http://www.leg.state.nv.us/Session/75th2...
To gbigs:
So now you are a retired corporate executive living in Las Vegas? I'm really impressed with these facts about how many employees you supervised and how you worked 13 hours/day for 18 years with no vacation. We bow down to you for being such a workaholic. I'm sure your European colleagues thought you were a fool for working so much. They are smart enough to realize that vacations are a necessary part of life. Frankly, I smell a BS artist. If you now have so much knowledge and wisdom, I'm sure they would be happy to hire you to work as a substitute teacher in one of the Clark County schools.
NV can save 2 billion dollars per budget.
In the bi-annual budget Nevada can save 2 billion dollars; since we WASTE 1 billion per year OVER PAYING public unions ABOVE what the private sector gets.
FILE BANKRUPTCY; fire all government employees and re-hire those willing to work for the national average of the private sector with those same private sector benefits.
But just watch, our wh0re politicians will tax their employers the citizens and hand out largesse to the public unions.
Contact NV legislature
http://www.leg.state.nv.us/general/feedb...
state senate info w/ e-mail
www.leg.state.nv.us/Senate/Current/Senat...
assembly contact w/ e-mail
http://www.leg.state.nv.us/Session/75th2...
I have been a CPA for over 35 years. Your tax increase proposals are insane. It will kill the advantage Nevada has over most other States. The writers of these proposals are political science majors who could not cut it doing other jobs. They have no idea how things work in the private sector. Look at how the tax increases have impacted Oregon or New Jersey. Businesses look at the tax situation carefully before they relocate. This study advocating tax increases belongs in a junior college report. It is junk science.