How to boost spending without raising taxes

By Jon Ralston

Sunday, Jan. 30, 2011 | 2:01 a.m.

Gov. Brian Sandoval says he wants an “open and honest debate” over his budget. So let’s give him one, even if I am not sure he really wants it and the Democrats aren’t ready to be open and honest yet.

Let’s start at a fact that has been little noted in Gov. Paradox’s spend-and-no-tax budget: He has added about a billion dollars to the Economic Forum’s $5.3 billion projection, which he has papered over and used gimmicks to achieve without taxes. This I have already told you, although it bears repeating.

But what has yet to be fully vetted — debated, if you will — is the propriety of how the administration is managing to expend an extra billion dollars without new taxes. It seems clear, despite the denials, that the governor instructed his aides to find the extra 10 figures any way they could so long as he could keep his campaign pledge. (We will save the debate for another day on whether forcing tens of millions in an unfunded mandate onto local governments is a de facto tax increase or if forcing universities to raise tuition and fees is a tax on students and/or their families.)

To his credit, Sandoval surely wanted a 20 percent increase because some of the human service and education cuts were anathema to him. But how he achieved them has little legitimate policy underpinning and could have long-term consequences.

Three feats of fiscal black magic are here. Two come under the euphemistic heading of “revenue reallocations” (administration language) and one under the rubric of “hidden cost-shifting” (my language).

There are some minor gimmicks, too, including a $60 million prepayment of taxes by the mining industry, raising this question: If the industry, for the second consecutive year, just happens to have tens of millions in cash lying around, maybe someone on Team Paradox should have considered the miners can pay more. A lot more.

But let’s focus on the big-ticket items and get the debate rolling.

The first is a $221 million room tax

“reallocation.” This clearly violates the spirit of an initiative petition passed in 2008, although the governor’s office says it has been legally sanctioned by the attorney general and the Legislative Counsel Bureau.

Some background: The teachers union, with help from Harrah’s, Wynn Resorts and Station Casinos, qualified a ballot initiative for a 3 percent room tax increase later approved by lawmakers. The initiative was specific in its revenue scheme: For the last biennium, the money goes into the general fund. Then, this biennium, it was slated to go into a new State Supplemental School Support Fund, defined as “a special revenue fund.” It must be used “to improve the achievement of students and for the payment of salaries to attract and retain qualified teachers and other employees, except administrative employees …”

Whatever the merits of this language and the questionable earmarking of the room tax money, the initiative’s intent was clear. But Sandoval believes he can pilfer the money from this segregated fund and use it to balance his budget.

This is highly suspect and sets a terrible precedent — if it is indeed legal — for money that was supposed to be walled off. But executing suspicious budget moves and taking money intended for other purposes are the hallmarks of this budget.

The other major “reallocation” is $190 million by essentially taking out a loan against insurance premium tax proceeds, one that blows open $100 million holes in the next two budget cycles because repayment is mandated. This requires almost no commentary because it is so obviously obscene and if you follow the logic, essentially means the state is circumventing the balanced budget requirement and behaving like Congress. Why not keep borrowing off tax revenues every session and keep pushing the debt forward? Alas, in other ways, that is what they always do.

Finally, Sandoval spends nearly a half-billion dollars by invading the capital reserve funds of 12 school districts and allowing them to put the money in their operating budgets. Thus he keeps the $425 million off the state ledger because the law says Carson City is responsible for making up any loss in tax revenue to school districts. It is a clear circumvention of that law and, perhaps worse, uses one-time money for operations, another bit of legerdemain that is contrary to all accounting principles (although also legal, the governor’s office says).

So that’s how you spend a billion more than you led the public to believe you would without raising taxes. Pretty clever.

And that’s just the beginning of the honest and open debate on the budget, one week before the session begins. Let’s just hope it’s not the end.