Going the wrong way

Elliott Parker

Sunday, June 12, 2011 | 2:01 a.m.

Since the Legislature adjourned sine die, many have written about its relief that the state budget will not be as bad as expected. Gov. Brian Sandoval has been praised, and criticized by some in the far-right wing, for finally being a little reasonable, once the judiciary made it clear that his budget was built on false premises.

Of course I share the relief, and agree that it could have been worse. But it also could have been much, much better. Had the governor signaled his reasonableness before the last minute, he would have done less damage, and could have driven a much better bargain with the Legislature. We could have used more thoughtful reforms, less last-minute scrambling, and less swinging of the scythe.

Nevada needs tax restructuring. Our tax base no longer reflects our economy, and we need a broader, more stable tax base that will allow us to lower rates on those few things we do tax. We need the Legislature and the governor to give this more thought, and quit thinking that procrastinating for one more biennium is a successful conclusion.

Nevada’s biennial general fund expenditures are budgeted to fall from $6.9 billion to $6.2 billion, a cut of 10 percent in state spending. For comparison, our gross state product fell by 6.5 percent from peak to trough in this recession, and our personal income fell by 7.3 percent.

This general fund budget is 2.5 percent of our expected GSP over this period, hardly what we should call big government. But Nevada already had one of the smallest general funds, and the fewest number of public sector workers, in the country.

In the short run, this reduction in state spending means fewer jobs in the private sector, too, and the impact could be surprisingly large. Estimates based on the experience of all states over the past 45 years find that, on average, such cuts are likely to reduce the state economy by 2 percent below where it might have been. That suggests a $5 billion loss in economic activity over the next two years, a frightening prospect in our current depressed state. Of course, it could have been worse, right?

Business investment tends to flow downhill, to where other firms are investing, to where an educated labor force works, to where good customers live. Since we have lost our gaming monopoly, we need to find a new economic engine in this state, and we won’t find it without a vibrant system of higher education.

Instead, we have done our best to rock the Nevada System of Higher Education back on its heels, to chase away some of our best and brightest people and undermine the motivation of the rest. And we created a Knowledge Fund to spur innovation that we don’t even have the knowledge to fund.

At its peak a few years ago, the Nevada System of Higher Education employed 0.4 percent of Nevadans and its total state-supported operating budget was about 0.65 percent of GSP. Even after a decade or more of growth, Nevada was still 49th in the nation in public higher education spending, though we lack the significant private universities other states have.

Since that peak, the Nevada System of Higher Education has lost 20 percent of its state funding, and now we are losing 15 percent more. While this is not as bad as the 36 percent proposed by then-Gov. Jim Gibbons and the 29 percent proposed by Sandoval, it is still pointing in the wrong direction. Some can be made up for with higher tuition and fees, but not as much as people seem to think.

Most attention focused on the K-12 system, which affects many more kids. But the Nevada System of Higher Education has taken bigger cuts than any other major state institution, this round and cumulatively, and at times we seemed to be almost invisible.

Higher education institutions are now getting ready to give out pink slips. UNLV President Neal Smatresk announced that 215 more jobs will be lost, along with 18 academic programs and nine departments. UNR will be cutting a slightly larger share, though our enrollment has continued to grow; 414 positions have already been lost, and we expect to lose almost 200 more. CSN and other Nevada institutions are making similar cuts, all subject to a vote of the Board of Regents.

Sure, money isn’t everything, and many will still be working hard to provide the best education we can with what we have to work with. Sure, there will be some cost efficiencies gained, but much damage has been done, damage that will take a decade or more to undo, at least.

Universities improve by attracting top people from out of state, and by becoming attractive for our state’s best students to stay in state. Now, some of our top faculty have left, or are planning to leave. Our ability to keep our best students has diminished, and if they leave they are not likely to return.

Nevadans need to wrap their heads around the fact that the future of our state depends on a better tax system to support a functioning state government, especially a functioning system of higher education. To attract investment and employers, we need this much more than we need to stay an extremely low-tax environment. Cooperation between the governor and the Legislature only reduced the sharp angle of our downward spiral.

Elliott Parker is professor and chairman of the Department of Economics at UNR.