Time for statists and tax-eaters to get their due

Ronald Reagan said that liberals' problem is not what they don't know, but what they know that isn't true. Really, it's both, as evidenced by much that has been reported about Nevada's budget problems.

An example of what they know that's not true is the claim that Nevada colleges and universities would have to slash salaries by 20 percent across the board, add five furlough days per month for each employee, or eliminate 1,290 jobs to meet the budget cuts the Legislature is considering. (Accounts of possible fee increases and what institutions might have to be closed are accurate, although much more likely are more judicious cuts in programs, departments, etc.)

The Nevada System of Higher Education does not know what level of across-the-board pay cuts would be required due to complications arising from its budget being funded by various sources that cannot always be substituted one for another. The figure is between 6 and 20 percent, almost certainly in the lower half of that range - as documented at RonKnecht.com. Pay cuts of 20 percent would be required only if they were applied to the folks paid out of higher education's $501-million state general fund budget, not to all persons paid from its $1.7-billion total annual operating budget. Similarly, the number of additional furlough days would lie in the lower half of a 1.5-to-five range and would be five days only if applied to just five of every 17 employees. If job cuts were used, the number would be well below 1,290.

I raised the salary-cut and furlough points at the regents' recent special budget meeting, and our staff recognized that the 20 percent and five-day figures were wrong - but they were not corrected when the presentation was given to the Legislature. Nor were the errors I pointed out reported by the press.

I am avoiding naming names here, because many folks have contributed to the reporting of misinformation and, more, because my point is to correct the record and demonstrate the problem of misinformation, not cast blame. The misinformation needs to be corrected so that: 1) Regents and higher education do their duty to the people and public interest of Nevada; and 2) we not unduly alarm the many good folks who work so hard and well each day in higher education.

Other claims about state budget and spending issues constitute even bigger misinformation problems. I'll illustrate these points with budgets and spending for the university system, although the problem is worse for other parts of the state budget, especially K-12 education.

Until this year, there have been no cuts in state and overall operating spending as far back as I've found recorded information. In general, higher education spending has grown with Nevada's economy - while K-12 spending has grown much faster than the economy, even as the quality of its product (as measured by student achievement) has declined.

The draconian budget cuts you heard about? A mirage based on the definition of budget.

A budget is merely an itemized plan to spend money, based on assumptions about the funds that will be available. So, the tax-eaters, seeking to guilt-trip taxpayers and public officials into giving them always more regardless of how business and private-sector families are faring, can invent any starting or reference point and then wail about the awful carnage they've suffered.

For example, one can start with higher education's 2009 general fund budget of $683 million approved by the Legislature in 2007 before the Great Recession, compare it to the legislatively approved $592 million 2010 general fund budget (including federal stimulus funds) based on developments not anticipated in 2007 and - Voila! - calculate a 13.4 percent budget cut. This approach ignores the fact that actual general fund spending in 2009 was only $623 million (not $683 million), meaning the 2010 general fund budget of $592 million was cut less than 5 percent as compared to a real, not artificial baseline.

Further, this approach ignores that the general fund is only 35 percent of the total higher education operating budget and that the non-general fund portion of the operating budget increased, meaning that before the upcoming cuts are made, there has been no cut in the 2010 total operating budget, as compared to actual 2009 spending. The salient facts are that higher education's total operating spending has risen with Nevada's economy and that 2010 is the first year it will actually be cut - a cut finally coming after the worst recession in modern history has persisted for two years in Nevada.

Since budget numbers can be endlessly manipulated this way, the right thing to do is to compare actual spending or employment numbers for the public and private sectors to determine the relative impacts of the recession. Because total income numbers for the private sector are not reported on the fiscal-year basis used for public spending, and because the state-level private-sector income numbers are not reported nearly as quickly as public-sector numbers, the best current comparison of the two sectors' status are the actual employment numbers, which are reported promptly each month.

They give a clear and true picture - and an example of what the statists don't know. Over the last 30 months, Nevada private-sector employment has fallen by 12.5 percent - a loss of 143,300 jobs, or one in eight private-sector jobs since the June 2007 high-water mark. At the same time, public-sector employment, including education, has generally been flat (with seasonal variations), showing either a slight gain or loss, depending on the starting month chosen. In fact, public-sector employment continued to grow through November 2008 before settling back over the last year to its pre-recession levels.

Similarly, double-digit declines in state tax revenues, exclusive of tax increases, show that businesses and private-sector families that pay them have been crippled by the recession. But education and the rest of the public sector, via tax increases and borrowing, have fared better by further burdening those businesses and families. Also, the recent Economic Forum hearings showed that economic recovery in the near term is far from certain, and we may continue losing private-sector jobs and investment returns for some time.

A huge body of evidence supports the view that the recent hard times and the long-term bleak prospects for economic recovery and growth going forward are due to the cumulative effects of continuing public-sector over-reach in taxes, public spending, regulation and other intervention, entitlements and litigation. In view of all this, the basic statist narrative is false in claiming that the public sector has not been "adequately" funded. Also, claims that a no-new-or-increased-taxes position are in any way unreasonable are based on lies, selfishness and greed on the part of tax-eaters and their political allies. What is happening now is only that the unreasonable state spending increases of recent years are, of necessity, being reversed.

A specific lie is the claim that public spending cuts required by our falling tax revenues - and the furloughs and position cuts that follow - constitute an unfair tax on public employees. The very modest effects now being felt by public employees, long after the carnage began and has continued for businesses and private-sector families, are merely the public employees finally carrying a very modest share of the burden caused by poor public policy encouraged by public-employee unions. To date, increased taxes on those businesses and families have spared public employees from carrying their fair share.

Similarly false is the claim that modestly raising tuition or fees that are highly subsidized constitutes a tax on students. A tax is the coercive taking of private property (money) by government, so removal of a subsidy, especially for a voluntary activity, is simply not a tax (a point that also refutes the claim that public spending cuts are a tax on public employees).

None of this is to deny that now, at long last, higher education and the rest of the public sector face painful and distressing cuts that will challenge their abilities to perform their missions. As a public employee, I see it in my already furlough-reduced pay check. As a regent, I dread having to make budget-cut decisions that affect the good folks working in higher education and our students - and I point out that higher education carried a disproportionate share of earlier budget cuts, so other parts of the budget should do so now.

But I also know that absorbing my share as an employee and making the necessary cuts and giving the public an accurate account as an elected official are the duties I owe to the people and public interest of Nevada.

Ron Knecht is a Carson City resident and Douglas County's representative on the Nevada System of Higher Education Board of Regents. He is an economist for the Public Utilities Commission of Nevada.


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