When Gov. Guinn called a press conference to propose that Nevadans get a rebate on their DMV fees because of a surplus in the state budget, the immediate reaction in most households was a happy one: “Oh boy! We’ll have an extra $300 to spend this summer.” Now that we’ve had a little while to consider, this “answer” to the state’s situation only raises more questions.
The first thing to ask is, “How did we get into this situation?” Before the 2003 legislative session, the pundits in Carson City were all running around like Chicken Little, claiming the sky would fall if we didn’t immediately and permanently change the tax system to correct what they called a “structural deficit” – an imbalance between state income and expenses that could only be fixed by raising taxes. After one of the longest and bloodiest legislative sessions in the state’s history, an $833 million tax increase was finally approved, even though it didn’t include the ridiculously conceived gross receipts tax that had been proposed as the best way to prop up the falling sky.
Now, instead of being at the break-even point predicted by the so-called experts, the state has a budget surplus. By June 30 of this year, it is expected to be $312 million. And that’s after $70.6 million was transferred to the “rainy day fund” in January, and another $50 million was transferred last month. The total in the rainy day fund is now $122 million. What happened to all the dire predictions?
The Nevada Policy Research Institute (NPRI) has just published a report entitled “Nevada’s 2003 Tax Increases: Underlying Assumptions and Resulting Impact,” authored by Robert Schmidt and Charles F. Barr. It does a good job analyzing how the economic forecasters went wrong and why. For one thing, they assumed a growth rate in state general-fund revenues of only 3.9 percent per year, when the average over the 12 years from 1989 to 2001 had been 7.3 percent. They also overestimated the money that would be needed for social service programs. A copy of the report can be found on the Web at: www.npri.org/mgraphs/2003_Tax_Increase.pdf.
The frustrating thing about this whole situation, especially for those of us in the business community who fought against tax increases, is that the money the governor proposes to return is minimal, but the taxes imposed on businesses are here to stay.
“Significantly, FY 2004 was only the first year of Nevada’s new high-tax regime,” states the NPRI report. “As the state’s economic growth continues to outpace the overly dismal projections of the Governor’s Task Force, it is likely that the size of the annual surplus will grow at a progressively faster rate each year, at the expense of Nevada’s taxpayers and the state’s economy as a whole. Indeed, the actual surpluses each year will most likely be even larger than that, given the lower-than-predicted growth in welfare caseload.”
Now that we have this extra money, we are faced with the challenge of what to do with it. My first inclination would be to give it back to the taxpayers as soon as possible. A conservative group called Liberty Watch Nevada suggests, “What the Legislature should do is repeal last session’s unnecessary tax increases, let Nevadans keep the money they earn, reduce the size of state government, permanently reduce DMV registration fees to $35 per year per vehicle, and get out of the way of our booming economy.”
This is a compelling idea. But, before we all jump on the bandwagon, let’s take some time to consider our alternatives.
For example, State Treasurer Brian Krolicki recently announced the Millennium Scholarship program will run up a $40 million deficit over the next two years. Costs over the first four years of the program have been $67 million instead of the $44 million originally estimated. One reason was that 50 percent of graduates were expected to request and qualify for scholarships, but 74 percent actually did. Another reason the program is in trouble is that it was set up with funds from Nevada’s share of the tobacco settlement lawsuit, and available funds have gone down because fewer people are smoking now. Good news for their health, but bad news for the scholarship program. It might be worthwhile to consider propping up this fund, especially since Nevada doesn’t have other state-supported scholarships for higher education.
Another suggestion worth looking at is increased funding for a psychiatric hospital. Emergency rooms, especially in Southern Nevada, are increasingly crowded with psychiatric patients who have nowhere else to go. The 150-bed psychiatric hospital now in the planning stages will only replace beds closed down by hospitals in recent years, so we’ll still be in a mental-health crisis after it is completed.
Another idea would be to leave the money in the rainy day fund so we can put off any new taxes.
Governor Guinn had a wonderful “photo op” announcing his plan to generously give Nevadans some money, while neglecting to mention that the government shouldn’t have taken it from us in the first place. Now that the reporters have gone home and the cameras are turned off, let’s look at this situation logically and chart a prudent course for the future.
COMMENTS? email: lyle@nbj.com