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Observations on state budgets and taxes
by Ira Hansen
Feb 09, 2008 | 686 views | 0 0 comments | 13 13 recommendations | email to a friend | print
I interviewed Gov. Jim Gibbons on my radio show this past Thursday and one of the great concerns being expressed by many are the “cuts” in the budgets of government agencies. As governor, his responsibility is to make up a budget for the state and, with the overall decline in the state’s economy thanks primarily to the burst of the housing bubble, tax revenue has declined from its peak of only a few years ago.

One of his pledges while running was no new tax increases; current revenues must be the balancing factor for current expenditures.

Nevada for the 2001-2005 period experienced phenomenal growth in the housing market, with both Las Vegas and Washoe County leading the nation. Lotteries with people signing up for new homes became common; developers were having difficulty keeping up with the demand and, of course prices rose accordingly.

As the prices rose, so did the sales tax each new home generated, and our state government was soon awash in money. At first, a reserve fund for “rainy days” was set up to put aside some of the excess, but giving excess money to politicians is the equivalent of giving excess whisky to a severe alcoholic. The budgets of all agencies jumped up, and what were once “wish list” items became “required” spending.

So, the dilemma is: If he wanted to meet the inflated demands, the governor was forced to either renege on his “no taxes” promise — or reduce spending. Honoring his word, Gibbons introduced his new budget which was immediately attacked in the press for supposedly “cutting” by 10 percent the budgets of almost every state agency. Schools got a break, with “cuts” limited to about 4.5 percent

But how exactly do you define a “cut” in a government budget? Truth is, government spending in Gibbons' budget has, contrary to the media’s attack, gone up, not down. There are no reductions, no “cuts.” Spending has increased.

What? Let me explain. A government agency that requests, say, a 20-percent increase in its new budget compared to the previous year’s budget, and the governor instead approves only a 15-percent increase, howls to the world that its budget has been “cut” by 5 percent. Yes, the evil governor, skinflint that he is, is starving them into oblivion.

For the rest of us looking at the math, the actual end results are, in fact, an INCREASE of 15 percent.

In simple terms, say the budget was $100. Next year, you request $120. Instead you get $115. Is that a cut or increase? It depends on where you are employed. In the private sector, you just picked up an extra $15. In the government world, you just got a cut of $5.

In hindsight, the budgets of almost all state agencies expanded dramatically and, in truth, disproportionately during the boom times just a few years back.

Bubble economies eventually deflate, and the reality for all of us as well as the government is we have to adjust accordingly. To maintain government spending at artificially high “peak” levels would require the economy itself to do the same, which is not reality.

The governor is correct in holding down taxes, especially in these troubled times. To tax the people when an estimated 1 in 30 face losing their homes to foreclosure is madness. If anything, he deserves strong praise for his ability in times like these to maintain the spending levels he has. Contrary to the whiners, government agencies have received substantial INCREASES in the money they get to spend this fiscal year – which certainly cannot be said for a lot of Nevada’s taxpayers. A little belt-tightening by the public sector – rather than tax increases – is exactly what times like these require.

Ira Hansen is a lifelong resident of Sparks, owner of Ira Hansen and Sons Plumbing and his radio talk show can be heard Monday through Friday from 3 to 6 p.m. on 99.1 FM.

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