State Budgets

State of the State: Nevada

Cronyism Touted, But More Good News on Education

In his opening remarks for his fourth and final State of the State address, Nevada Governor Brian Sandoval declared, “The state of our state has dramatically improved, and we are growing stronger every day.” His speech offered hope for continued education reform, but on the economics front, the governor expressed a continuing approval of cronyism.

First, the good news.

Governor Sandoval recognized the success of the state’s charter school system which “serves nearly 10 percent of our student population.” He also called for $60 million to fund education savings accounts (ESAs). This innovative program is the broadest of its kind in the nation, and gives families access to the dollars set aside for their children’s educations, allowing them to customize a completely individualized program of education, choosing among providers such as private schools, online courses, homeschooling curriculum materials and one-on-one tutoring.

Nevada’s program is accessible to 96 percent of the state’s students, and the average account will be funded at $5,100 per student. “We’ve heard from thousands of Nevada families about how crucial it is that we give them freedom of choice in the education of their children…I look forward to building a bipartisan solution to get this done. It’s time to give Nevada families more choice.” The most recent ALEC Report Card on American Education ranks Nevada 4th in the nation on state education policy, largely because of its broad ESA program, which has already attracted over 8,000 families before its implementation. In addition, Nevada now ranks 12th nationally (a jump of six spots in six years) in academic performance as measured by the National Assessment of Educational Progress (NAEP). Nevada’s education reform pioneering should be applauded.

But on economic matters, cause for concern exists. Sandoval touted Tesla’s gigafactory presence in the state as an “economic growth story.” But he ignored the nearly $1.3 billion in tax “preferences” (tax abatements, tax credits, payroll tax abatements, et cetera) used to lure Tesla to the state. Tax credits issued in December for the six month period from January to June of 2016 totaled more than $8 million for the 331 qualifying employees at the time of the audit—a whopping $24,202 per employee. And tax credits comprise just a component of the entire incentive package, approximately 15%. Politicians enjoy taking credit for the visible jobs created by this favoritism, but tax handouts for one company result in other businesses or individuals picking up the slack. Each dollar put in Tesla’s pocket is a dollar taken from someone else who could have chosen to build or invest.

On the spending side, the governor admitted the biennial budget is “10 percent larger than the last budget.” This budget explosion is partially due to the “4 percent cost of living adjustment and increased funding for health benefits” for state employees. This increase in public employee pay follows a 1 percent adjustment in July 2015 along with another 2 percent adjustment in July 2016. Since June 2014, inflation totaled 2.5 percent. The cumulative state employee pay hikes of 7 percent during this same period eclipses by near three times the accumulated inflation.

Despite the state’s steady economic performance, self-inflicted wounds by politicians are holding Nevada back. 2016 actually marked the third consecutive drop for Nevada in the annual ALEC Report Rich States, Poor States. Although Nevada still ranks a respectable 14th in economic outlook, this is three spots down from six years ago. In fact, Nevada now ranks dead last in terms of the impact of recently legislated tax changes in 2014 and 2015.

Significant improvement in economic outlook is unlikely thanks to the recent increase in the Clark County transient lodging tax. Proceeds will finance construction of either an NFL stadium or college football stadium (if the NFL agreement falls through). This new tax will cover the issuance of up to $750 million in general obligation bonds. This giveaway to the NFL was justified under the guise of this project being “in the public interest and beneficial to the public welfare to diversify, enhance and grow the largest tourism market in this State…” Of course, each dollar spent on higher hotel costs by tourists is a dollar less available to spend on entertainment options in Las Vegas.

Unfortunately, the governor chose to allow politics to trump the facts on the Yucca Mountain nuclear repository issue: “Let me make my position clear—for the remainder of my term, I will vigorously fight the storage of high-level nuclear waste in Nevada. Any attempt to resurrect the ill-conceived Yucca Mountain Project will be met with relentless opposition, and maximum resources.” As rationale for this stance, he labeled the project as “unsafe and unwanted…a waste of time and money.” But Nye County officials have expressed support for the facility. Additionally, a poll conducted by PMI in 2015 found 55 percent of respondents “open to discussions” on Yucca Mountain. Furthermore, the U.S. Nuclear Regulatory Commission’s environmental impact statement on the project,released in May 2016, found “that each of the potential direct, indirect, and cumulative impacts on the resources evaluated in this supplement would be SMALL.”

Based on the evidence, a more reasonable, factual discussion of the issue is warranted. ALEC model legislation encourages “the federal government to complete the Nuclear Regulatory Commission review of the…license application, followed by construction and operation of the repository” with benefits eligibility for the “communities and state hosting” the repository.

Overall, Nevada remains one of the most business-friendly states. The education system is rapidly becoming the envy of the nation. And it’s no surprise that many choose to escape the high-tax regime of California for no-income-tax Nevada. But to stop the slide in economic outlook, Nevadans should reject further cronyism and resist calls for a further erosion of the low-tax environment.

In Depth: State Budgets

Smart budgeting is vital to a state’s financial health. The ALEC State Budget Reform Toolkit offers more than 20 policy ideas for addressing today’s shortfalls in a forthright manner, without resorting to budget gimmicks or damaging tax increases. One way to stabilize budgets over time is to embrace…

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