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Where Does the State of Nevada Spend Its Money?

3/27/2018

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This is the second column based on the Controller’s Annual Report for fiscal year 2017 (FY17).  Here we disclose where the state spends its money.

Total state spending for FY17 was $12.29 billion: $11.033 billion (90 percent) from regular state accounts, including pass-through federal funds; $1.211 billion (ten percent) from tuition, fees, contracts, grants and other service charges by higher education; and $46 million in two other areas.  The total was 74 percent higher than in FY06, or 17 percent more in real per-person terms.

Health and social services (HSS) and all education accounted for 77 percent of the $12.29 billion.  Their growth was 91 percent of the growth in state total spending from FY06 to FY17. In FY17, HSS consumed 45 percent ($5.5 billion), with primary and secondary education (K-12) taking 18 percent ($2.2 billion) and higher education another 14 percent ($1.8 billion).  All other activities – law, justice and public safety, transportation, unemployment insurance, general government, regulation, etc. – totaled 23 percent ($2.8 billion).

HSS and K-12 spending grew rapidly while all other government spending, the Nevada economy and the wellbeing of Nevadans declined significantly.  Over the last eleven years, HSS spending grew 150 percent, or 68 in real per-person terms.  K-12 outlays rose 79 percent, or14 percent in real per person terms.

So, total real per-person state spending rose 17 percent despite significant decreases in higher education (-8 percent) and all other government spending (-19 percent).  Real per-person income of Nevadans (-10 percent) and gross state product (-19 percent) also contracted.

As a consequence, the burden of total state spending on Nevada families and businesses, driven by HSS and K-12, was 30 percent higher relative to their incomes in FY17 than in FY06.  The growth in burden from HSS spending was 87 percent.  For K-12, it was 33 percent.  Higher education saw only a two percent burden increase. The total of all other state spending grew eleven percent slower than incomes.

These burden figures mean that, besides covering spending increases due to inflation and growth in HSS client and student headcounts, rising HSS and K-12 spending required families and business to pay taxes and fees 30 percent higher in FY17 than in FY06.  Had we not had the contraction in other state spending, the increase in taxes and other burden would have been even bigger.

More than $3.55 billion (64.5 percent) of HSS monies was spent on Nevada Medicaid.  This spending will likely continue to rise in coming years due to the state’s decision to expand Medicaid eligibility pursuant to the federal Affordable Care Act (Obamacare).  However, federal contributions toward this spending decreased in 2017 and will continue to do so, requiring additional state dollars.

Nearly $1.5 billion (67 percent) of K-12 funds was paid from the Distributive School Account to county school districts to supplement their local revenues.  By various measures, Nevada K-12 education continues to deliver poor results, despite rapid increases over the last decade in state K-12 spending.

Despite the well-known lack of statistically significant correlation between spending and student achievement, in 2015 the legislature and governor further increased K-12 budgets by hundreds of millions of dollars through FY17.

Total higher education spending rose 32 percent, but the state-funded portion fell 19 percent.  Large increases in tuition and fees, grants and contracts, and self-supporting operations (meal plans, housing, ticket sales, etc.) shifted significant portions of the cost burden from taxpayers to students and their families, who get most of the benefit of the services.

Transportation spending rose from $508 million in FY06 to $802 million in FY12 before falling to $180 million in FY16 and then climbing back to $845 million in FY17.  Much transportation spending is capital investment in large projects, so there is no trend in annual spending.

Unemployment insurance (UI) costs rose nearly ten-fold from $239 million in FY06 to $2.233 billion in FY12, before falling to $313 million in FY17.  Their 31 percent growth rate in spending since FY06 is only a small part of the state spending growth total, and it was driven mainly by the Great Recession, poor recovery and federal UI policy.  There is no meaningful time trend in UI spending.
​

Next time: Where the state gets its money.
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The Controller’s Annual Report

3/20/2018

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We have just issued the Controller’s Annual Report (CAR) for fiscal year 2017 (FY17).  Here we provide an overview of it.  Future columns will discuss individual sections.

The CAR provides Nevada citizens, officials and others a summary of key facts, data, analysis and issues about the state’s fiscal condition and challenges.  The Controller has a statutory charge to recommend plans for: support of public credit; promoting frugality and economy; better management of the state’s fiscal affairs; and better understanding of them.

In FY17 and over the long term, state spending has grown faster than Nevada’s economy, thus imposing an ever larger real burden on Nevada families and businesses, whose real incomes have fallen significantly over the last decade.  Rapid increases in spending on Health and Social Services (HSS) and K-12 education are driving state spending growth.  HSS and education (K-12 and higher) consumed 77 percent of total state spending of $12.3 billion in FY17, while all other state spending in total declined significantly in real terms since FY06.

Non-tax revenues – grants and contributions to the state, charges for services and contract revenues – have grown very rapidly (65 percent faster than Nevada’s economy) to comprise 56 percent of total state FY17 revenues of $13.4 billion.  Total tax revenues grew only slightly faster than the state economy, and they provide the other 44 percent.

Gaming and property tax revenues fell sharply in real terms while tax revenues from non-gaming businesses (including unemployment assessments) rose greatly.  The burden carried directly by consumers and residents (not including the pass-through effects of business taxes) grew only half as fast as their incomes.

Large revenues from federal HSS grants cannot be redirected to other areas.  HSS spending is the largest category of state spending, and it has grown fastest, driven mainly by federal mandates. Medicaid is 64.6 percent of the HSS total, and that percentage has increased recently due to Nevada’s embrace provisions of the federal Affordable Care Act of 2010 (Obamacare).  Nevada Medicaid spending will increase in coming years, and federal funding that has supported it is uncertain, and it delivers poor health care results.

State funding of K-12 education has increased at more than twice the rate of incomes of Nevada families and businesses over the long term.  Research has continuously demonstrated little correlation between student achievement and spending.  In the absence of K-12 policy reform, it is unsurprising that the quality of Nevada education has remained low despite major funding increases.

Substantial parts of the cost of higher education have been shifted from taxpayers to students and their families in Nevada, as elsewhere.  Higher education compensation in Nevada and all states is very high.  All levels of public education suffer administrative bloat and operating inefficiency.

Current compensation of state employees, except those in higher education, is overall at market levels, but higher for lower-level positions and lower for top-end jobs. Nevada local government compensation is among the highest in the nation and continues to require increases in taxes that are already very high.

Public Employee Retirement System (PERS) contributions required of state employees (not including those in higher education) and from taxpayers have risen in real terms.  PERS coverage of many local government employees is almost completely paid by taxpayers and is rising to unsustainable levels.  PERS relies on unreasonably high estimates of future investment returns and member growth to hide a growing under-funding problem that threatens financial peril for Nevada.

We identify four long-term trends that have suppressed U.S. economic growth in the last decade, thus explaining the “new normal” of slow economic growth.  The main one is the continuing growth of government that is already too big relative to the economy, reflected in excess public spending, taxes, deficits, debt, regulation of all kinds, and other government interventions.  The trends create an ever greater drag on our economy and produce slow real economic growth of two percent or less annually.
​

For a long time to come, Nevada needs to rein in the size, scope and reach of government to get it back within optimal levels.  We also need to adopt policies that help reverse the long-term adverse economic trends and move Nevada away from cronyism toward true entrepreneurship and economic dynamism.
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John Calvin Coolidge Jr. – Higher Office

3/13/2018

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The first part of our two-column series on President Calvin Coolidge reviewed his early career, culminating in his service as Massachusetts governor.  Today, his time as vice president and 30th president.

In 1920, Coolidge was a favorite son candidate for president from Massachusetts.  At that time, most states chose delegates to the Republican national convention at their state conventions.

At the 1920 Republican convention, ten ballots were required before the party nominee, Warren Harding, was chosen.  Coolidge, although popular for breaking the 1919 Boston police strike, could not gain any traction at the convention to be seriously considered as more than a favorite son.  He never finished higher than sixth on any of the ballots.

Harding had two choices ahead of Coolidge for his vice presidential nominee.  But he left the decision up to the convention floor after his first choice declined, and Coolidge was easily nominated for vice president on the first ballot.  Harding and Coolidge soundly defeated their Democrat opponents later that year.

Coolidge was the first vice president to be involved in Cabinet meetings.  He continued to enhance his reputation as “Silent Cal”, a man of few words not only during Cabinet meetings, but in social settings as well.

Upon Harding’s death in 1923, Coolidge became president.  The oath of office was administered by his father John Sr., a justice of the peace, at his family home in Vermont.  He returned to Washington the next day to resume working.

Coolidge’s reputation had remained greatly untarnished during the scandals of the Harding administration, but his nomination for president in 1924 was anything but assured when he took office.  Party leaders opined that he might be replaced on the ticket.

The turning point for Coolidge was probably his speech to Congress on December 6, 1923.  He gave a strong speech supporting many of Harding’s policies, including immigration restrictions and the budget process that was begun during Harding’s term.  He also benefited from this speech being the first one ever broadcast on radio, providing him with an audience that could hear him speak directly without the filter of the press.  Coolidge was a solid orator and played well on the new communications medium.

After that speech, he won the Republican nomination on the first ballot.  Former General Charles Dawes, the architect of the Dawes Plan to help financially stabilize Germany after World War I, was nominated as his vice president.  The Coolidge/Dawes ticket easily won the 1924 election.

During the Coolidge administration, the country experienced booming economic growth.  He disdained federal regulation, and did little to interfere with the economy. 

He believed items that he championed as a state governor, such as wage and hour legislation and child labor laws, were best left to the states as the Tenth Amendment of the Constitution dictated.  He worked with treasury secretary Andrew Mellon on reducing taxes and paying off debts accumulated during World War I.

Coolidge tended to not comment on controversial subjects.  During the 1924 presidential race, his running mate and opponents highly criticized the Ku Klux Klan, which nearly hijacked the Democrat convention in an exercise known as the “Klanbake”.  Coolidge remained silent on the issue.  He did, however, make a strong statement on civil rights in his first State of the Union address, and supported making lynching a federal crime.

On foreign policy, he was the first and, until President Obama in 2016, the only president to ever visit Cuba.  He did so to pacify Latin American leaders over U.S. policies of intervention in the region.  Although American occupation of Haiti and Nicaragua continued during his presidency, he did withdraw from the Dominican Republic as part of this pacification.

During a vacation in the Black Hills of South Dakota, Coolidge issued a statement to the press saying simply, as only “Silent Cal” could, “I do not choose to run for President in 1928.”  And he didn’t, retiring back to Northampton, Massachusetts and his new home on the Connecticut River after leaving the office.
Coolidge died suddenly in 1933.  Poet and critic Dorothy Parker, upon learning of the death, quipped, “How could they tell?”
​

She obviously was more attuned to noise than profound impact.  Silent Cal was the opposite.
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John Calvin Coolidge Jr. - The Early Years

3/6/2018

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John Calvin Coolidge Jr., our 30th President, 1923-1929, was perhaps America’s most under-rated chief executive.  He was a man of few words, decisive action and a dry sense of humor.

“Silent Cal” was born on the Fourth of July in 1872 in Vermont, the son of a prominent local farmer, general store owner, postmaster and politician.  He was the only president born on Independence Day, although three former presidents died on the Fourth.

His father, John Sr., served as a justice of the peace and Vermont legislator.  His mother and only sibling both died by the time Coolidge was 15, but his father lived past 80.

Coolidge moved to Massachusetts, where he spent his pre-presidential years, when he enrolled at Amherst College.  His early career was spent in the Pioneer Valley on the Connecticut River, apprenticing at a Northampton law firm to avoid the cost of law school.  His political activities began there too.

Unlike today, the Republican Party was the dominant party in Massachusetts politics at that time.  Coolidge started his political career campaigning for Republican William McKinley for president in 1896, and caught the attention of the local Republican committee in the process.  Two years later, he was elected to the Northampton city council, and subsequently two terms as city solicitor (city attorney).

Coolidge also suffered his only electoral defeat in 1904, running for the school board.  The fact he had no children in school worked against him in that race.  He recovered to win a seat in the Massachusetts legislature two years later.

He married a fellow Vermonter, Grace Goodhue.  According to an article by David Greenberg at millercenter.org, “Coolidge first caught her eye one morning when she saw him through the open window of his boardinghouse in Northampton, standing in his underwear and wearing a hat while shaving.  She thought that he looked ridiculous, laughed loud enough for him to notice her, and then turned away.”

Goodhue graduated from the University of Vermont and was a teacher at a school for the deaf in Northampton when this encounter happened.  His marriage proposal a few months later to her was simply, “I’m going to be married to you.”  They married in 1905, and had two boys in the next three years.
A man of few words, even when proposing marriage!

After two terms in the legislature, he decided he wanted to be closer to home and got elected mayor of Northampton, serving two one-year terms before winning a state senate seat in 1912.

That year there was a seismic split in the Republican Party, between the breakaway Bull Moose Party progressives led by former President Theodore Roosevelt and the conservative Republicans backing incumbent President William Taft.  Although Coolidge liked many progressive principles and was especially a strong supporter of racial equality, he remained a Republican and narrowly won the senate race.

His service in Boston led to his victory as Lieutenant Governor of Massachusetts in 1916, providing the western Massachusetts balance to the ticket with Governor Samuel McCall’s Boston-area support base.

When McCall declined to run for another term, Coolidge ran for Governor himself in 1918, winning his narrowest statewide electoral victory.  During his term as governor, he came into national prominence by breaking the Boston police strike.  Some of his decisions were controversial, but “his response to the Boston police strike of 1919 thrust him into the national spotlight and gave him a national reputation as a decisive leader, and a strict enforcer of law and order,” according to Wikipedia.

Coolidge was reelected governor in 1919 after the strike by his largest margin in a statewide race.  His most notable accomplishments in his second term were pushing the legislature to provide $100 bonuses to returning World War I veterans and vetoing a measure to increase legislative pay by 50 percent.

The question of prohibition was also one Coolidge waded into in his last term, vetoing a bill that would have allowed limited alcohol sales in violation of the 18th Amendment to the Constitution.  Said Coolidge, very simply, “Opinions and instructions do not outmatch the Constitution.”

Succinct and following the Constitution.  What a novel concept!
​

Next week we present the second of our two Coolidge columns.
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    *Opinions expressed here may or may not reflect the views of the Lyon County Republican Central Committee. 

    Author

    Ron Knecht has served as Nevada Controller, a higher education regent, legislator and economist. He can be reached at RonKnecht@aol.com.  
     

     

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