Most of expected growth in Nevada revenue already spent

The leading candidates to become Gov. Brian Sandoval’s successor are locked in a dispute over who will do the most to improve funding for K-12 education in Nevada.

Republican Adam Laxalt says he’ll pump $500 million in new money generated by the state’s rebounding economy into the system while providing parents more flexibility and involvement. He has made it clear he doesn’t plan any tax increases and, instead, wants to repeal the commerce tax if elected.

Democrat Steve Sisolak says he too wants to put much of the new money into education but says repealing the commerce tax would reduce the available cash by $300 million. He says he would expand on the progress Sandoval has made.

The truth is even if the state gains upward of $500 million in new revenue as predicted, only a small portion of it will be available for the next governor to spend as he wishes.

A share of that new money will go to K-12 education, but it won’t be for new and innovative programs. The state provides nearly $6,000 per pupil each year and a growing student population will consume a significant chunk of the increased revenue.

In addition, the state will have to fund the automatic 2 percent increase each year for teacher salaries from that pot of money.

But when it comes to caseload increases, Medicaid, not K-12, is the big cost. That program provides healthcare to 700,000 people, 22 percent of Nevada’s population and enrollment is expected to continue to increase through the coming biennium. Federal money pays most of the tab, but growing enrollment also costs the state.

In addition, the federal share of Medicaid costs is expected to go down. Basic Medicaid is currently funded 65 percent by the federal government and 35 percent by the state. That ratio adjusts each year under a formula that reduces the federal match as personal income in a state increases. Even a small reduction in the federal match costs the state millions.

Then there are the “newly eligible” recipients. For the first three years, the government paid all of their costs but, since then, the federal match has been decreasing. It will reach the base level of 90 percent in 2020 with the state responsible for 10 percent of the costs for more than 200,000 newly eligible enrollees.

Finally under Medicaid is Nevada CheckUp, the health insurance program for low income children. Under Obamacare, the feds were paying 98 percent of that cost. It drops back to 75 percent next year and the state will have to pick up the difference. At the same time, CheckUp caseload has grown by 6,000 since FY 2016 and is expected to continue growing in the coming budget cycle.

Altogether, those Medicaid programs are budgeted for more than $8 billion this biennium, fully a third of the total state budget. But since the feds pay the majority of that amount, it’s still a good deal for the state. Pulling out of optional programs would cut off that federal cash but do nothing to reduce the medical costs incurred by the poor.

The Nevada System of Higher Education is also predicting a significant increase in enrollment and has included the projected $40.6 million cost in its state budget. In addition, the university system wants $21.79 million to fund summer school classes for the first time.

Altogether, the Board of Regents is asking for $1.5 billion in state money for the coming biennium, a $284 million increase.

Prison budgets increased by $62.8 million this cycle compared to 2015-2016 — mostly to cover the cost of a one-pay grade increase (about 4.5 percent) for correctional officers. Those costs must be funded going forward.

The other things that will eat into that pot of new money are inflation and what are called rollups.

One of the biggest costs there is healthcare inflation, projected at 3.5-4 percent each year. In addition to Medicaid, that potentially impacts a laundry list of health and human services budgets, state worker health insurance and the cost of providing medical care to prison inmates.

The biggest rollup costs involve state worker pay. First, the 3 percent raises granted each year of this biennium must be funded going forward. Second, the state has to fully fund positions that were added in the current biennium but only for part of the two-year cycle. That includes a significant number of correctional officers.

Also included are higher salaries resulting from annual step increases for state workers.

Rollups and inflation also include such things as higher prices for everything from vehicles, office equipment and computers to rate hikes built into multi-year rental contracts and leases.

Then there are the information technology costs the state is already committed to. Nevada is upgrading or replacing several major computer systems, the largest being the DMV system at more than $75 million. But new systems in the Department of Public Safety, Finance Office and Gaming Control Board are also in the works.

Taken together, those things will eat up the vast majority of the new money both candidates are hoping to see.