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Private sector needs vital public sector to thrive

Elliot Parker, Ph.D
For the Nevada Appeal

As Democrats and Republicans prepare for what will be a very difficult budget session, we need to remember that our state motto is Omnia Pro Patria, not Omnia Pro Party. We may have some fundamental disagreements, but for the good of the state we need to work together.

First, Nevadans need to understand that the state is both smaller and more complicated than they think. Whatever they may think about the pay of firefighters in Las Vegas, Nevadans should understand that city and county government are different entities, with their own governments, revenues and budgets. Within the state, K-12 education, the Nevada System of Higher Education, and the various state agencies all operate under very different rules, pay and benefit plans. And not all parts of the budget have grown the same: The state’s contribution for K-12 and human services combined has grown from 60 percent of the budget to 70 percent over the past decade, mostly for good reason.

Whatever they may think about the federal government, Nevadans should realize that the state government is different. Nevada’s state government is one of the country’s smallest, and the state takes on responsibilities that local governments often cover (e.g., community colleges). In the total number of state and local employees as a share of resident population in 2007, Nevada ranked dead last. We could have added 10,000 state and local employees and we still would have ranked last.

Democrats need to concede that some parts of the state budget could use reforms. While higher education has a defined-contribution retirement plan, many state employees are members of the Public Employee Retirement System, a defined-benefit plan. This probably needs to be replaced over time. The state may need to take steps to limit the growth of its contribution to the Public Employee Benefit System, which has been rising for years as medical costs continue to skyrocket, but this needs to be done gradually. If pay ever rises again, automatic step increases and cost-of-living increases may need to be replaced with pay increases tied more closely to performance. And the state law that enables collective bargaining for county and city governments may really need to change.

We all need to drop the notion that pay and benefits for state employees is about fairness. As an economist, I would argue instead that pay and benefits should be determined by what it takes to attract and retain trained and productive workers. If there are state jobs for which we are paying more than necessary, then we should reduce state pay. But where we are not paying as much as our competition for similar personnel, then we need to be willing to pay more.

Republicans need to understand that making these cuts may affect the growth of the state budget in the future, but they won’t create much in savings now. Republicans in general, and the governor in particular, need to step away from the precipice, and concede that we need taxes to replace the ones that people are no longer paying, and we need to design a better tax system to collect the revenues we need. We have depended too long on gaming revenues paid mostly by tourists. We have lost our monopoly, and we have to figure out how to start paying our own taxes.

Republicans need to concede that its small public sector is necessary to the prosperity of the private sector. The idea that Nevada will prosper without either is absurd. Nevadans need to realize that the cuts so far, at least for sectors like higher education, have been significant. There was never much fat there in the first place, but there is certainly not much left to cut without doing real damage to the state.

A good tax structure should have low rates so these taxes don’t distort private incentives, but be broad-based instead of focused on just a few sectors. Extending the sales tax to services, internet sales, and other currently exempted sectors is an option. Reducing what mining can deduct to calculate their net proceeds is an option. Most states have a corporate income tax, so we could implement one at a very low rate and still remain a low-tax state. Extending the modified business tax from just payroll to all value-added is another option.

Nevada already limits its general fund expenditures to grow no faster than population growth plus price inflation over the long run, but if and when the state economy recovers, we need to do a better job building up a real rainy day fund in case this ever happens again.

• Elliott Parker is professor and chair of the UNR Economics Department.