Report on impact of higher-education cuts is factually wrong

Strong words? Yes. Accurate? Yes. What the RJ's Richard Lake reported Tuesday:

"Pick any percentage you want and you can make it real," Klaich said. "But you can't run away from the fact that this means $162 million out of the budget of the Nevada System of Higher Education."

That amount equals the entire annual state support for:

• Nevada State College
• Great Basin College
• Western Nevada College
• UNLV's law and dental schools
• And virtually all of the University of Nevada, Reno, including the medical school.

A month ago, the general public would have had to take this assertion at face value. But since TransparentNevada is now hosting 12 years of operating budgets from NSHE, we can fact-check it. Here is the yearly state subsidy for each of the above institutions:

• Nevada State College: $13 million
• Great Basin College: $16.5 million
• Western Nevada College: $18.5 million
• UNLV Law School: $7.8 million
• UNLV Dental School: $8.2 million
• UNR and Medical School only: $147.9 million (excluding $27 million for other UNR programs)

That's a grand total of $211.9 million — which is quite a bit more than the $162 million reduction that Gov. Brian Sandoval is proposing for FY13. And focusing on the $162 million number ignores how large NSHE's operating budget is: $1.744 billion.

A less than 10 percent reduction (which doesn't include extra money from tuition increases) is a real cut, but the impact these reductions will have needs to be kept in perspective.

Fact-check what you read, and don't be manipulated by false claims.

Note: I e-mailed Richard Lake with these statistics on Tuesday. If he sends me a response clarifying or explaining the stats in his article, I will post it here.

Game-changer: All Republican senators sign letter supporting Sandoval's no-new-taxes budget; UPDATE: Letter added

Update: The full letter is here. It not only expresses the Republican Senate caucus' support for Gov. Sandoval's budget, but also for his education plan.

Wow.

A letter sent Wednesday to Sandoval and signed by all 10 Republican senators, including previously wavering Sen. Dean Rhoads, R-Tuscarora, promises, “unwavering support for your plan to balance the budget while fighting job-killing taxes.”

Senate Democrats would have needed to hold their own caucus, including Sen. Lee, who's previously hinted he would oppose tax increases, and get three Republican votes to pass a tax increase in the Senate.

Now it looks like there may be a majority, not a just a greater-than-one-third minority, of senators who oppose tax increases. And given that both major gubernatorial candidates opposed tax increases in the last election, and even Sen. Horsford has said he wouldn't support tax increases while the private sector is losing jobs, this shouldn't be a surprise.

Regardless of the current rhetorical spin, a no-new-taxes budget is what voters overwhelmingly supported in November. It shouldn't be surprising that elected officials are now reflective of the people who put them into office.

For those looking for alternatives that would maintain or increase results while saving money, NPRI's got you covered.

Update: Changed the title. After rereading the article, I think the new title is more accurate.

Tax Foundation study shows Nevada is not a 'low-tax' state

The Tax Foundation has just released in its annual report comparing the tax burden in the 50 states. The study ranks Nevada 28th in terms of state and local tax collections and 49th in terms of tax burden.

Leftists in the Legislature are already trying to use Nevada's tax burden ranking of 49th as proof that Nevada doesn't have enough tax money and that this is the cause of Nevada's budget problems.

Nothing could be further from the truth, and even a cursory reading of the Tax Foundation's study (specifically, page 11) destroys the myth that Nevada is a low-tax state in terms of per-capita tax collections.

As my colleague Geoffrey Lawrence explained today:

Already some Nevada leftists are pointing to the Tax Foundation’s new report as “proof” that Nevada’s budget problems are the result of having the country’s second-lowest tax burden. The Tax Foundation report, however, makes a clear distinction between a state’s tax burden and its tax collections.

The “tax burden” ranking measures the percentage of income that state residents pay directly in state and local taxes, which, in the case of Nevada, excludes all the money the state collects from taxes assessed on the tourism industry.

However, when it comes to combined state and local tax collections — how much money government actually has to spend — the Tax Foundation finds that Nevada ranked 28th-highest in the country for Fiscal Year 2009. Further, this ranking actually understates the current level of tax collections, because it does not include any revenues resulting from the largest tax increase in Nevada’s history, which was passed by the 2009 legislature and impacted tax revenues in Fiscal Years 2010 and 2011.

To claim that this report shows Nevada doesn’t collect enough in tax dollars is to misrepresent the report’s clear findings. This report actually shows that Nevada is near the median of states when it comes to state and local tax collections — even before taking into account the largest tax increase in Nevada’s history.

This study shows clearly that Nevada’s budget problems are not the result of a lack of tax revenue. As the Nevada Policy Research Institute has highlighted repeatedly, the relatively low quality of K-12 education and other services in Nevada has resulted not from a lack of funding, but rather from poorly designed policies. ...

Regardless of who bears the burden of taxes, lawmakers still have the money to spend. Not including the largest tax hike in Nevada’s history, the Tax Foundation report still shows that Nevada has more money to spend per capita than 22 other states.

As this report proves, in terms of tax collections, Nevada is not a “low-tax” state.

More proof that Nevada has a spending, not a revenue, problem.

Wasteful spending still characterizes LVCVA

Remember NPRI's transparency project on the taxpayer-funded Las Vegas Convention and Visitors' Authority that, among other things, revealed that LVCVA management had provided their no-bid media contractor, R&R Partners, with a literal rubber stamp to approve their own expenses with taxpayer dollars? Well, those who remember the hoopla that was generated by that effort will be extremely interested to see that the LVCVA's shenanigans continue.

Check out the story at Channel 8.

Good news: At least one Nevada assemblyman understands economics

Bad news: The rest either don't, or don't have the courage to oppose an idea that economists from Keynesians to Austrians understand will kill jobs in the long term.

What revealed this need for a lesson in basic economics?

Assembly Bill 144, also known as Nevada Jobs First, which passed the Assembly, 39-1 today. AB 144 would give Nevada-based contractors a 5 percent preference in bidding and put a whole host of new regulations on contractors working on government projects.

[T]he contractor, applicant or design-build team must ensure that: (1) at least 50 percent of the workers on the public work have a Nevada driver’s license or identification card; (2) all of the non-apportioned vehicles primarily used on the public work are registered in Nevada; (3) at least 50 percent of the design professionals who work on the public work have a Nevada driver’s license or identification card; (4) at least 25 percent of the materials used in the public work are purchased in Nevada; and (5) certain payroll records related to the public work are maintained and available within this State.

There are so many problems with this provision, it's hard to know where to start. But that doesn't mean I'm not going to try.

The key to wealth creation, in Nevada and other states, is specialization. Economic policies like mercantilism or tariffs destroy wealth. Note the negative effects of Smoot-Hawley during the Great Depression.

If economic theory doesn't do it for you, consider these practical impacts:

First, the cost of every public-works project in Nevada will increase, which means we'll have fewer of those roads and schools that liberals claim we so desperately need.

Second, other states are likely to enact measures similar to this, which means Nevadans who work out of state will be hurt.

Third, this is going to dramatically increase the compliance costs for construction companies, which means they'll be spending more money checking paperwork rather than building things.

Fourth, policies like this delay long-term economic growth, because they send a message to construction workers that they don't need to retrain and get new skills. Individuals in the free market do an amazing job of creating wealth precisely because the market incentivizes workers to retrain for areas of higher need. This bill delays that necessary retraining.

Fifth, this is a perfect example of government picking the winners (Nevada construction workers working only on government projects) and the losers (taxpayers who are getting less for their money).

The U.S. Supreme Court also ruled that a similar measure in Alaska represented a violation of interstate commerce.

Senate Revenue, Feb. 17

In today's Senate Revenue Committee meeting, committee members heard a presentation on the targeted tax incentives given to large businesses who promise to invest in Nevada. The presentation was delivered by Michael Skaggs, Executive Director of the Commission on Economic Development.

Skaggs reviewed state programs for temporary tax abatements pursuant to NRS 360.750. This statute permits the Commission on Economic Development to grant targeted tax breaks to businesses that are consistent with the "State Plan for Industrial Development and Diversification that is developed by the Commission." (Read: businesses whose lobbyists gain political favor in Nevada.)

NRS 360 allows politically-favored firms to receive special abatements on the local school support tax, property taxes, and the state payroll tax (MBT). These tax breaks are in addition to the rebates that many well-connected firms might receive through tax-icrement financing or STAR bonds.

The ostensible purpose of these abatements is to incentize new business to move into the state and create jobs. However, a report prepared by legislative staff in 2009 revealed that many tax breaks awarded by the Commission on Economic Development completely fail to achieve this purported objective.

In 2006, for instance, the Commission awarded $5.6 million dollars in local school support tax abatements and a 50 percent abatement in payroll tax liability for four years to Solar Star in Clark County. In return, Solar Star hired a single worker who made $21.15/hour.

NPRI has always held that the best method of encouraging job growth and small business development is through a low, but uniform, tax and regulatory burden, combined with a well-functioning education system. Moreover, these two important components are not incongruous, as our friends on the Left would have you believe. NPRI has repeatedly demonstrated, using empirical evidence, that Nevada's educational system can see dramatic improvements through structural changes that would also imply a cost savings for taxpayers.

Targeted tax incentives create an uneven playing field that disadvantages the growth of native, small businesses to the benefit of politically-connected, large corporations. They also can foster an attitude of corruption and lead to inefficient decision-making.

Moreover, opposition to "corporate welfare" is one policy stance that enjoys widespread agreement from across the political spectrum - from Grover Norquist to Ralph Nader. In Nevada, not only has NPRI remained critical of this practice, but so was former Assembly speaker Barbara Buckley, who admirably fought to curtail this practice in the 2009 session.

Today, Senator Sheila Leslie voiced some concern over the use of corporate welfare in this state. Hopefully, Senator Leslie does not forget this important issue and works to curtail the practice in Nevada.

Testimony, Joint Meeting on Higher Education, Feb. 16

My testimony today, following Chancellor Klaich's presentation on NSHE funding:

Testimony to Joint Committee on Education
February 16, 2011
Geoffrey Lawrence
Nevada Policy Research Institute

My name, for the record, is Geoffrey Lawrence and I am the deputy director of policy at the Nevada Policy Research Institute.

I wanted to speak to you because, as a lifelong student of Austrian economics, I have a unique perspective on some of these issues.

I believe the pursuit of academic achievement is certainly a worthwhile effort that can lay the foundation for a vibrant economy. However, I believe that there are several specific adverse impacts that can result from aggressive public subsidization for higher education, which I will highlight.

Acquiring a college degree entails significant costs. These include the direct financial costs of attendance as well as the opportunity costs that result when students contribute time and effort that could otherwise be spent pursuing other goals.

There are also a number of benefits that accrue to individuals who choose to pursue higher education. The most obvious is the increased earning potential that students hope to gain through the acquisition of a degree. There is also an implicit satisfaction that students might gain from their intellectual endeavors. My friends make fun of me, for instance, because I enjoy spending my leisure time reading textbooks. But there is a value to this type of satisfaction that is implicitly incorporated into the level of demand facing the higher education industry.

However, when students are not sensitive to the full cost of attaining a degree, they do not have to fully justify these costs by the benefits received. In strictly economic terms, this introduces an inefficiency because students’ cost-benefit analysis has been manipulated.

To the degree that the cost of a degree is publicly subsidized, individuals becoming less sensitive to these costs are more likely to undertake efforts that they would not otherwise engage in. Some students who only have a marginal interest in attending college might decide to attend but, as they do not face the full cost directly, they take the effort less seriously, using taxpayer resources ineffectively.

Others, who do not have to justify the financial cost based on an increased earning potential, may be more likely to pursue degrees for which there is not great demand on the labor market.

Thousands of students graduate at public universities in America every year with a four-year degree in history, for instance. This is not to pick on history majors, but that degree typically does not add much value to a student’s earning potential because there are not many employers on the market looking for this particular skill set. Had the student been more sensitive to the cost of attaining a degree, he or she would be more likely to pursue a degree that conveys a skill set for which there is higher demand, such as engineering or medical science.

Hence, I believe that a high degree of subsidization leads to a misdirected investment, wherein many students receive a skill set that is ill-suited to the true needs of society.

This is particularly relevant because, using any data source, Nevada’s four-year universities have the among the lowest in-state tuition rates in the nation.

Heavily-subsidized public universities also effect a statistically regressive wealth transfer. Numerous studies show that children from higher-income families are more likely to attend college than children from lower-income families – despite the fact that the poor are forced to pay the taxes that fund this subsidization. In fact, taxes on consumption, such as the sales tax imposed in Nevada have a statistically regressive impact – further exacerbating this phenomenon.

I certainly sympathize with the idealism displayed by lawmakers who want to increase access to higher education for children from lower-income families. However, I believe that the current method of subsidizing entire institutions is ill-suited to achieve this end, because of the regressive impact that I’ve just highlighted. I believe that a much more effective means of achieving this end would be to charge general tuition rates more closely reflecting market forces, but to perhaps offer need-based scholarships to qualified students whose family income falls below a given threshold.

Finally, I’d like to clarify one aspect of NSHE finances that I believe is often overlooked. State allocations to NSHE operating funds account for less than half of the system’s total operating budget. So, when we talk about funding “cuts,” we are generally only talking about the state appropriation and not the impact on the total operating budget, which skews the percentages and misrepresents what is occurring.

According to a report prepared by NSHE staff, the system’s total operating fund in FY 2010 was $1.724 billion while the state appropriation, including ARRA funds, account for only $800 million. In fact, NSHE’s total operating budget increased by $30 million between FY 2009 and FY 2010 – something that is often lost in these discussions.

I believe there is room for significant structural reform to NSHE finance that could correct for the adverse impacts of aggressive subsidization that I have identified. As such, I believe that the funding proposals that have been outlined by Governor Sandoval represent a good first step in this direction.

Thank you.

Myths exposed as TransparentNevada provides access to 12 years of NSHE operating budgets

With the Assembly and Senate Education Committees set to hear from University Chancellor Dan Klaich tomorrow at 3:30, this information couldn't be more timely.

The NSHE operating budgets are here.

This is the kind of information that can provide the context and facts that's been lacking in much of the discussion of higher education budgets. Also, here's NPRI's press release on the release of the operating budgets and the myths this information exposes.

LAS VEGAS — Twelve years’ worth of operating budgets for the Nevada System of Higher Education is now available through TransparentNevada, the Nevada Policy Research Institute announced today. The information is located at TransparentNevada.com, an NPRI-operated website devoted to providing Nevada taxpayers with crucial information on government financing.

The announcement comes just one day before a joint meeting of the Assembly and Senate education committees, which will feature a presentation by NSHE Chancellor Dan Klaich.

“For years, leaders in NHSE have attempted to scare the public about the impact of reductions in taxpayer subsidies to higher education — framing ‘cuts’ only in terms of the amount of subsidies the system receives, and not its total operating budget,” said Steven Miller, NPRI’s vice president for policy. “Lawmakers and the general public have had little access to the actual operating budgets of these institutions, which has limited their ability to fact-check and challenge the hyperbole coming from NSHE leaders.

“This newly available information changes that. Everyone can now check the facts and establish the proper context for debates over higher-education spending.”

The operating budgets show that despite reductions in state subsidies and overblown rhetorical claims of the supposedly resulting ‘devastation’ in 2008 and 2009, NSHE’s operating budget in Fiscal Year 2010 — $1.724 billion — was actually $30 million larger than its FY 2009 operating budget of $1.694 billion.

The publication of this budget data comes after Chancellor Klaich admitted at a Feb. 3, 2011 Board of Regents meeting that some NSHE officials have exaggerated the impact of past reductions.

"I think we [at NSHE] have been guilty of hyperbole in the past,” said Klaich, “where we get the first dollar of a cut and we would like you to believe that the sky is falling in. And here we are a few years later and, lo and behold, the sky is right where it started out. It has not fallen in."

Miller praised Klaich for his honesty and urged other NSHE leaders to follow the chancellor’s example.

“The chancellor should be applauded for acknowledging the past misstatements of NSHE officials,” Miller said. “Instead of trying to scare the public — and their own students — by using misleading rhetoric, officials need to be honest with Nevada’s lawmakers and citizens.”

The data also shows that Nevada’s subsidy to higher education more than doubled from FY 2000 to FY 2009, from $306 million to $623 million. After adjusting for inflation, Nevada’s subsidy to higher education increased from $380 million (in 2009 dollars) in FY 2000 to $623 million in FY 2009.

“These facts are a direct refutation of those politicians, led by Senate Majority Leader Steven Horsford, who claim that higher-education subsidies are the key to diversifying and strengthening Nevada’s economy,” Miller said. “If these subsidies really were the key, Nevada wouldn’t be in its current fiscal and economic predicament.

“Instead of trying to rhetorically inflate the size of budget reductions, politicians like Senator Horsford should be demanding accountability for the money Nevada has already spent. These budgets clearly show that lavishly subsidizing NSHE in an attempt to ‘diversify’ the economy has been a bad investment.”

NSHE staff prepared the spreadsheets using the higher-education system’s own data, at the request of Regent Ron Knecht.

The budgets can be downloaded at http://transparentnevada.com/static/NSHE_budgets_00-11.xls.

MORE: Video of Chancellor Klaich admitting past NSHE hyperbole regarding budget reductions: mms://wms.csn.edu/CCSN/specialBoR2-3-2011.wmv (48:30 mark).

Update: RJ reporter Richard Lake tweets that his story on higher education yesterday exposed this myth on NSHE budgets. And he's right that his story did a great explaining where the various percentage figures in the budget debate come from.

There are plenty of other myths to expose though, and this data will give lawmakers and citizens a chance to do it.

Senate Select Committee on Economic Growth and Employment, Feb. 14

Today Robert Lang, Chairman of the now-defunct Nevada Vision Stakeholders' Group is presenting the group's final report to the Senate Select Committee.

Dr. Lang's introduction provides a fairly accurate depiction of the recent history of Nevada's economy. Although he failed to identify the impact that easy-money policies at the Federal Reserve had on infusing artificial credit and illusory home equity earnings into the holdings of private families, Lang notes that it was this illusion of disposable income that drove record profitability among Nevada's resorts. As profitability rose, so did the demand for labor - drawing workers into the state en masse.

Now that the market has begun to correct for the government's mistakes, many workers that had relocated to Nevada - especially in the construction industy - find that they have been displaced as a result of these policies.

However, Lang continues by stating that, with the demise of profitability in the gaming industry, that Las Vegas is well-suited to become a leader in renewable energy development. Lang cites as a potential model the USTAR initiative that was launched in neighboring Utah. This initiative allocates state money for renewable energy research to the state's university system.

Lang says that the government does not pick winners and losers in the renewable energy field in Utah. Instead, university researchers develop new technologies and pitch them to venture capital firms in Utah's "Angel Network." The venture capital fims then decide which technologies make the most sense to invest in.

The point that Lang misses is that Utah state government is picking winners and losers by making some technologies more or less profitable depending on the level of tax subsidies offered by Utah lawmakers. Lawmakers in Utah offer a bevy of tax subsidies to renewable energy companies that would otherwise not be profitable. These are in addition to the generous federal tax subsidies such as the Production Tax Credit.

Dr. Lang may have very good intentions in suggesting new avenues for economic growth within Nevada. However, prosperity is not generated from an industry that can only be profitable through subsidies - leeching off the productivity of all other taxpaying citizens.

Dr. Lang concludes by claiming that, if the state is to see economic recovery, lawmakers will have to spend much more to subsidize both K-12 and higher education. To his credit, Lang says that "money isn't everything" with regard to K-12 education and that meaningful structural reforms are important.

However, Lang should note that in-state tuition rates at Nevada's public universities are far below those of neighboring states and (according to data from the US Department of Education) nearly half of the national average. So, by reasonable standards, higher education in Nevada is already heavily subsidized and, indeed, this may be the root of many problems. Among other adverse results is that the abnormally low in-state tuition rates help to crowd out private universities from competing in the state. Further, this lack of competition likely hampers the quality of education offered at the state schools.

I applaud Lang for trying to offer solutions. However, his central arguments are ill-conceived because they fail to consider all of the dynamics involved.

Alternative "visions" have been offered by the Nevada Policy Research Institute that I believe have more merit.

Before they testify: Remember the four problems with the Nevada Vision Stakeholder Group

The Nevada Vision Stakeholder Group is presenting their recommendations before the Senate Select Committee on Economic Growth & Employment today at 1 pm.

The NVSG's final report is here. If you've been following NPRI for a while, then you know that the NVSG represents the taxeaters, not the taxpayers, of Nevada, and the group was designed to provide political cover for tax increases.

For those interested in or attending the Committee meeting, here are four problems NPRI has identified with the NVSG. NPRI first pointed these problems out over a year ago, in January 2010. These problems are as big today as they were then.

1. The Nevada Vision Stakeholder Group shouldn't exist: The NVSG's goal is to identify quality-of-life goals for Nevadans. Problem is, it isn't the government's job to identify, define or pursue quality-of-life goals for anyone.

Government should provide essential services, like education, roads and fire and police protection. Government should fund those services with a uniform and low tax and regulatory burden. Government should be concerned with preserving and increasing freedom, not picking the winners and losers in an economy or a society or under the guise of "quality of life."

2. People should define their own quality-of-life goals: Every individual is unique, so “quality of life” means something entirely different to each individual person.

The beauty of freedom is that it enables us each to pursue our own interests and define what “quality of life” means to us as an individual (and the beauty of capitalism is that individuals pursuing their own interests creates enormous wealth and opportunities for everyone). And “quality of life” might mean the opposite thing to two different people. As long as they don't infringe on another's rights, they are free to pursue their own quality life.

This isn't possible if the government is defining and imposing its own views of “quality of life” on a community or society.

Imagine the reaction if a religious institution tried to impose its quality-of-life beliefs on a society. There would be understandable outrage. Why aren't we as outraged when government does the same thing?

Now, there is nothing wrong with religious beliefs or, likely, even some of the quality-of-life goals the NVSG is going to produce. The problem occurs when a government or any institution uses coercion to force those beliefs on other people.

3. The Nevada Vision Stakeholder Group doesn't represent Nevada: The NVSG has 19 voting members. Of those 19 members, nine (or 47 percent of the committee) are current government employees. The Las Vegas Chamber of Commerce recently did a study that concluded that there are fewer than 44 state and local employees for every 1,000 Nevada residents, which is less than 5 percent of the population.

The other 10 members of the committee include a retired government employee (Paul Dugan) and a representative of the Nevada State Education Association (Brian Rippet). Most of the representatives of the business community represent gaming and mining or businesses that rely heavily on government contracts.

The Nevada Vision Stakeholder Group doesn't represent Nevada. It represents a combination of rent-seeking business interests and the 5 percent of Nevadans who are employed by the government.

To top it off, the NVSG's non-voting chair is Dr. Robert Lang of Brookings Mountain West, who moved to Nevada in January of 2010. Lest you think that's a typo, I called the Brookings Mountain West’s office at UNLV, and got this information confirmed. Also, Dr. Lang's bio on the Brookings Mountain West at UNLV website still says: "Currently, Dr. Lang is a professor of urban planning and director of the Urban Affairs and Planning Program at Virginia Tech’s National Capital Region in Alexandria, VA."

Here's a screenshot:




[Update 2/14/11: At one of the final meetings Chairman Lang clarified that he is from New York, not Virginia.]
As I said before, the Nevada Vision Stakeholder Group doesn't represent Nevada. It should be renamed the Nevada Tax Consumers' Vision Stakeholder Group.

4. The outcome is predetermined. The Nevada Vision Stakeholder Group is going to select quality-of-life "goals" that require more tax money: This the natural result of a gathering of tax consumers and special interests. What makes tax consumers' lives better? More taxes from the 95 percent of Nevadans who don't have a seat at the table. The outcome was never in doubt, and was predicted by NPRI's Geoffrey Lawrence in early October.

Instead, the NVSG is likely to be a coalition of public employee unions and other rent-seeking special interests eager to craft a deal that makes all of them happy — at the taxpayers' expense, of course. Those who would be required to finance the grandiose schemes that result from these "stakeholder processes" are rarely considered relevant "stakeholders" themselves.

For the reasons above, the Nevada Tax Consumer's Vision Stakeholder Group is a sham. Liberal legislators will use its skewed and illegitimate findings to justify calls for tax increases in 2011. Nevada's citizens should know the truth about the N(TC)VSG and reject legislators' soon-to-be announced call for increased taxes.


And, one year later, these problems still exist. Taxpayers beware.

Assembly Government Affairs, Feb. 14

It looks like there was great interest in the "jobs" bill being heard in the Assembly Government Affairs Committee this morning, since it is standing room only in the meeting room.

The Committee is hearing AB 144 this morning, which aims to change the bid preference statutes for public works projects. According to the bill summary, "Under existing law, a contract for a public work is awarded to the contractor who submits the best bid."

AB 144 would add five new conditions to the bid preference laws, as follows:
(1) At least 50 percent of the workers on the public work have a Nevada driver’s license or identification card;
(2) all of the non-apportioned vehicles primarily used on the public work are registered in Nevada;
(3) at least 50 percent of the design professionals who work on the public work have a Nevada driver’s license or identification card;
(4) at least 25 percent of the materials used in the public work are purchased in Nevada; and
(5) certain payroll records related to the public work are maintained and available within this State.

Obviously, there are some onerous accounting requirements that will be involved in the submittal of all public bids in Nevada - something that flies in the face of legislative leadership's professed committment to streamlining regulations on the construction industry.

More than that, however, this blatant effort at state mercantilism is certain to invite reciprocal treatment from neighboring states. As representatives from the Associated Builders and Contractors testified to the Senate Select Committee hearing on Friday, many native Nevadans are currently working on public works projects commissioned in other states.

In todays meeting, Assemblywoman Debbie Smith testified that "Other states are on board with this," referring to the changes included in AB 144. I'm guessing she means that she's conferred with lawmakers in other states and that they have agreed to discriminate against Nevadans in their public bidding processes just as Nevada will do with residents of other states.

Mercantilism as an economic theory was thoroughly refuted more than 200 years ago, but it is alive and well at the Nevada Legislature.

Testimony to Senate Select Committee on Economic Growth and Employment, Feb. 11

Anyone following the development of a "Nevada Jobs Bill" that could siphon money from taxpayers in order to benefit a narrow interest group like the construction lobby, should take note that legislative leaders have said they would like to pass the first component of this effort out of the Assembly Governmnt Affairs Committee tomorrow morning. I will be there providing live coverage.

Also, my testimony before the Senate Select Committee on Economic Growth and Employment on Friday, I believe, provides a well-rounded critique of this policy effort:

My name, for the record, is Geoffrey Lawrence and I am the deputy director of policy at the Nevada Policy Research Institute.

I wanted to speak to you today to clarify some of the issues regarding projections for potential job-creation that might exist if the state is to commit public money into a “jobs fund” to finance public works construction projects. I believe that most of the estimates I have seen are dramatically overstated due to a series of specific methodological errors that led to their calculation.

All of the estimates that I have seen rely on the existence of a “multiplier effect” that would lead to new job creation across the economy as the new construction money drives up demand, not only for construction labor, but also for labor in related industries. While this may be true, the analyses that I have seen fail to account for any supply-side constraints.

There are two major supply-side constraints that must always be considered in any credible econometric analysis. This is because there is a definite limit to the supply of both labor and capital. Certainly, the constraint on the supply of available construction labor in Nevada is not extremely significant at this time. However, there is always a constraint on the amount of available capital.

In order to finance a dramatic expansion of public works projects, the state will have to extract capital either directly from citizens through taxation or it will have to resort to private capital markets. When public agencies borrow capital, that capital is not available for alternative projects and entrepreneurial ventures that might yield higher returns on investment.

Perhaps the greatest weakness of the estimates that I have seen is that they account for the positive “multiplier effect” of new government spending, but fail to account for the off-setting negative “multiplier effect” that will result from higher taxation or reduced access to capital due to government borrowing. As taxpayers are left with less disposable income, demand across all sectors will be depressed, leading to economy-wide job destruction in order to benefit a specific sector: in this case, construction. If this off-setting multiplier is considered, then the aggregate impact of new government spending on job growth is likely to be minimal or non-existent.

Certainly, Nevada’s construction industry was acutely impacted by the effects of the recent global recession – leaving a disproportionate share of workers unemployed. There are many interpretations as to why this happened.

NPRI follows the Austrian School of economics which holds that prolonged expansion of artificial credit worldwide over nearly a 20 year period – driven largely by easy-money policies at the Federal Reserve – reduced financing costs for construction and fueled a consequent bubble in real estate development.

One result of this bubble was that the artificially high demand drove up labor demand within the industry – siphoning more laborers away from other industries and into construction. However, since this resulted from an artificially-imposed distortion, there were more workers drawn into the construction industry than market fundamentals would have justified.

The recent recession has imposed a market correction to this industry. However, government policies intending to put off this correction and retain laborers in the construction industry will only perpetuate the imbalance that led to recession.

If lawmakers are intent on using government policy to put displaced construction laborers back to work – beyond the establishment of a favorable tax and regulatory environment – then a far better policy would be to provide job training so that these workers can acquire the skills to work in alternative industries which market fundamentals determine to be more sustainable. I believe that the policy direction currently being discussed will fail to realize the result desired by lawmakers.

Thank you.

Getting jobbed

Here's Geoff Lawrence today on the "Nevada Jobs Fund" scheme, under which legislators want to commit as much as $1 billion for construction projects:

Sen. Horsford claims that for every 100 new construction jobs financed by the state, the increase in demand will create an additional 88 jobs in services, mining and other industries. Using a similar line of thinking, the construction lobby claims that its proposals would generate $3.7 billion in total "economic activity" and create 100,000 jobs.

What this flawed analysis ignores is that if the construction lobby receives $1 billion today, that amount of money must first be taken from taxpayers and private capital markets. As the higher tax burden would take money from taxpayers over the coming years, consumer demand in the private economy will decline — leading to the destruction of jobs and a negative "multiplier effect" that will more than off-set any proclaimed positive "multiplier effect."

Read Geoff's full commentary here.

Senate Select Committee on Economic Growth and Employment, Feb. 9

"I WANT YOUR MONEY!"

The first meeting of the Senate Select Committee on Economic Growth and Employment has just begun with Chairman Kihuen declaring that "The #1 job of this legislature is to create jobs." That's not a good sign to kick off a committee on economic development, given that governments don't create jobs, they can only lay the foundations for an economic environment capable of creating jobs on its own. However, government "stimulus" policies can destroy jobs across the economy in order to channel resources into a highly concentrated and visible industry - like construction.

That's what is at the heart of this committee's purpose. The committee today will consider a proposal developed by the construction lobby to issue new public debt in order to finance massive new public construction projects across the state in a government make-work effort. Details are available at the "Building Jobs Coalition" website.

The construction lobby has packed today's hearing with union members bused in from around the state to put pressure on lawmakers to burden the public with new debt for the benefit of this specific interest group.

Lobbyists throughout the legislative building are saying that there are already enough votes in the Assembly to approve legislation implementing the massive make-work "stimulus" project, and that supporters are only two votes short in the Senate. And that's before the hearings and union-pressure machine began. Governor Sandoval has wisely indicated that he does not support the proposal.

If approved, this plan would be a scaled version of the failed federal ARRA stimulus package. The plan calls for the creation of 100,000 new construction, engineering and architecture jobs to be created across the state. However, the model does not appear to account for supply-side constraints. It also accounts for a "multiplier effect" resulting from new dollars circulating in the economy, but fails to account for the off-setting negative multiplier that will result from the higher taxes that would be required to service debt levels. It further ignores all distortions in the capital structure and associated opportunity costs that would result if the plan is implemented.

These, among other major analytical weaknesses, will ensure that this state-stimulus plan will fail to achieve its objectives just as the federal stimulus plan has done.

Global Competitiveness Report

I was just reviewing the 2010-2011 Global Competitiveness Report from the World Economic Forum as I wait for Nevada's Senate Revenue Committee to begin it's first meeting.

The Report ranks every nation's economic environment on the basis of tax and regulatory burdens, legal structures, property rights protection, the degree of public corruption and governmental efficiency.

The Report reveals some very intriguing aspects on the economic environment in the United States. Below are some of the key findings (in all cases, a #1 ranking indicates the best economic environment):

Strength of property rights
US Rank: 40 (Below China)

Diversion of public funds due to coruption
US Rank: 34 (Below Botswana)

Public trust of politicians
US Rank: 54 (Below Iran, Tajikistan, Azerbaijan, Kazakhstan, Syria and Indonesia)

Irregular payments and bribes
US Rank: 40 (Below Botswana)

Judicial Independence
US Rank: 35 (Below Rwanda)

Favoritism in decisions of public officials
US Rank: 55 (Below Tanzania)

Wastefulness of government spending
US Rank: 68 (Below Sri Lanka)

Burden of government regulation
US Rank: 49 (Below Finland, Canada)

Efficiency of legal framework in settling disputes
US Rank: 33 (Below Botswana)

Transparency of government policymaking
US Rank: 41 (Below Rwanda, China, Malaysia)

Assembly Taxation, Feb. 8

I'm sitting in the Assembly Taxation Committee hearing at the Nevada Legislature and have noted an important legal question just raised by Assemblyman Ed Goedhart.

Legislative Counsel Bureau staff is presenting this session's Revenue Reference Manual to committee members and reviewing changes in the General Fund revenue structure resulting from the sunsetting of taxes imposed during the 2009 session pursuant to SB 429.

As the discussion focused on projected revenues resulting from the Modified Business Tax (a tax assessed against employers as a percentage of payroll), Assemblyman Goedhart questioned staff as to whether the tax rate applied to public-sector employers or only targeted private-sector employers. Staff responded that the tax is designed to apply only to private-sector employers.

This raises an important legal question with respect to the "Equal Protection Clause" of the Fourteenth Amendment to the US Constitution. The law appears to discriminate specifically against workers in the private sector who suffer wage loss as a result of payroll taxes assessed against their employer. Public employees in Nevada are exempt from this wage loss because of the tax's limited applicability.

There is definitely a case to be made that Nevada's MBT denies those who work in the private sector equal protection under the law.

Notably, NPRI has recommended eliminating the MBT for other reasons. The MBT is the most volatile General Fund revenue source used in Nevada and is a direct financial penalty against private-sector empoyers for hiring new workers or offering pay raises.

I'll continue to update this blog live from Carson City as the session wears on over the next few weeks.

Private-sector monopoly?!

After reading Howard Stutz's column in the Business section of the Las Vegas Review-Journal yesterday, I was appalled that such a basic ignorance of free enterprise would be published on the front page of any paper's "business" section.

Stutz laments that any legislative proposal to implement a state-run lottery in Nevada would likely be dead on arrival.

Lawmakers have considered a state-run lottery in successive legislative sessions for decades, against the advice of their own consultants. A famed 1988 tax study commissioned by the legislature from Price Waterhouse examined this possibility and concluded:

Regardless of how popular state-run lotteries are becoming … the lottery fails both the equity and efficiency tests of a good tax system. Moreover, it has proven to be an unstable source of revenues over time.

At present the state’s private gaming interests have their own forms of lotteries (e.g. keno), and have the ability to create even more forms. Moreover, a state-run lottery fails every test of a “good” tax policy. In Nevada, gaming should be left to the private sector.

Nearly every nonpartisan analysis of state-run lotteries has drawn similar conclusions. State lotteries are an extremely regressive form of taxation, they unnecessarily introduce volatility into the tax structure and they generally fail to generate much revenue. Moreover - and this is the key - a state-run lottery would directly compete with the largest private-sector industry in Nevada.

Stutz identifies Boyd Gaming and Station Casinos as gaming companies that have opposed state-run lotteries because they want the "monopoly" on locals' discretionary spending. That's right - Stutz accuses two firms specifically of carving out a monopoly in a certain market. By definition, this is not a monopoly because there is more than one prominent competitor.

Apparently, Stutz believes that a monopoly exists whenever the government is not directly competing (on an uneven playing field) with private industry.

Stutz cites as examples states that run their own lotteries despite the presence of casinos, as if this provides evidence that a state-run lottery in Nevada would not be detrimental to the state's most significant industry. However, the examples highlighted by Stutz are not comparable to Nevada. Sure, the State of Michigan runs a lottery and has a single casino in Detroit. However, businesses in Nevada operate hundreds of nonrestricted gaming licenses and thousands more restricted gaming licenses, all of which would experience lower consumer demand in the event of a state-run lottery.

There is no legitimate policy argument to justify the imposition of state-run lottery anywhere, but especially in Nevada. A "business" columnist should know this.

A plan for Nevada: Follow PLAN's actions

As the Legislature opens today, it's appropriate to share a good budget plan from a surprising source — PLAN.

You may have heard of PLAN — the Progressive Leadership Alliance of Nevada. They're the small group cheerleading attempts to raise your taxes and increase spending at the Legislature.

So why should Nevada follow PLAN's actions?

Because when it comes to its own organization (which it can't fund by taking your money), PLAN knows how to balance a budget — cut spending by 20 percent!

PLAN was hit hard by the economic downturn. But we developed a plan to ensure we move forward with our core mission intact. We cut our budget by 20 percent through a combination of staff layoffs, reduction in hours, and voluntary pay cuts.

Cut the budget by 20 percent while keeping its core mission intact? Now that sounds like a plan we can all support for Nevada — even PLAN.

Happy Birthday, Ronald Reagan!

Ronald Reagan would have turned 100 today.

Learn more about Reagan and his legacy here.

Read Geoff's thoughts on Reagan here.

Public-private partnership burns the public

There are many reasons why Nevada's state government should avoid public-private partnerships, unless government is privatizing or outsourcing an essential service.

Two philosophical reasons stand out. One, the government has a unique and important, but limited, role. Government's job is to provide a few core services, including (for state government) public safety, K-12 education and a basic safety net. Government's job isn't to create jobs or build things like sports stadiums. Two, the government shouldn't be picking the winners and losers in the economy. Its role is to referee, not participate in the business world.

If the philosophical arguments don't convince you, consider what happens when government oversteps its bounds — the government (read: the public) gets burned.

The Legislative Interim Finance Committee agreed Thursday to shift $176,000 out of a reserve account to pay a national law firm to protect the state in the bankruptcy proceedings of the Las Vegas Monorail.

Bonds for $650 million were issued through the state Department of Business and Industry to build the 3.9 mile system that runs between casinos on the Strip and the Las Vegas Convention Authority.

Lon DeWeese, chief financial officer for the state housing division, told the committee that the state was only the conduit for the issuance of the bonds. But hundreds of millions of dollars are owed the bond holders who invested in the project. ...

Horsey said Guinn also insisted that a highly rated insurance company be hired to make sure the bonds were covered. He said Ambac Financial Group, a triple “A” company, was employed. But now Ambac is also in bankruptcy.

Read the whole thing to get a complete sense of how taxpayers are getting soaked (and could be on the hook for hundreds of millions). All this happened despite the best-laid plans of those in charge at the time.

And this happens because all business ventures contain an element of risk. There is no sure thing in the business world, which is why no one should be forced (through the government using your tax dollars) to invest in something.

This is why principles are so important. No one knows the future, but sticking to the time-tested principles of limited government protects taxpayers from paying for the mistakes of yesterday.

Update 2/8/2011: My collegue, Geoffrey Lawrence, made an excellent point to by email. Public-private partnerships have a valuable role in a different context. If the government decides to outsource the provision of a core service to a private company, that's a worthwhile public-private partnership.

What's objectionable is when a public-private partnership is used to do something outside the core functions of government or when the government picks the winners and losers in the economy.

I've made a small change in the above text to reflect this point.

"Is" our children learning?

A recent study by NYU and University of Virginia sociologists reveals that college may not be all it's hyped up to be. Among other distressing findings, the professors note that 45 percent of college students show no significant improvement in critical thinking skills after completing their sophomore year. The study also notes that:

... federally mandated fixes similar to "No Child Left Behind" in K-12 education would be "counterproductive," in part because researchers are still learning how to measure learning.

It's encouraging to see some researchers acknowledge that government is not as effective at fixing education as once believed.

The Reagan Legacy

Cato's Gene Healy has an interesting take on the Gipper's legacy, in light of what would have been his 100th birthday. Healy says that neocons mistakenly cast themselves in Reagan's shadow, despite the fact that Reagan was far from a neocon himself.

Healy inveighs against the Weekly Standard, which has also published its own tribute to Reagan's legacy in commemoration of his would-be century mark. However, I find Healy's criticism to be somewhat unfair.

Certainly, Weekly Standard writers are, in a general sense, viewed as the poster children of neocon ideology and would love to cloak themselves in the Gipper's aura. However, Jeffrey Bell's recent column on Reagan's legacy is both thoughtful and accurate - regardless of one's take on what he views as the importance of social conservatism.

Bell documents Reagan's clear departure from the "realist" foreign policies that had animated Republican leaders since the Nixon-Kissinger era. Healy points out that "Reagan viewed the U.S. as a city on a hill, a 'model to other countries,' not a crusader state with 'an obligation to forcibly promote democracy overseas.'" Bell's column actually reinforces the same viewpoint.

The political Right in America has always been characterized by a somewhat uneasy coalition of libertarians and conservatives since the days when the two ideologies were united in opposition to FDR's socialist-authoritarian intrusion into American society. However, in this case, I think the disagreement is imagined.

My personal take on Reagan's legacy has always stemmed from what he told Reason magazine in 1975:

If you analyze it I believe the very heart and soul of conservatism is libertarianism. I think conservatism is really a misnomer just as liberalism is a misnomer for the liberals–if we were back in the days of the Revolution, so-called conservatives today would be the Liberals and the liberals would be the Tories. The basis of conservatism is a desire for less government interference or less centralized authority or more individual freedom and this is a pretty general description also of what libertarianism is.

Indeed, sir.

The false promise of ‘investing’ in higher education, and other NSHE thoughts

I'm currently watching the NSHE Board of Regents meeting and just heard a statement from Chancellor Dan Klaich to the effect of, "The link between economic diversification and a state's system of higher education is virtually indisputable."

That sentiment was a general theme of the recent Nevada 2.0 conference, and many of Nevada's politicians hold a similar belief.

This sentiment is always forward-looking: "If only Nevada would make (or maintain) this investment." This belief is forward-looking because even the most basic knowledge of Nevada's recent history disproves this assumption.

Nevada has increased its subsidy to NSHE from $306 million in Fiscal Year 2000 ($378 million, adjusted for inflation) to a high of $623 million in FY 2009. The NSHE's overall budget went from $833 million in FY 2000 ($1.027 billion, adjusted for inflation) to $1.694 billion in FY 2009. And Nevada now has the highest unemployment rate in the country.

A $245 million increase in the state's subsidy and a $667 million increase in the operating budget of the Nevada System of Higher Education should have put Nevada on the path to economic-diversity bliss. Except ... Nevada's economy now has the highest unemployment rate in the nation, in large part because its economic base is so narrow.

Now, does this mean that subsidizing higher education will lead to higher unemployment? No. Nevada's economy is affected by innumerable factors, including taxes, energy rates, government regulations, access to water, the global economy, K-12 and higher education, policies of the Federal Reserve … I could go on and on.

But Nevada's history does disprove the simple assertion that "investing in higher education will diversify Nevada's economy."

Beware of the many smart, "educated" individuals (many of whom work in higher education — imagine that!) who are endlessly repeating this mantra. If government subsidies were all it took, we would have achieved a diversified economy by now.

Education is certainly a factor, but spending isn't the same as achieving results.

Other thoughts on the meeting:

Chancellor Klaich is doing a much better job noting that Gov. Sandoval's proposed budget reductions only impact the subsidy Nevada gives NSHE. And that this subsidy represents only a portion of the operating budgets of UNR, UNLV and Nevada's colleges — roughly 30 percent of each institution's operating budget. In total, Gov. Sandoval's proposed reductions would be less than a 10 percent reduction to the total NSHE operating budget.

I wonder if UNLV President Neal Smatresk is taking notes on how Chancellor Klaich is accurately describing the budget. Let's hope this clarity on the scope of the budget reductions (less than 10 percent of NSHE's total operating budget) is a continuing part of the debate. Why am I not hopeful?

Also hilariously, Chancellor Klaich admits that higher-education officials have been guilty of hyperbole in the past (I wasn't fast enough to type the exact quote, but that's the essence of what he said).

One last thing to remember, via Chancellor Klaich: "[Higher education] budgets are being cut elsewhere. Fees are being raised."

Liberals unsure of what a tax increase is, but finally acknowledge that they're destructive

Is anyone else really enjoying this effort by Nevada's liberals to pretend that eliminating subsidies to college students or other favored Nevadans is a tax increase?

Their latest effort is hilarious.

Liberals are DESPERATELY trying to find some way to claim that Gov. Brian Sandoval has violated his promise not to balance the budget by raising taxes by calling anything and everything under the sun a “tax hike.”

That has so far included potential tuition hikes and reallocation of local tax revenues. And now some are trying to claim that the proposed elimination of the Senior Property Tax Assistance welfare program is technically a tax hike.

Let's at least applaud Nevada's leftists for acknowledging that tax increases have negative consequences.

Senate Majority Leader Steven Horsford, D-Las Vegas, said Sandoval’s suggestion that the university raise tuition “is shifting the problem to others, rather than owning it and dealing with it straight on.”

Horsford, who put himself through UNR, said, “I’m concerned that for every percent tuition is increased, a middle-income family or students putting themselves through college won’t be able to attend.”

We've finally achieved bi-partisan consensus — tax increases hurt people.

I'm going to repeat that, because I have a feeling this is something we're going to need to remember: Tax increases hurt people.

Of course, what the political left doesn't understand is that ending a subsidy isn't a tax increase — ending a subsidy is ending a subsidy.

Now, while liberals struggle to figure out what is and isn't a tax increase, I hope they continue this line of argumentation.

All they're doing is reminding the public of the negative impacts of tax increases. And why would anyone want to stop that?

Republicans, Democrats flip-flop on health care

I just came across a very enlightening article on the ongoing debate over US health care policy by Merrill Matthews at the Institute for Policy Innovation, who was writing in Forbes.

Matthews makes the point that, during the last round of intensive health care reform debate that occurred in the early 1990s, most Democrats vehemently opposed the individual mandate for coverage that is the cornerstone of Obamacare (and the reason federal District Court Judge Roger Vinson declared the law unconstitutional). What Democrats wanted at the time was guaranteed issue, a provision that would outlaw the freedom of insurers to deny coverage. Several states passed legislation during that period abolishing this freedom.

However, guaranteed issue meant that premiums would rise and push healthy individuals out of the insurance market. This resulted in premiums rising even faster as healthy individuals realized that they could wait to purchase health insurance until they became sick. Before long, only very sick people were in the insurance market and premiums were sky-high.

This policy failure is how Democrats came to support the individual mandate provision.

Meanwhile, Republicans, many of whom supported the individual mandate during the last round of debate, have abandoned their support of the policy in the wake of public outcry over Obamacare. Further, in an ironic twist, many Republicans are also now supporting the concept of guaranteed issue even as they revile against Obamacare.

In times like these it's hard to tell who's playing for which team. It appears everyone has swapped uniforms.

Firefighter union chides firefighters for sick leave abuse?

If consistent NPRI research into county payroll records had not yielded public investigation into and subsequent outcry over sick leave abuse at the Clark County Fire Department, it's highly doubtful that IAFF Local 1908 would have issued this reprimand to its own members today. Today's notable shift in union propaganda should be viewed as a great victory on behalf of taxpayers.