Las Vegas Weekly writer slams watering down Nevada's high school exit exam

Last week I wrote about AB456, a bill the Legislature passed to dumb down Nevada's high school graduation exam. AB456 is currently on Gov. Sandoval's desk awaiting his signature or veto.

I came across this piece by Steve Friess in the Las Vegas Weekly on AB456 and how academically unprepared Nevada's students currently are.

For one miserable semester in 2004, I tried to teach journalism at UNLV, except that almost every student was so functionally illiterate I actually taught remedial English. On election night that year, each student received unique orders to chat up a certain demographic or to ask about certain topics at political gatherings. The girl assigned to ask foreign policy questions rendered a story that included this “word”: Alkita.

Read the rest of his column to learn what "Alkita" meant and enjoy his hard-hitting take down of watering down Nevada's high school diplomas.

Will the Legislature stop the CCEA from blocking Jones' school-reform plan?

Yesterday, I wrote about Superintendent Dwight Jones' awesome-sounding plans for education reform in CCSD. Last night at the school board meeting, Jones unveiled more of his plans, and they sound ... even more awesome.

Teachers' pay would be tied to performance, private charter schools could take over ineffective public schools and principals would gain power under a Clark County School District re¬organization blueprint unveiled Thursday by Superintendent Dwight Jones.

Take a moment and read the Review-Journal's whole article, because this plan sounds like a great chance to introduce reforms that would lead to better teachers and greater student achievement.

So who could be opposed to substantial reforms that would benefit Nevada's students? The teacher union.

Ruben Murillo, president of the Clark County Education Association, which represents district teachers, noted that many of Jones' proposals would "require union action."

"I know a lot of our teachers would be very opposed" to replacing the salary schedule, Murillo said. "It's a traditional way of paying teachers so it's fair and equitable."

Murillo said he would have to speak with Jones about the proposals. Formal talks on a new labor agreement have not begun because the union and the district are waiting for lawmakers to pass a state budget, he said.

Murillo's objections are ridiculous. Consider this statement — "It's a traditional way of paying teachers so it's fair and equitable." Really, that's your argument? We've been doing it for a long time, so it's fair? It's fair that we reward teachers for seniority and degrees instead of how good a teacher they are?

It's not fair for the super-talented young teacher who doesn't get rewarded for how good he or she is. It's not fair to our kids who are struck in classrooms with bad teachers. And it's not fair to taxpayers who are paying more for two factors that have little to no relationship to teacher quality.

Of course, Murillo's statements tell you all you need to know about the CCEA and its priorities — make sure all teachers get paid the same regardless of ability and only give raises for things unrelated to how effective a teacher is.

The real question is: Why is the CCEA, which along with the NSEA has been doing its best to kill or water down education reforms at the Legislature, allowed to block meaningful reform?

Amazingly enough, the CCEA is only in a position to block these reforms because of power they are given by the Nevada Legislature in NRS 288.

Why is it so hard to remove a teacher who’s not teaching and replace that teacher with one who is?

In Nevada, it’s because Chapter 288 of the Nevada Revised Statutes compels school districts to negotiate long, difficult and costly step-by-step procedures that district administrators must follow to terminate a teacher. Moreover, NRS 288 requires that school districts must collectively bargain with teacher unions on a whole shopping list of “subjects” — making contract agreements between school districts and teacher unions into cumbersome obstacles to any school district effort to improve students.

For example, NRS 288 mandates that school districts bargain “total hours of work required,” “policies for assignment of teachers,” “materials for the classroom,” “procedures for reduction in workforce,” and “discharge and disciplinary procedures,” to mention but five of some 28 compulsory subjects.

What results are pages and pages of contract provisions that, over years of negotiation cycles, end up damaging student achievement.

Aside from copying the reforms passed by Florida, the best thing the Legislature could do to increase student achievement is to repeal NRS 288 and give Jones a clear shot at implementing the awesome-sounding reforms he's proposing.

NPRI statement on Gov. Sandoval's reported plans to raise taxes

NPRI analyst: Supreme Court ruling not an excuse to raise taxes

LAS VEGAS — The Las Vegas Review-Journal has reported that Gov. Brian Sandoval now supports raising taxes by extending a number of taxes that were scheduled to expire.

After a ruling by the Nevada Supreme Court appeared to leave a hole of up to $430 million in the governor’s most recent budget plan, he appears ready to completely repudiate his repeated no-new-tax promise.

In response to that decision, Steven Miller, vice president for policy at the Nevada Policy Research Institute, issued the following comments:

It is quite disappointing to see that after more than 100 days of Gov. Sandoval consistently advocating for the interests of Nevada taxpayers during this legislative session, he reportedly is ready to precipitously abandon his promise not to raise taxes.

Today’s Supreme Court ruling was an entirely appropriate rejection of an unconstitutional money grab perpetrated by state legislators in 2010. But while that ruling endangered some similar gimmicks in the Sandoval budget, it was still quite possible to pass a budget near the level the governor had originally proposed.

On May 2, the Economic Forum projected that Nevada would have $330 million more to spend in the next biennium than it had projected in December 2010, when Gov. Sandoval built his original spending plan. Combined with revised Medicaid projections and other monies, Sandoval has already added back $440 million to his original budget proposal.

It would be bizarre if the governor were no longer comfortable with the very amount of spending he was advocating as recently as a month ago.

At a time when Nevada’s effective unemployment rate is around 24 percent and private-sector families and businesses have made significant cutbacks, consistently sound policy is not too much to ask of Nevada’s government. This is especially true when reports of government waste and inefficiency abound. One example is yesterday’s report that the Clark County School District had wasted more than $800,000 of general fund money on iPads. Another was the $22 million pulled out of his hat at a legislative hearing by Nevada System of Higher Education Chancellor Dan Klaich.

An extended higher sales tax component will necessarily result in lowered consumer demand and, hence, fewer revenues for private business. This will lower the demand for labor and result in either more unemployment and suppressed wages. The payroll tax is a direct tax on labor — making it more costly to hire additional workers. These are not the solutions that Nevada needs during this period of economic turmoil.

The Nevada Policy Research Institute has introduced a package of spending reforms that could save as much as $3.5 billion over the next biennium — while maintaining or increasing the quality of services. While the governor did introduce legislation to pursue some of those reforms, he has yet to pursue the most meaningful among them.

If Nevada families are left with these burdensome taxes, it will be because policymakers in Carson City have irresponsibly protected unaccountable and highly-compensated, unionized bureaucracies at the local government level and billions of wasted dollars devoted to the prevailing-wage debacle.

Extending the sun-setting taxes will further hamper Nevada’s economic recovery and discourage job creation.

Even Senate Majority Leader Steven Horsford has noted that the modified business tax, for example, “hampers job creation,” and doubling it would further hinder Nevada’s economic recovery.

###

Superintendent Jones' plans for growth model sound awesome

There's a whole lot wrong with the Clark County School District. From a school board that purposely misleads the public on the size of its budget hole, to blowing $1.1 million on iPads while claiming it's been "cut to the bone," to using school children and personnel to call for tax increases, citizens have good reason to be cynical about CCSD.

All that having been said, the plan Superintendent Dwight Jones is going to announce, to measure and reward teachers based on their abilities, sounds awesome.

What Jones will present isn’t surprising because he had success in Colorado and is bringing his reform philosophy and methods to Las Vegas. The foundation is what’s known as the “growth model.”

The growth model focuses on measuring student progress — hence “growth” — rather than mere standardized test scores. ...

The key is measuring student progress over time, which will shine a light on the best teachers. ...

“Where are the pockets of excellence? We’ll have data in six months. That will draw healthy scrutiny to the system,” my source says. Teachers will be evaluated on four levels of competency, pegged to the progress made or not made by students. Schools will be similarly judged.

From there, Jones will look to nourish what’s working. A program they call “wikitools” will encourage the best teachers to showcase their techniques to other teachers and then be paid “royalties” for doing so.

Despite J. Patrick Coolican's attempt to spin this article into a call for increasing education spending, his whole article on the growth model is worth a read.

In summary, Jones wants to measure teacher ability, reward effective teachers and improve or fire ineffective teachers.

That's a great plan — and a great example of using the money you have more effectively.

Jones' plan still faces significant hurdles — most notably from the teacher union, which is likely to object, like it is doing right now in Carson City, to any process that would help CCSD improve or fire bad teachers — but this plan is reason enough to be cautiously optimistic.

It's now up to Clark County parents and concerned citizens to make sure that the pressure they bring in support of school reform outweighs the considerable power of the Clark County Education Association (and the Nevada State Education Association) to protect bad teachers.

Legislature passes bill watering down high school exit exam

It's always amazed me that Nevada's high school exit exam is given to students during their sophomore year.

If students are expected to pass the high school exit exam after being in high school less than two years, three things come to mind.

One, the test isn't that difficult.

Two, what are students learning for the next two years, if they've passed a high school proficiency exam?

Three, if you can't pass an exam given to sophomores, you shouldn't be getting a high school diploma, which implies four, not two, years of learning.

Given these circumstances, it's unbelievable that some in the Legislature want to dumb down the graduation requirements.

Nevada law currently requires seniors to pass four high-stakes exams to earn a diploma: math, science, reading and writing. ...

Assembly Bill 456, approved Wednesday by the state Senate, would allow certain high school students to receive diplomas even if they fail a portion of the high school proficiency exam.

"This is not about watering down the test," said state Sen. Mo Denis, D-Las Vegas, chairman of the Senate Education Committee.

It's about helping the borderline cases, the students who are just missing the mark on the tests and who would otherwise graduate, Denis explained.

Sen. Denis' claim notwithstanding, this is all about watering down the test.

If you can't pass a sophomore-level test in the basic areas of math, science, reading and writing, you have no business graduating from high school, even if your combined average would be a passing grade.

What's tragic here is that the ones who are really hurt by this are Nevada's students. By not being honest with students, you allow them to leave high school thinking they have skills and abilities they don't have. It might stress a student out to have to study, practice and drill to retake a test, but the alternative is a student with significantly fewer skills than are necessary to get a job or succeed in college.

With over 34 percent of Nevada's high school graduates having to take remedial courses in college, Nevada should be raising, not lowering, its academic standards.

Assembly Ways and Means, May 25

For anyone who hasn't heard about it yet, below is my testimony to the Assembly Ways and Means Committee tonight as they met to debate whether to extend the sunsetting taxes from 2009:

My name, for the record, is Geoffrey Lawrence and I am deputy director of policy at the Nevada Policy Research Institute. Thank you, Madame Chair, for the opportunity to testify today.

As I’m sure you’re aware, every tax instrument impacts economic behavior in unique ways and these distortions are generally wealth-reducing because they alter human action away from the welfare-maximizing behaviors that occur within open markets. However, since governments are compelled to levy taxes in order to provide for certain “public goods,” such as the rule of law, sober consideration should be given to the relative merits and drawbacks of alternative taxing mechanisms.

The Modified Business Tax is ultimately a tax on labor, which artificially increases labor costs – suppressing the demand for labor. As a result, the tax is a negative incentive for employers to retain existing workers or to hire new ones. It also can lead to an over-mechanization of industry, beyond the point of optimal production, because the cost of capital relative to labor is artificially skewed. In economics, there’s a very boring-sounding term for this trade-off between hiring workers or investing in machines to do the work called the “marginal rate of substitution.” Taxes on labor, as with taxes that specifically target capital, distort this delicate balance and lead to sub-optimal levels of production.

The Local School Support Tax, as you know, is a tax on consumption. Consumption taxes artificially elevate the final price facing consumers and, therefore, suppress consumer demand for the taxed goods. This means that, while consumer welfare is injured, retailers see fewer revenues as a result of the decline in consumer demand. This fall in business revenue is translated backwards to factor inputs like capital and labor – further exerting downward pressure on wages. As I often say, business is like a jelly doughnut: if you squeeze it, the jelly has to come out somewhere. With regard to consumption taxes, this is generally some combination of higher prices on consumers or reduced wages for workers.

I bring up these points because the adverse impacts of taxation are directly proportional to the size of the tax burden imposed. Since an extension of the Modified Business Tax and Local School Support Tax increases from 2009 would effectively increase the total tax burden beyond what is scheduled to exist, this bill would only magnify the distortions caused by these particular tax instruments.

I have heard a lot about the ability to fund public education today, with the implication that current revenues would be insufficient to accomplish this task. But far more important than how much money is spent, is how well it is spent and the educational system in Nevada is not structured to deliver cost-effective results in terms of student performance.

The body of evidence is immense and irrefutable regarding the effectiveness of specific and substantive educational reforms on improving student performance and, consequently, those students’ chance at success in life. These reforms include: alternative teacher certification, open enrollment, evaluating and grading public schools and teachers based on student achievement, and, most importantly, expanding the universe of school choice. School choice does not have to mean vouchers – it can mean the expansion of charter schools, including virtual schools, and a tuition tax credit program along the lines of one modeled by NPRI.

These truths have been known for a long time and, yet, the Nevada Legislature has failed for years to implement meaningful reform in the interest of our children. I apologize for letting emotion enter into my testimony, but I personally find it reprehensible that after years of failing to act in the interest of children, that anyone would now use children as political leverage for raising the tax burden on Nevada’s families. If this body was genuine in its concern for educational quality, we would have implemented the reforms I’ve mentioned years ago.

Thank you.

How raising the 'sunsetting' taxes would kill jobs

Barring any last-minute surprises, the job-killing margins tax is dead.

Barring any last-minute surprises, the revenue-enhancing sales tax on services is dead.

The debate is now over the whether to raise taxes by extending the sunsetting taxes. Those tax increases would include a sales-tax increase and a doubling of both the business license fee and the modified business tax.

While Republicans look increasingly unlikely to give in on raising taxes, it's worth remembering the impact raising these taxes would have on the economy.

As Senate Majority Leader Steven Horsford notes, raising the modified business tax will kill jobs:

For example, the current modified business tax hurts small business and hampers job creation.

Doubling the price of business licenses in 2009 had a negative impact on the number of businesses licensed in Nevada.

In fact, recent data from the Secretary of State's office shows that the total number of incorporations filed in Nevada has fallen by 31,760 since the higher licensing fees took effect. This exodus of filers means a loss of direct revenue to the state through the annual $200 business license fee. But it also translates into an untold sum of lost economic activity generated by affluent nonresident business owners who had previously visited the state to hold annual meetings and spend generously on gaming, lodging and retail. The loss of these visits contributes to the state's worsening unemployment figures and prevents the state from collecting gaming, sales and room-tax revenues that would otherwise exist.

Lawmakers in the Silver State must realize that not only can taxes distort the economic incentive structure, but that Nevada must compete in a global marketplace to attract investment. States that offer lower-priced and more convenient incorporation filings have a strong advantage in luring nonresident firms to incorporate in their state.

Registered agents in Wyoming, for instance, have developed a website specifically touting the advantages of filing in Wyoming over Nevada. According to the website, "Wyoming charges about 40 percent less than Nevada when setting up any company. There are also no ‘hidden fees' to be paid to the state for filing officer lists." The website also boasts faster processing times and the fact that business licenses are not required in Wyoming.

By increasing the costs of purchases, the sales tax makes goods more expensive. As is shown by a basic understanding of the law of supply and demand, this would decrease supply — and the number of people producing those products.

As legislators debate whether or not to raise these taxes, it's important to remember that — at a time when Nevada's actual jobless rate is 23.7 percent — each of these tax increases would kill jobs.

CCSD spends $1.1 million on iPads

Alternative headline: Why more money won't fix education in Nevada. Or: Remember when we gave teachers apples, not Apple products?

For three years — seriously, three years — leftists have told us that education in Nevada has been cut to the bone. And they implied that if you didn't want to throw more money into education, you either hated children, wanted Nevada to become Somalia or both.

And now we learn that "cutting to the bone" in government means avoiding even the most obvious pots of pork.

Instead, Contact 13 crunched the numbers and found that the district spent nearly $1.1 million on 1,859 iPads over the last six months.

And although there is $136,000 more on school district credit cards for purchases from Apple stores, because the information isn't centralized, the district couldn't tell us exactly what was bought.

"A lot of our iPads are purchased through grant money," Denson explains.

But most of the money, more than $800,000 of it, comes from the school district's general fund. [Emphasis added]

I strongly encourage you to go to the 13 Action News website and watch the full report.

Seriously — $800,000 for iPads? From general fund dollars?

Less than a week after a CCSD trustee was crying while voting for the school district's budget?

I don't know whether leftists in Nevada are purposely dishonest or just embarrassingly ignorant, but this is the kind of story that should remind you not to believe their cries of doom and gloom.

When leftists start complaining about budget reductions, there's just one response — don't be fooled again!

Joint committee to reduce appropriations

A special joint meeting of the Assembly Ways and Means and Senate Finance Committees is being convened this morning to resolve the differences between revenues and spending bills that have already been passed by the legislative majority. The majority has approved spending that is nearly $1 billion in excess of Governor Brian Sandoval's Executive Budget proposal, which already planned to significantly outspend available revenues.

A detailed analysis of the majority party's additions to the Executive Budget is available here.

The majority has proposed $1.2 billion in new taxes to finance the additional spending they'd like to see, but has been unable to achieve the necessary two-thirds support for those proposals. At this time, it looks like those tax ideas are dead.

We'll see what additional clarity can be gleaned from today's meeting...

Performance-based budgeting becoming possible

The Nevada Policy Researh Institute has been writing for a long time about the failures inherent in Nevada's baseline budgeting process and the need for an immediate shift to the performance-based approach when crafting the state budget.

NPRI's "Better Budgeting for Better Results" study was instrumental in raising the issue's profile at the outset of the 2011 legislative session and, soon after, Gov. Brian Sandoval's administration produced the first official performance-based budgeting document in state history.

Yesterday, the legislature passed AB248 which would require performance-based budgeting for all future budget cycles. This change will be a huge victory for Nevadans who wish to see their tax dollars used in the most cost-effective manner possible.

Congratulations to the Nevada Legislature for its bipartisan support of a very sound policy change! Now, if only the same could be said for meaningful education reform...

Watching the Clark County school board's budget deception move through the news cycle

Yesterday, I detailed a major part of the liberals’ playbook — inflate spending cuts by either assuming massive spending increases or overstating the scope of the cuts.

The most recent example is the budget the Clark County school board approved Wednesday, which the board claimed had a $407 million shortfall and would lead to 1,800 job cuts.

What the board didn't include in its budget was an additional $159 million that it had available, but chose — chose! — to exclude. While I'm all for fiscal prudence and have no doubt there's more than $159 million in waste in CCSD, not including this $159 million in funding allowed the school board to tout this 1,800 job-cut figure.

And why would the school board want to emphasize job cuts? To stoke public outrage over the "devastating cuts" to education, which it hopes will lead to greater funding from the Legislature.

Example one: today's Las Vegas Sun editorial.

The Republican governor has taken a hard-line position on the budget and taxes — his way or no way — and that could make for a long summer. ...

The tough stance may work well with the far right of the Republican Party, but it won’t work well with most voters. People want solutions, not ideological platitudes. The state is facing a budget shortfall of more than $2 billion, and Sandoval’s plan would let taxes expire and then gut state spending and services. Doing so will have serious consequences on Nevada for years to come. ...

[For example, t]he Clark County School District approved a plan Wednesday that would cut $407 million in the upcoming fiscal year. It includes laying off 1,834 employees and slashing spending on textbooks and supplies. There could be an additional 1,000 people laid off if district unions don’t make further concessions, school officials said. Regardless of what happens, larger class sizes and fewer opportunities for students will result. ...

Unfortunately, Sandoval doesn’t seem to care. This really isn’t about budgets, it’s about policy. Republicans don’t want to waste the budget crisis to advance their agenda of gutting government.

Ironically enough, the sub-headline of the editorial is "Sandoval won’t let the facts get in the way of implementing his ideology."

You know, "facts" like CCSD is going to have 1,800 job cuts next year, because it won't spend the $159 million available to it. "Facts" like Nevada has a $2 billion-plus budget deficit, when general fund spending is going to go from $6.4 billion to $6.1 billion under Sandoval's plan and Nevada is going to collect $5.8 billion in general fund revenues.

Example two: the news stories from My News 3, 8 News Now and 13 Action News, which all reported on the $400 million budget cuts and 1,800 layoffs. While the stories mentioned that the budget numbers aren't final, the 13 Action News report, for instance, is entitled, "Trustee in tears while passing school districts final budget." There's little doubt what the takeaway is from that story.

(I assume Fox 5 had a story on the school district budget as well, but I couldn't find it on its site.)

It's a lot easier to generate outrage when you're distorting reality — and Nevada's leftists have done plenty of distorting during this session.

What Nevada's intellectually honest citizens, media members and lawmakers need to do is keep their guard up.

Don't be fooled again.

How the Clark County school board is inflating its budget hole

It's amazing how simple — and deceptive — the big-government playbook is.

Want to increase state spending? Claim the state has a $3 billion deficit and don't tell anyone that this figure assumes a $2 billion spending increase.

Want to increase K-12 education funding? Claim the governor's budget cuts education funding by $1.1 billion, even though Nevada will be spending only $49 million — or $45 per student — less through the Distributive School Account than it did in the last two years.

The Clark County school board is following the misleading practices of leftist legislators.

Last night the Clark County school board approved its tentative budget, while claiming that it has a $407 million shortfall.

Chief Financial Officer Jeff Weiler declined to discuss hypothetical situations after the School Board reluctantly and "under protest" passed a final budget for 2011-12 that includes a $407 million funding shortfall and requires 1,800 job cuts.

Except that the school district is going to have $159 million it didn't include in its “tentative” budget.

Because of improving economic conditions, district officials anticipate having an additional $69 million in state funding for next year.

That money was not formally included in the budget, because the numbers are still being verified.

The district's budget also assumes it will not take $90 million from the debt service fund to pay for operational expenses as Gov. Brian Sandoval has recommended.

The article also reports that the district is counting on $167 million in union concessions or it will have to lay off 2,500 more employees. If that number is accurate, that's an average salary-and-benefits package of $66,800.

If you multiple $66,800 by the 1,800 jobs that would be cut under the district's tentative budget, the result is $120 million.

Remember that $159 million school district officials aren't telling you about? It could be used to eliminate any jobs cuts (although letting bad teachers go would actually improve student achievement).

But being honest wouldn't generate outrage. Being honest wouldn't scare teachers, parents and students.

Cynical officials hope that fear turns into cries of outrage — even if those fears are based on falsehoods.

Don't be fooled again.

New Tax Foundation report: 'No sensible case' for margins tax

The Tax Foundation released a new report today on the margins tax, and the report clearly lays out the harmful impacts a margins tax would have in Nevada. Replacing the modified business tax with a margins tax (an amendment to SB491) is one part of legislative Democrats $1.2 billion tax increase plan, which would be the largest tax increase in Nevada's history.

While you really should read the entire report, which is only 11 pages, here are some highlights. I also presented these comments to the Senate Revenue Committe today.

First, instituting a Texas-style margins tax would drop Nevada’s business tax climate ranking from 4th to 11th and from 1st to 45th in the Corporate Income Tax Sub-Index Rank. At a time when Nevada’s private sector unemployment rate is over 13 percent and its real unemployment rate is around 24 percent, this tax would make Nevada less attractive to potential employers.

Second, as is clearly stated on page nine of the report, a margins tax is a modified version of a gross receipts tax.

Third, gross receipts and margin taxes both introduce significant economic distortions, ie... they impact some businesses much more than other ones. Some states have tried to limit these impacts by either varying rates for different industries or modifying the base, like the margins tax would do. These changes cannot limit the structural problems inherent in these types of taxes.

From the Tax Foundation:

All gross receipts taxes feature tax pyramiding, which distorts and interferes with business investment decisions.

Fourth, the margins tax in Texas has basically been a disaster.

[The Texas margins tax] is collecting far less in revenue than expected, causing significant confusion and compliance costs, resulting in significant litigation and controversy over “cost of goods sold” definitions, and facing calls for substantial overhaul and even repeal.

Noted tax academic John Mikesell has referred to the Texas margin tax as a:

[B]adly designed business profits tax…combin[ing] all the problems of minimum income taxation in general — excess compliance and administrative cost, penalization of the unsuccessful business, undesirable incentive impacts, doubtful equity basis — with those of taxation according to gross receipts.

To conclude, the problems with the margins tax are separate from the amount of tax dollars the legislature wants Nevada to collect. The margins tax is not good tax policy. To quote the Tax Foundation here:

There is no sensible case for gross receipts taxation, or modified gross receipts taxes such as a Texas-style margin tax. The old turnover taxes — typically adopted as desperation measures in fiscal crisis — were replaced with taxes that created fewer economic problems. Gross receipts taxes do not belong in any program of tax reform.

Senate Revenue, May 17

The following is my testimony today to the Senate Revenue Committee regarding the proposed "business margins tax" and extensions of the 2009 tax hikes:

My name, for the record, is Geoffrey Lawrence and I am deputy director of policy at the Nevada Policy Research Institute. Thank you, Madame Chair, for the opportunity to testify today.

As I’m sure you’re aware, every tax instrument impacts economic behavior in unique ways and these distortions are generally wealth-reducing because they alter human action away from the welfare-maximizing behaviors that occur within open markets. However, since governments are compelled to levy taxes in order to provide for certain “public goods,” such as the rule of law, sober consideration should be given to the relative merits and drawbacks of alternative taxing mechanisms.

I’d like to review some of these very briefly.

The Modified Business Tax is ultimately a tax on labor, which artificially increases labor costs – suppressing the demand for labor. As a result, the tax is a negative incentive for employers to retain existing workers or to hire new ones. It also can lead to an over-mechanization of industry, beyond the point of optimal production, because the cost of capital relative to labor is artificially skewed. In economics, there’s a very boring-sounding term for this trade-off between hiring workers or investing in machines to do the work called the “marginal rate of substitution.” Taxes on labor, as with taxes that specifically target capital, distort this delicate balance and lead to sub-optimal levels of production.

The Local School Support Tax, as you know, is a tax on consumption. Consumption taxes artificially elevate the final price facing consumers and, therefore, suppress consumer demand for the taxed goods. This means that, while consumer welfare is injured, retailers see fewer revenues as a result of the decline in consumer demand. This fall in business revenue is translated backwards to factor inputs like capital and labor – further exerting downward pressure on wages. As I often say, business is like a jelly doughnut: if you squeeze it, the jelly has to come out somewhere. With regard to consumption taxes, this is generally some combination of higher prices on consumers or reduced wages for workers.

I bring up these points because the adverse impacts of taxation are directly proportional to the size of the tax burden imposed. Since an extension of the Modified Business Tax and Local School Support Tax increases from 2009 would effectively increase the total tax burden beyond what is scheduled to exist, this bill would only magnify the distortions caused by these particular tax instruments.

I’d also like to briefly address the potential adverse impacts of the proposed business margin tax. A major weakness inherent to the proposed margin tax is that the tax is assessed at every stage of production throughout the supply chain. This means that the tax would have “pyramiding” effect, with a disproportionate effective tax rate imposed against complex goods that require multiple stages of production. I fear that this tax proposal would specifically place Nevada at a competitive disadvantage for high-tech industries, such as solar energy development, biotech industries and the like because they require many stages of production. If so, it would work at direct odds with the purported goal of economic diversification.

Finally, I’d like to highlight that the impact of taxation in affecting economic behavior is closer to that of a water facet that is slowly turned on than a waterfall. That is to say that even relatively low tax rates can affect economic behavior because the impact is incremental and doesn’t lie behind some threshold tax rate. For every small increase in sales tax rates, for example, there is a growing increment of consumers who choose not to purchase the product being taxed. Similarly, business owners decide to scale back production or labor force by growing increments with each new or higher levy. Economists refer to this as the “marginal” impact of a tax increase or a price change and it means that we should not delude ourselves into thinking that the proposed tax changes would not, in some measure, exacerbate the state’s economic woes.

As a side note, I would like to applaud Senator Horsford’s motion to use excess revenues to pay down unfunded PERS liabilities and would suggest that similar provisions be applied to all revenue streams.

Thank you for your time and I’m happy to entertain any questions.

The $1.1 billion education cut myth

Last year, I wrote a commentary called the $3 billion deficit myth. In it, I described how by assuming a $1.5 billion increase in state spending, many ill-informed individuals were overstating Nevada's budget problems. While many public officials and media members have since gotten Nevada's budget situation right, some lawmakers are still using the same tactics to inflate Nevada's budget difficulties.

Nowhere has this been seen more than in the discussion over Nevada's education budget — especially with the claim that Gov. Sandoval's budget contains a $1.1 billion spending decrease to education.

Ways & Means Committee Chair, Speaker Pro Tempore Debbie Smith released the following statement after Governor Brian Sandoval vetoed A.B. 568, the K-12 education budget:

“While I fully anticipated this veto, I question how the governor plans to champion economic recovery, end social promotion, and improve our graduation rates while cutting $1.1 billion from our public schools. ...

“In his veto statement, the governor mentions only spending the money we have and not allowing for additional funding of education. Let me be clear: A.B. 568 does not contain additional funding, but instead prevents massive cuts to public schools—the largest in our state’s history. ...

“We remain firm in our commitment to bring much needed reforms to K-12 and to reject the $1.1 billion cut proposed in the governor’s budget.

This "cutting $1.1 billion from our public schools" claim is false. You can only manipulate your way to this number if you reverse reductions that have already been made and assume spending increases that don't yet exist.

Here's what's actually happening with Nevada's K-12 education budgets (Pg. 37 on this worksheet):

In Fiscal Year 2010, Nevada spent $2.513 billion through the Distributive School Account (DSA).
In Fiscal Year 2011, Nevada spent $2.504 billion through the DSA.

So Nevada spent a total of $5.017 billion in the last biennium on 849,464 students. That's $5,906 per student per year. (Don't confuse this amount with total education spending, which is $9,885 per student. The DSA, which includes some money from local streams, is just the funding level that state government is responsible for.)

For the next two years, Gov. Sandoval has proposed spending the following:

In Fiscal Year 2012, Nevada would spend $2.345 billion through the DSA.
In Fiscal Year 2013, Nevada would spend $2.220 billion through the DSA, plus $161.6 million for Sandoval's block grant program (details here, pg. 5).
Sandoval also wants to spend $241 million more on K-12 education with the extra money projected by the Economic Forum.

That's a total of $4.968 billion on 847,652.1 students. That's $5,861 per student per year.

So Sandoval's proposal would spend $45 less per student for a total two-year spending reduction of $49 million. In terms of percentages, that's a .76 percent reduction to state support and less than a half a percent reduction to total education spending.

To compare, AB 568, vetoed by Sandoval yesterday, would have increased education spending by $660 million from the governor's recommendations. That would have increased education spending to $5.628 billion, which means that Nevada would spend $6,640 per student per year. That means Nevada would have spent $734 more per student each year.

How can Assemblywoman Smith claim that AB 568 doesn't contain additional spending?

How does a $49 million decrease turn into $1.1 billion?

How does a reduction of less than 1 percent equal "a massive cut" to education?

I think the answer to all those questions rhymes with "Higher, higher ants on tire."

And what's a possible reason for this deception? As reported by Jon Ralston last year, here's what an anonymous businessman said about claiming Nevada has a $3 billion deficit.

But then he [the anonymous businessman] called back almost immediately to make two more points. One was that the budget deficit should be pegged at closer to $3 billion by all the politicians to establish a large enough target for negotiations.

Is Nevada's current budget debate about the truth? Or is it about manipulating the truth to increase one side's bargaining power?

For those who repeat the $1.1 billion education cut myth, the answer is clear.

For the majority of Nevada's citizens, the challenge now is not to be fooled again.

Why is the NSEA afraid of Mike Chamberlain?

Seriously, why?

Saturday I [Michael Chamberlain] was kicked out of the Nevada State Education Association, the state teachers union, convention for, well, for being a conservative at the NSEA convention. Not only did they kick me out of their meeting but, later, one of the directors called me and the others who attended as guests of one of the delegates “enemies” of the organization.

One of the people who escorted me out of the meeting is a former Executive Director of the ACLU of Nevada, to boot! How’s that First Amendment working for you?

Read the whole story, including Mike's new label that I'm quite jealous of, at Cranky Hermit.

Camped-out leftist protestors highlight differences between takers and makers

A few leftists in Nevada are currently camping out on the lawn of the Capitol to try and generate support for the Democrats’ job-killing, $1.2 billion tax hike, which would be the largest tax hike in Nevada's history.

Has the contrast between liberals and believers in limited, accountable government ever been clearer?

While leftists, mostly students and liberal activists from what I gathered on Twitter, have enough free time to literally camp out in an attempt to demand more money from other people, conservatives and libertarians are out working and attempting to better their own situations. What business owner, aside from those dependent of government contracts or favors, could afford to take three working days off and do nothing?

The problem with taking money from the productive members of society and giving their wealth to others is that the government is incentivizing everyone, especially entrepreneurs in society, to stop producing and just take the government's money. Government, though, doesn't create wealth and only has money because it takes it from the people who are working. What happens when the takers outnumber the producers? I hope we don't find out.

The legislative campout offers legislators a clear choice: Are you going to support taking money from the "silent majority" — the overwhelming majority of Nevadans who are working to improve themselves without taxpayer dollars — and give it to individuals — most of whom already receive some form of government subsidy — who already have enough free time to spend three days camping out?

The dichotomy between the makers and takers has rarely been clearer.

Sandoval vetoes Dems' reapportionment plan

On Saturday, Governor Brian Sandoval officially vetoed legislative Democrats' redistricting plan, as embodied in SB 497. The veto message was just read on the Senate floor this morning. Here is the key passage:

This bill relates to the revision of legislative and Congressional districts in our state. In my State of the State address, I said that legislative and Congressional districts should be drawn for a fair representation of all constituents—and that they be consistent with the law. This bill fails to meet both standards.

In 1965, Congress passed the Voting Rights Act (“the Act”). The Act prohibits states from using the redistricting process to dilute the voting strength of minority communities. In doing so, the Act ensures, consistent with my call at the State of the State, that lines of representation be drawn to afford minority communities equal opportunity to elect representatives of their choice. The central mechanisms by which the Act ensures such outcomes are simple: no fracturing and no packing of such communities.

The redistricting plan reflected in this bill does not comply with the Act. In the last ten years, the Hispanic community in our state has grown significantly. Indeed, recent Census figures reveal that one in four Nevadans are of Hispanic decent. The law and common sense—requires that we recognize this fact and afford Hispanics an equal opportunity to elect representatives of their choosing.

For NPRI's coverage of the redistricting debate, see Kyle Gillis's investigative reporting on the topic.

Hayek on group interests

While reading Hayek's famed "Choice in Currency" essay this weekend, I stumbled across a passage that was, to me, particularly insightful. Hayek discusses the negative impact that group interests play within democratic governance. Spending my time at the Nevada Legislature, I see this play out every day just as Hayek notes:

I must confess that in the course of a long life my opinion of governments has steadily worsened: the more intelligently they try to act (as distinguished from simply following an established rule ), the more harm they seem to do—because once they are known to aim at particular goals (rather than merely maintaining a self correcting spontaneous order) the less they can avoid serving sectional interests. And the demands of all organised group interests are almost invariably harmful—except only when they protest against restrictions imposed upon them for the benefit of other group interests. I am by no means re-assured by the fact that, at least in some countries, the civil servants who run affairs are mostly intelligent, well-meaning, and honest men. The point is that, if governments are to remain in office in the prevailing political order, they have no choice but to use their powers for the benefit of particular groups.

The problem with all the current arena/stadium proposals

There are currently three proposals floating around the Nevada Legislature to build a new stadium or arena in Las Vegas. Backers of the proposals claim a new facility could be used to lure a professional sports team to Las Vegas.

Caesars Entertainment has proposed a 20,000-seat arena behind the Imperial Palace. That proposal is going to the voters, because the Legislature voted it down earlier in the session.

Texan businessman Chris Milam has bought the Las Vegas 51s and is proposing to build a ballpark, a stadium and an arena across the I-15 from Mandalay Bay.

And UNLV now has a proposal, with a lobbying team that includes former Republican governor Bob List, to build a 40,000-seat stadium by UNLV.

Now, these proposals differ in locations, primary backer, the size of the facility and whether the new building would be a stadium or an arena. But they all have one problem in common.

Each of them wants the Legislature to authorize taxpayer financing for at least a portion of the project.

Leaving aside the inherent problem of government giving your money to a private business, this is a perfect example of why government shouldn't pick the winners and losers in the economy.

Instead of pitching the merits of their plans to investors, these developers are going to politicians. Let's compare how the two processes work.

Investors, because they are spending their own money, have a strong incentive to examine whether a project makes financial sense and would bring the best return on their dollars. This process unfolds millions of times every year and is one of the most important — and powerful — features of the free market. Occurring spontaneously among individuals, this process usually prevents poor uses of scarce resources and directs those same resources into the areas individual consumers want the most. Now, this process will produce some failures, but the financial impact of those failures is limited to those who chose to spend their money on it.

Politicians, on the other hand, are spending other people's money — yours and mine. This makes it more likely that a shoddy project will get pushed forward, because, instead of examining whether a project makes financial sense, many politicians (excluding those committed to free-market principles or who have a working knowledge of Nevada's constitution) examine whether a project makes political sense. Those factors include good short-term PR, campaign contributions, quid pro quos with lobbyists or other lawmakers, and getting re-elected.

If a project goes bad, there are very few consequences for individual politicians — they aren't held financially liable and they are regularly able to move on to higher office. And often times they are no longer even in politics when the destruction their decision caused becomes apparent several years down the road. As a result of all of these factors, the politicians make "investments" that private investors would reject as a financial loser. Even if some consider a particular project a "success," you still have the constitutional, economic and philosophical problems of forcing taxpayers to subsidize someone else's business.

Instead of turning to the Legislature and demanding taxpayer dollars to subsidize their businesses, developers interested in building a stadium or arena in Las Vegas should put their (own) money where their mouths are.

Horsford: MBT 'hampers job creation' … let's double it!

As the details of the Democrats’ tax package, which would be the largest tax increase in Nevada's history, are introduced as part of SB491, it's worth remembering what Senate Majority Leader Steven Horsford wrote in the Las Vegas Sun on Sunday about the Modified Business Tax.

For example, the current modified business tax hurts small business and hampers job creation.

As NPRI has been pointing out for years, Horsford's exactly right here. The MBT hampers job creation and, as such, increasing the MBT would lead to fewer jobs.

Unfortunately for individuals in Nevada, which currently has the highest unemployment rate in the nation, Horsford also wants to double the job-hampering MBT. Under current law, the MBT rate will decrease from 1.17 percent to .63 percent when the 2009 tax hikes sunset at the end of June.

Part of Horsford's plan to raise taxes by $1.2 billion is to permanently extend the 2009 tax increases. Now, Horsford and company do want to eventually replace the MBT with a "margins" tax — which is one of the most economically destructive tax instruments available to lawmakers — but the margins tax wouldn't kick in until 2012.

This means that in the short term, Horsford wants to double a tax he admits "hampers job creation."

The structural problems with a margins tax

When it comes to the tax debate in Nevada, there are two questions to consider.

First, what tax instruments or types of taxes should Nevada have?

Second, how many tax dollars should the state collect?

For the purposes of this discussion, let's leave aside the second question. This post isn't about if Nevada needs more to take more tax dollars or not. It's about if a margins tax, one of the new taxes Democrats have proposed and also called a gross receipts tax or franchise tax, is a good type of tax instrument to have.

The margin tax that's being proposed would be a .8 percent tax on a company's revenue after a $1 million exemption. The tax would be imposed on a company and applied to the lesser amount of the following:

• 70% of total revenue
• Total revenue less wages and salaries paid
• Total revenue less cost of goods sold

As Geoffrey Lawrence described in NPRI's revenue-neutral tax-reform proposal, One Sound State, there are four important components when considering a tax: (1) reducing revenue volatility, (2) ensuring economic efficiency by minimizing tax-induced distortions in economic behavior, (3) minimizing compliance costs through simplicity of the revenue structure, and (4) ensuring vertical and horizontal tax equity.

Regardless of how much tax revenue it collects, a margins tax has problems in every single area (analysis adapted from Geoffrey Lawrence's One Sound State):

1. A margins tax is nearly as volatile as a corporate income tax, because the additional financial burden imposed on firms would accelerate business closures. Thus, not only would the state be unable to collect revenue, but the uniquely perverse distortions caused by a margins tax would generate significantly higher unemployment.

2. A margins tax distorts economic behavior because the tax "pyramids" as it is added onto business-to-business transactions. This penalizes the production of complex goods that require multiple stages of production and would limit economic diversification in Nevada.

The higher tax rates that would be assessed against more complex goods would also distort consumer behavior away from optimal consumption patterns by introducing artificially increasing the cost of more complex goods.

3. A margins tax will burden businesses with new accounting measures that will increase compliance costs.

4. A margins tax favors vertical mergers. Because businesses wouldn't pay a tax on supplies it "sold" to itself, a margins tax would accelerate vertical mergers as firms seek to reduce the amount of taxes paid.

While no tax instrument is perfect, there are inherent structural problems with any margins tax.

The economists at the Tax Foundation are quite explicit in their thoughts on any type of gross receipt or margins taxes:

There is no sensible case for gross receipts taxation. The old turnover taxes — typically adopted as desperation measures in fiscal crisis — were replaced with taxes that created fewer economic problems. They do not belong in any program of tax reform.

It's alive!

As you may have noticed, Blogger (the platform Write on Nevada uses) has been down for the better part of the last 48 hours, and Write on Nevada hasn't been loading. Today Blogger seems to be working, so I'm hoping we won't have any more technical problems going forward.

My posts from earlier this week seem to have disappearred, so I'll be reposting those soon. With the legislature talking taxes, education and collective bargaining reform, there's tons to talk about, so check back often and share your thoughts in the comments.

Dem. leadership’s tax plan would hurt Nevada’s economy, impose destructive tax instruments

Here are NPRI's thoughts on the Democratic plan to increase taxes by around $1.2 billion and increase Nevada's general fund spending from $6.4 billion in the current biennium to $7.1 billion in the next one.

NPRI analyst: Dem. leadership’s tax plan would hurt Nevada’s economy, impose destructive tax instruments

LAS VEGAS — In response to legislative Democrats’ proposal to increase taxes in Nevada by approximately $1.2 billion over the next two years, Geoffrey Lawrence, the deputy director of policy at the Nevada Policy Research Institute, released the following comments:

“If the goal of legislative Democrats is to cripple the long-term potential for growth in Nevada’s economy, this plan is the perfect vehicle. Their proposal to seize more wealth from private families and transfer it to highly-paid government bureaucrats signals a singular arrogance on behalf of the majority-party leadership toward hard-working Nevadans.

“Nevadans in the private sector have seen their standard of living decimated over the past three years while government workers, feeding off private workers’ productivity, continue a life of luxury about which most taxpayers can only dream. ‘Effective’ unemployment in the private sector is still approaching 24 percent, while many workers who have retained their jobs have seen dramatic reductions in wages and benefits. Yet public-sector pay — already higher than comparable private sector rates prior to the recession — has continued to increase. This is a caste system, and a direct insult to Nevada taxpayers.”

Lawrence acknowledged that no tax system is perfect and that every tax instrument imposes a unique set of distortions on economic activity. Indeed, last year, NPRI published an analysis of the Nevada tax system that evaluated various tax instruments based on the criteria of revenue volatility, economic efficiency, simplicity and tax equity.

“The Democratic leadership should be applauded for at last recognizing the destructive impacts of the modified business tax and acknowledging the need to lower Nevada’s high sales tax rate. However, these reforms need to be done in a revenue-neutral manner, along the lines outlined by NPRI in its ‘One Sound State’ proposal. Among the key conclusions of that report was that in order to minimize the economic distortions caused by taxation, the tax burden should be kept to a minimum.

“In addition, some of the tax instruments that legislative Democrats have proposed would impose even more adverse consequences than the current tax system. The margin tax — structurally very similar to the infamous gross receipts tax Nevada policymakers rejected in 2003 — is one of the most economically distorting tax instruments available to lawmakers because it ‘pyramids’ up the supply chain. The tax is assessed at every stage of production, meaning that complex goods will be subject to the tax many times over. Not only would it discourage high-tech jobs from coming to Nevada, it will make the state seriously uncompetitive. The Democratic plan essentially shuts the door on any hope of economic diversification.

“Democratic leaders further indicated that their proposed margin tax would be ‘adaptable’ to differentiate among goods and services providers — meaning that some industries could be taxed arbitrarily at higher rates. This would open the door to a nightmare of rent-seeking at the Nevada Legislature, since those with the most lobbyists would pay the fewest taxes.

“Despite the rhetoric of the Democratic leadership, Nevada already has ample revenue to provide basic government services. Data from the US Census Bureau shows that Nevada’s per capita state and local tax collections rank near the national median, at 28th — and that was before the 2009 tax hikes took effect. However, most of this money has been spent ineffectively, resulting in a relatively poor quality of services.”

Earlier this year, NPRI’s “Better Budgeting for Better Results” policy study highlighted specific measures lawmakers can take to save more than $3.5 billion during the current budget cycle while maintaining or increasing the quality of services.

“It is irresponsible of lawmakers to speak of raising taxes on Nevada families when they have been unwilling to find billions of dollars in savings. The proposed tax increases have nothing to do with maintaining the quality of services — that can be done simply by changing the way money is spent.

“Democratic leaders have signaled an unwillingness to exact accountability over the use of public funds. If meaningful reform were enacted in the areas of K-12 and higher education, Medicaid, collective bargaining and prevailing wage laws, then the state could improve results with fewer dollars. The party leadership’s hubris in ignoring these issues — while increasing the burden on struggling Nevada families — is shameful.”

Additional information:
• Better Budgeting for Better Results study
• One Sound State, Once Again study

Refresher: Why a franchise tax is bad tax policy

With the Las Vegas Sun reporting that Legislative Democrats plan on proposing a $1+ billion tax increase later today, it's time for a refresher on why a franchise tax (a modified version of a gross receipts tax) is bad policy. 

The point of this post is to show why a franchise tax is a poor tax instrument, regardless of how many tax dollars you believe Nevada needs to collect.

Let's start with the basics: What is a franchise tax (referred to here as a gross receipts tax here)?

Gross receipts taxes have a simple structure, taxing all business sales with few or no deductions. Because they tax transactions, they are often compared to retail sales taxes. However, they differ in a critical way. While well designed sales taxes apply only to final sales to consumers, gross receipts taxes tax all transactions, including intermediate business-to-business purchases of supplies, raw materials and equipment. As a result, gross receipts taxes create an extra layer of taxation at each stage of production that sales and other taxes do not — something economists call “tax pyramiding.”

The Tax Foundation has a full explanation of the consequences of "tax pyramiding" and other structural problems with the gross receipts tax here, but this negative consequence is especially worth highlighting, as Nevada's politicians acknowledge the need for private-sector investment and growth.

Competitiveness: A gross receipts tax interferes with the capacity of individuals and businesses to compete with those in other states and other parts of the world. The tax embedded in prices grows as the share of a production chain within the state increases, so there is incentive to purchase business inputs from outside the state. It discourages capital investment by adding to the cost of factories, machinery, and equipment, and the disincentive increases as more of those capital goods are produced in the taxing state. This tax structure does not promote the growth and development of the state.

In summary, the economists at the Tax Foundation strongly denounce the gross receipts tax.

There is no sensible case for gross receipts taxation. The old turnover taxes — typically adopted as desperation measures in fiscal crisis — were replaced with taxes that created fewer economic problems. They do not belong in any program of tax reform.

Previously, Sen. Steven Horsford changed his stance on imposing a corporate income tax, from supporting to opposing, because he recognized the inherent instability in the corporate income tax.

A review of the literature and the problems inherent in any gross receipts tax should encourage Horsford and other legislators to make the same change regarding a gross receipts tax.

Regardless of how many tax dollars you want the state to have, a gross receipts tax distorts the marketplace, is inequitable and, overall, is a destructive tax instrument.

There is no sensible case for gross-receipts taxation.

NV Dems want to raise your taxes by $1.5 billion

That number was first reported by Ralston on Twitter.

Dem plan: Sunsets off, no more payroll tax, services tax, phased-in franchise tax. Should raise about $1.5B.

Legislative Democrats likely won't officially release the plan until tomorrow at 10 am, but let's consider what this means — in the middle of the worst economic situation in the entire country, Democrats want to increase spending by over 20 percent and pass the largest tax hike in Nevada's history onto individuals in the struggling private sector.

After all of his budgetary add backs, Gov. Brian Sandoval is proposing a budget of around $6.2 billion. For comparison, Nevada spent about $6.4 billion in its last budget.

If Democrats are going to eliminate the $190 million loan in Sandoval's budget (unconfirmed), this would push Nevada's General Fund spending up to $7.5 billion, a 17 percent increase. If the Democrats kept the $190 million loan, general fund spending would go up to $7.7 billion, a 20 percent increase in spending.

At a time when the private sector unemployment rate is over 13 percent, businesses have had their revenue decline by up to two-thirds and private-sector workers have faced pay cuts of 50 percent or more, to suggest that government needs to grow by 20 percent and Nevadans should have to pay $1.5 billion more in taxes is the height of fiscal irresponsibility and the tax-and-spend liberal philosophy.

Live blogging the Assembly and Senate's closing of the K-12 education budget

You can watch live here. Agenda is here. Ralston's tweeted that Democratic legislators are looking to add $600 million to the K-12 education budget.

If that's the case, total DSA spending (how the state funds education) would increase — yes, INCREASE — by about $300 million. More details here (add $600 million to the figures in that blog post to get the $300 million increase).

It's 12:28 and the Committee Chambers just cleared out. I'm (unfortunately) in Las Vegas, so I'm watching the live streaming. I'll keep you updated.

12:40: And we're underway. Let's start with an important statistic. In the last 50 years, Nevada has nearly tripled inflation-adjusted, per-pupil spending without increasing student achievement. More money won't increase student achievement.

12:42: Up first, the governor's staff, Heidi Gansert and Andrew Clinger.

12:44: Groan, Gansert announces funding restored for class size reduction and all-day kindergarten. (Neither program increases student achievement.) In total, Sandoval wants to give $241 million more to K-12 education, $20 million to NSHE.

12:46: Sandoval wants to spend more, despite having a $190 million loan in his budget and the fact that increasing education spending in Nevada hasn't increased student achievement.

12:48: Also, Gansert recommends "triggers" to increase K-12 funding with taxes come in higher than expected during the interim. Will the spending — without results, accountability or reform — ever stop?

12:55: Gansert going over more details of K-12 budget. Keeps the 5 percent pay reduction, has teachers contribute to PERS (currently teachers pay nothing for their retirement accounts) and the suspension of merit increases.

12:57: Clinger: Now we need to transfer $247 million from debt reserves. Previously, the governor had wanted to take $302.1 million from school district debt reserves.

1:00: And with impressive speed, the governor's recommendations for increasing education spending are now on NELIS.

1:01: The Committee is now taking public comment. May I recommend reading the stories of businessmen and women in Nevada who have had to deal with large reductions (not the minor reductions faced by K-12 education)? These businesspeople have to

1:07: Committee chair Debbie Smith tells White Pine CFO not to get too excited about extra money. They must keep the pressure up to raise taxes.

1:18: Some guy named Steve Laden urges Republicans to "step out of the shadows" and increase education funding.

Why is the emphasis only on funding? Seems certain lawmakers are only interested in how much Nevada spends, not the results Nevada's students achieve.

1:27: Las Vegas Chamber lobbyist Sam McMullen now talking about the need for long-term reforms (not in education, in unfunded liabilities). He says there's been significant reform in education.

Umm... really? Where?

1:30: McMullen calls for elimination of social promotion, teacher tenure. "Seriously looking for progress and success in those."

1:31: Billy V with the Nevada Resort Association up next. Talks about the difficult decisions his companies have had to make and then pivots to wanting more money for education. Worried about the debt reserve.

1:32: Billy V. focusing on Nevada's spending rankings.

This is what's so telling -- all the talk is on education funding, not education results. NPRI is focused on results; too many are focused on funding.

1:35: Billy V. says education is an "investment."

Groan. Have you seen the return on the investment Nevada is getting? We've tripled per-pupil, inflation-adjusted spending and results are stagnant or worse. Reform is needed.

1:37: Horsford gearing up to give an "impassioned" speech. Apologizes for implying Republicans are against the same things he's for. Says he respects the governor.

1:41: Horsford: "Ask one more time: To find that balanced solution together, because our kids deserve it."

Groan. We've tripled K-12 education spending without results! What more do you want? Where are the real reforms?

1:44: Proposal to redirect IP1 funding to the general fund now being discussed. Reminder: Advisory question only voted on in a few counties.

1:47: Horsford wants to take the $221.5 million from IP1 that Sandoval would use for General Fund revenues and dedicate it to the DSA. Seems like this would be a net wash (reserve the right to change this analysis if the details change) as General Fund monies than wouldn't have to be used for the DSA.

Motion passes.

2:08: Committee now discussing Sandoval's block grant program.

2:10: Ben K.: School districts like flexibility and districts like to have the ability to direct how money is spent.

Chairwoman Smith opposes giving districts flexibility, prefers to tell districts how to spend their money.

Looks like Republicans support local control. Democrats? We'll find out soon...

2:12: Question answered: Horsford opposes.

2:15: Sounds like a party line vote to oppose local control (R's for, D's opposed). And to think, some wonder why spending more doesn't increase student achievement?

2:17: Party-line vote to oppose block grant program.

2:19: On to Sandoval's performance pay plan ($20 million for FY13). Sen. Cegvaske moves to approve it. Oceguera seconds. Horsford supports.

2:23: Asm. Aizley opposes because the test isn't specified. A potentially good point: To be fair, the test needs to be a value-added assessment.

2:29: Motion passes. Moving on to full-day kindergarten. Sen. Ben K. motions to increase funding to full-day kindergarten. Reminder: Full-day kindergarten is a waste of money as any learning gains are gone by third grade.

2:43: Cegvaske rips the majority for calling this meeting with less than 24 hours notice and not allowing the budget division to process the governor's budget amendment. Assemblywoman Smith fires back. Smith hints at "additional revenue" down the road.

2:54: Smith refuses to elaborate on the D's plan to raise taxes. She says it will be obvious soon that there is not enough money.

2:58: D's vote to oppose Sandoval's recommendation to reduce funding to "Other state education programs" by $2.3 million. Still refuse to offer a tax plan or their preferred alternative.

3:03: DSA budget coming up soon. That's where the real action is going to be. The list of accounts being closed is now available on NELIS.

3:06: Now talking about the DSA. Up first: Taking money from the school district's debt service funds (p. 23 on the NELIS document).

3:14: Horsford won't support the governor's gimmick of taking of money from school district's debt service funds. Cites the will of the people.

3:18: While Horsford makes good points on the substance here (taking debt service money isn't prudent budgeting), it's beyond ironic to hear him cite the "will of the people" when he's going back on the promise he made in 2008 not to raise taxes when the economy was struggling.

3:26: Roll call vote called. Can't hear responses, but I assume D's will support NOT using the debt service money and R's will support it. Leaves $247 million hole in the governor's budget.

3:28: Onto the basic support per-pupil in the DSA funding.

3:38: Unanimous support for reducing DSA funding to the levels recommended by the Governor after today's revisions.

3:40: Now they're talking about requiring teachers to fund a portion (25 percent) of their PERS contribution. In contrast, state workers pay 50 percent of their pension costs.

3:45: Requiring a PERS contribution from teachers passes. Looks like five percent reduction for teacher pay won't.

4:00: Finally, some real world wisdom. Assembly Hardy says he had to layoff over 200 employees in the last few years. Says he's probably personally supported schools more than anyone else in that room.

4:10: Sen. Horsford asks, Why not do both more funding and reforms? Hints that Nevada needs a way to come together and hold parents accountable. Where is he going with that? Parenting directed by those in Carson City?

4:12: Party-line vote (I assume, I can't hear what they're saying) to reject a 5 percent pay cut.

4:14: Party-line vote (I assume again) to reject increase of merit pay increases. Merit being a completely misleading word, because those raises are based on getting degrees and showing up, not on performance.

4:19: By my quick calculations, the hole in Sandoval's budget is now $650 - 700 million, depending on the amount of debt reserves Sandoval still needs to take.

4:48: The hearing is wrapping up and here's the takeaway. By my quick calculations (I'll need to look at the documentation tomorrow), the Democrats have put a $700 million hole in Sandoval's budget, which would increase, INCREASE, K-12 education spending by $386.7 million (7+ percent increase) over the current biennium.

With Nevada's private sector struggling with 13+ percent unemployment and some private sector employees facing salary reductions of 50 percent or more, Nevada's Democrats want to spend more without increasing results or accountability.

How will it play out? We'll find out soon enough. Sandoval is giving a speech tonight at 6 pm.

NPRI analyst urges fiscal responsibility with increased Economic Forum revenue projections

NPRI's press release on the news that the Economic Forum is projecting that Nevada will collect over $330 million more in tax revenues than the Forum projected in December:

LAS VEGAS — In response to the Nevada Economic Forum’s projection that Nevada will have approximately $300 million more available for General Fund spending in the next biennium, Geoffrey Lawrence, the deputy director of policy at the Nevada Policy Research Institute, urged lawmakers to exercise fiscal responsibility:

“While it is encouraging to see that the Economic Forum is projecting modest private-sector growth for the Silver State over the next two years, which will result in additional state tax revenues, lawmakers should exercise restraint and budget prudently around those projections.

“Governor Brian Sandoval’s Executive Budget proposal deserves praise for reining in the rapid growth in state spending and, thereby, protecting Nevadans from higher tax rates that would inevitably worsen the state’s unemployment figures and stymie recovery. However, the Executive Budget also contains several objectionable gimmicks — foremost of which is a $190 million loan against future insurance premium tax revenues. This borrow-and-spend tactic will hurt the state’s long-term outlook as the governor protects an inefficient spending structure and burdens future legislatures with debt.

“In 2005, lawmakers increased inflation-adjusted, per-capita General Fund spending by more than 30 percent. While Gov. Sandoval’s budget proposal would bring Nevada’s spending closer to the state’s historic trend line, more can be done.”

Earlier this year, NPRI highlighted how Nevada can save more than $3.5 billion in taxpayer resources during the next budget cycle through specific recommendations highlighted in its “Better Budgeting for Better Results” policy study.

“As presentations to the Economic Forum detailed, the individuals making up Nevada’s economy are still dealing with numerous challenges, including rising gas and food prices and a struggling housing market,” said Lawrence. “Also, the U.S. Bureau of Labor Statistics reports that Nevada’s “effective” unemployment rate is 23.7 percent.

“Nevada policymakers owe it to their constituents to consider the historical evidence showing that increased spending has not led to superior results in the major policy areas pursued by Silver State government. In the last 50 years, for instance, Nevada has nearly tripled its inflation-adjusted, per-pupil K-12 education spending, but results have remained stagnant or even deteriorated. Despite the increased funding, Nevada’s graduation rate has fallen to under 42 percent — worst in the country.

“Elected officials need to realize that the state’s methods of spending are flawed and that wholesale structural reform is necessary, especially in the areas of K-12 and higher education, labor compensation, Medicaid, and public works finance.

“Upon hearing the news that additional revenues may be available for the next budget cycle, many policymakers will likely rush to spend that money through an expansion of programs. The first priority of lawmakers and the governor, however, should be to eradicate the borrow-and-spend tactics that have been incorporated into the current budget proposal. Prudence requires that elected officials meet the state’s fiscal challenges this legislative session and do not push them off onto future legislatures.

“There are many ideas in the Better Budgeting study for meeting current budget challenges with available revenues. New projections from the Economic Forum suggesting that additional revenues are available does not in any way diminish the validity of these recommendations, nor the importance of safeguarding taxpayers from excess and abuse.”

The bell tolls for the Las Vegas Monorail

Guest post by Doug French, president of the Mises Institute and longtime NPRI contributor. Original available at Mises Economics Blog.

If Las Vegas casino race and sports books could have booked action on the Las Vegas Monorail’s ultimate success back in 2000 when the bonds were sold and the project started; the books would have made Failure a bigger favorite than Secretariat at the ’73 Belmont.

Despite the project opening in July of 2004 when the town was en fuego, the nearly 4-mile monorail never attracted enough riders to make bond payments. Mass transit up and down the Las Vegas Strip sounds like it would be a stone cold lock, but the do-gooders that implemented the project didn’t listen to casino owners like Sheldon Adelson and Tom Elardi who suggested the monorail run right down the median of the Strip between the north and south lanes.

It not only would have taken pressure off surface street traffic, which can take hours to transverse on busy weekend nights, but it would have been a tourist attraction. What a great way to see the Strip. The monorail would have been packed every evening.

Anyone who has taken the monorail knows that it, instead, runs behind the Strip properties and doesn’t extend to the McCarran Airport, which would be an enormous benefit for tourists, who would gladly pay to ride it, rather than wait to take an over-priced cab ride to their hotels. But Sin City politicians know Las Vegas cabbies would quickly mobilize and protest.

The Las Vegas Convention and Visitors Authority (LVCVA) and the Culinary Union made sure that not only did the monorail not run down the middle of the strip, equally benefiting all Strip properties, but riders will notice that going north the elevated track swings east, avoiding Adelson’s non-union Venetian Hotel, Elardi’s Casino Royale, and the Sands Expo Center, a direct competitor to the LVCVA’s Las Vegas Convention Center. The monorail stops conveniently at the convention center on it’s way to the Sahara Hotel, a property that will go dark May 16th. The Sahara hasn’t been any sort of destination since the Rat Pack roamed the Strip. But at the time the monorail project was hatched, the Sahara was owned by the late Bill Bennett.

Bennett is best known for turning Circus Circus into a money machine in the ’80s and 90′s before selling it. However, the Culinary Union will always remember him for feeding striking Frontier employees who picketed the Elardi family property for more than six years. Bennett is said to have spent $1 million a year feeding picketers.

“He was a giant in the gaming industry in town and for us he was unbelievable, especially during the Frontier strike,” said D. Taylor, a Culinary Union official. “One of the vital things that kept the strikers going was Mr. Bennett feeding them three times a day. You never forget that kind of generosity.” The Elardi family and their in-house labor counsel haven’t forgotten him either.

The monorail never cash flowed, being 10,000 riders a day short of the number needed to break even. And something always seemed to go wrong, such as wheels falling off and riders being injured when the brakes locked up.

“The Las Vegas Monorail Co., a nonprofit organization, filed for Chapter 11 bankruptcy in January 2010 after coming nowhere near close to being able to repay tax-exempt revenue bonds issued through the Nevada Department of Business and Industry in 2000,” Rich Saskal wrote for The Bond Buyer in February.

Now a reorganization plan has been filed by the company “that would wipe out more than 90 percent of its $658.8 million debt but leaves hurdles to continued operation until the end of the decade,” writes Tim O’Reiley for the Las Vegas Review-Journal.

Even with the debt slashed by 90 percent, the monorail will not generate enough cash to service the remaining debt and cover needed refurbishing of fare collection equipment and platform doors estimated to cost between $23.1 million and $77.5 million.

“From 2007 through 2010, revenues dropped 25 percent to $23.6 million in operating income slumped 65 percent to $4.3 million,” writes O’Reiley. “Passenger counts went down by a third to 5.2 million.”

If the project seemed dicey more than a decade ago, at least the bonds were insured against default by Ambac Assurance Corp. However, Ambac itself filed Chapter 11 Bankruptcy on November 8th of last year. Las Vegas Monorail bondholders are prepared to accept $111 million and release Ambac Assurance Corp. from its exposure to the defaulted bonds.

Bill Bennett passed on in late 2002. The Sahara will go in a couple weeks, and the monorail looks not to be far behind. Plenty of D. Taylor’s Culinary Union members remain idle and the LVCVA has had to cut back. Its furloughed union workers want to be paid for the days they were laid off and refuse to negotiate for pay cuts.

Casino Royale still packs in gamblers, offering the best gaming value on the Strip, and Sheldon Adelson was paid $11.4 million last year. His family’s stake in Las Vegas Sands is currently worth $20.5 billion. The Elardi and Adelson properties remain non-union.