We began the session in a huge hole dug for us by Governor Sandoval’s recommendation that we be cut 29 percent below the current level of funding, which the governor justified in his State of the State speech by arguing that the Nevada System of Higher Education had "failed."  That sentence in the State of the State speech is still very galling to think about, given that we have one of the smallest faculties in the nation on a per-capita basis, doing a solid job of delivering education to as many students as possible. The governor also had suggested that the budget hole should be filled entirely by tuition increases and salary cuts.

To cover the $162 million which he proposed to cut in state support, student tuition and fees would have had to be increased by 73 percent or faculty and staff salaries across the board would have had to be cut by more than 60 percent. Neither was a reasonable option and both were dismissed out of hand by the regents.

Put clearly, it was no exaggeration to say that this budget would have pushed the System into dire financial straits, likely a declaration of exigency, and certainly the termination of dozens of degree programs, possibly hundreds of tenure-earning and tenured faculty, and a drastic reduction in the numbers of students who would be enrolled into higher education  – up to 20,000 per year. Closure of sites and even entire campuses were rumored to be under consideration.

No one felt very good about these prospects for most of February and March.

The System responded in April by proposing an alternative – voiced by Chancellor Dan Klaich and supported by the regents, campus presidents, student leadership and faculty leadership – that was well-received and ultimately supported by the democratic leadership in the legislature, notably Assembly Majority Leader Marcus Conklin and Senate Majority Leader Steven Horsford and Democrat members of both money committees.

That plan included a willingness by NSHE to make massive cuts in exchange for some matching support from the State, plus tuition increases that would in amount match the permanent cuts and the contribution by the State. It was a 40-40-40 plan, which meant that NSHE institutions would agree to cut $40 million each year from current operating levels, in exchange for $40 million above the governor's recommendations from the State, plus tuition increases that would, by the second year of the biennium, total about $40 million per year.

Another element of the plan was what was called “smoothing” which mean that NSHE institutions would take a larger than proposed cut in the first year of the biennium in exchange for a smaller than proposed cut the second year. This element was agreed to, and will have the effect of having the base budget for NSHE about $35 million higher at the end of the second year of the next biennium than would otherwise have been the case.

Overall, this plan means that NSHE will be cut a bit more than 15 percent for the coming biennium, which is a great improvement over where we started the session, but still is a very sad state of affairs with many implications for higher ed in Nevada, and for economic diversification as well. And it is by far the largest cut of any entity for which the State has funding responsibility.

While the Four Point Plan was somewhat successful in communicating an idea of shared sacrifice, it represents a reality forced on NSHE by the huge cut in state support proposed by the governor. That reality is that this was a plan to administer real cuts and to impose significant fee increases on students – predicated on a significant increase in state support above the huge cut proposed by the governor. As we stated at the time, it represented real "shared sacrifice by students, staff and the state."

Since this plan involved an additional 15-percent cut in state support for NSHE in 2011-2013, on top of the 20-percent cut in the current biennium (2009-2011), it left no margin of reserves on which to draw to cushion any additional cuts. Any cut above the proposed plan would mean loss of programs, faculty and staff positions, and student educational opportunities due to caps in enrollment and reduction in classes, degree programs, and departments.  

In this respect, the financial integrity of the Four Point Plan, and the principle of shared sacrifice among staff, students and the state, was unexpectedly undermined when the joint budget committees voted to disallow the second year half of the proposed fee increase – which NSHE student leadership had supported! When the committees originally adopted this cap on student fee increases of 13 percent, it was in the context of $20 million more in state support than the final budget close (in effect, substituting state dollars for student fees) and in what appeared at the committee hearing to be a mistaken belief that the System was holding sufficient reserves to prevent any further cut in academic programs should total state and student support be reduced.

This strange turn of events could leave NSHE institutions having to cut even more deeply into academic programs – and thus into faculty and staff lines – than had been proposed in the Four Point Plan. The NFA will urge the regents to make every effort to ensure access for students and keep college affordable, but also to balance the cost of removing the second year of tuition increase from the Four Point Plan. (Doing so, for instance, will result in another $5.5 million cut from academic programs at UNR and $8.4 million at UNLV, as the largest examples.)

NFA has urged the legislative leadership to recognize the autonomy of the regents to determine whether a second-year tuition increase will be necessary to avoid even deeper cuts to academic programs and student opportunities. Since 15 percent of all fee increases are set aside for in-state need-based scholarship aid, and federal and state financial aid will further account for some of this increase, an increase in fees will be less drastic on student opportunities than closing or capping programs.

By now, all know that the Supreme Court finally intervened a week before the session was to end, and forced a dramatic change in plans for both some of the Rs and, most importantly, by the governor.  While it is hard for some of us to forget the early claims of the governor in the State of the State speech that the System had "failed," we should be grateful that in the end, the governor did not, after the Court decision, decide to cut even more. Instead, he admitted that deeper cuts to education would harm the state irreparably and agreed to allow most of the sunsetting taxes to be renewed for another two years.

So, we ended up with the Four Point Plan approved in principle (though still needing clarification in execution). We are now learning what this means on  each campus, but in general terms, it will mean somewhat fewer than 1,000 faculty and staff positions will have to be eliminated and somewhere between 7,000 and 8,000 students across the state will be denied access to courses that they need each year of the biennium.

In brief, although we all realize that “it could have been worse,” it is difficult to celebrate this outcome very enthusiastically.

Other issues from the Session:

• See http://www.leg.state.nv.us/Session/76th2011/Reports/TablesAndIndex/2011_76-index.html for a complete listing of the dozens of bills introduced that dealt with NSHE institutions and operations. Look under NSHE. Here are a few highlights worth noting.
• The much-needed bill to do another formula study (which had been requested for the past several sessions), SB 374, passed, and this important project will move forward. The committee will have three senators, three assembly members, three regents, and seven people appointed by the governor (three voting members and four non-voting members).
• The much-discussed bill to loosen oversight of concealed guns on campus, SB 231, passed the Senate but failed to get out of the Assembly Judiciary committee. NFA and the System took a strong position against this bill, as did law enforcement throughout the state. But the bill also had strong proponents and the NRA was always lurking in the background. This was a good win, and we thank the members of the Assembly Judiciary Committee, especially chair William Horne and vice-chair James Ohrenschall, for giving a full and fair hearing of the bill.
• The Millennium Scholarship Program, facing elimination until the final days of the session, was funded through 2015, with approval of the Sandoval recommendation of an additional $10 million in the fund, to complement the $7.6 million per year from the Unclaimed Property fund and the money coming from the tobacco settlement. This is a rare bit of good news for Nevada students!
• The regent redistricting plan developed by the NSHE staff, led by Scott Wasserman, also passed and will be signed by the governor – the only redistricting plan to this point which will become law.
• Some of the more than two dozen separate budget accounts were consolidated in ways that should make managing the budget cuts somewhat easier. Also, the regents were granted more authority to move money among budget categories.
• However, SB 434 sat in Senate Finance until the last day and failed to gain approval in the Assembly. This bill would have allowed NSHE institutions to retain funds not spent at the end of the fiscal year instead of having to spend or revert them. Also, the bill would have gotten NSHE out from under the control of the Public Works Board, which would have saved money and time on NSHE building projects. Sad to lose this one, but it died.
• The arena bill to help fund for a large sports arena in Las Vegas came too late, and died. UNLV had a great deal of support for its privately-funded proposal to construct an arena on campus and reconstruct Thomas & Mack into a student services center, but failed to overcome the issue of three separate arena proposals fighting for the right to move forward with development.
• Perhaps one of the oddest bills was AB 449 that was supported by both parties in the legislature, by the business community,  and by the governor. The bill was designed to promote economic diversification in Nevada, and was modeled after such efforts in Utah. However, Utah funded this effort with more than $24 million per year. The Nevada Knowledge Fund created by this bill – designed to allow the two universities and DRI to compete for funds that would foster economic development – originally was slated for $8 million per year from the two universities and DRI but ended up with no funding at all! Thus, the Knowledge Fund will be, for the coming biennium, more symbolic than real in its effects.
• AB 128, sponsored by Assemblyman Paul Aizley, to limit smoking on campuses, did not reach the floor of the Assembly. However, campuses will of course be able to consider tobacco-free programs on their own initiative.

Pay and Benefits

The news is not too good on this front either, although, again we can take solace in knowing that it could have been worse. The governor originally proposed a straight 5-percent cut in salary for all employees of the State, but the legislature did not agree and worked out a compromise that is slightly better, for which we are grateful.

All employees, including tenured professors, will take a 2.5-percent pay cut, plus they will be required to take 48 hours (six working days) worth of furloughs, which means another 2.3-percent pay cut. The benefit of the furlough is that the pay should revert to only a 2.5-percent cut after this biennium, and retirement benefits will be paid on the 2.3-percent cut resulting from the furloughs. At the same time, the merit pool from which performance-based pay enhancements have been allocated in the past, was not funded again. Thus, NSHE professional employees will see a third and fourth consecutive year pass with no cost-of-living increases, performance-based pay increases, or step increase (at the colleges.) Higher education faculty and staff compensation in Nevada will thus fall even farther behind national averages (according to no less than the Las Vegas Chamber of Commerce), and we will need to fight hard to make sure the merit pool is reinstated in the near future to keep our state competitive for the best research and instructional talent.

The governor also proposed major changes in health benefits offered through PEBP that went far beyond what the PEBP Board had already been forced to do based on directives from the State Budget Office. AB 553 would have cut retirement subsidies for all future hires, frozen current employees with the current years of service for purposes of subsidies upon retirement, and also cut the subsidy level for many part-time employees significantly (60 percent of the subsidy for those working between one-half and three-quarters FTE). NFA and others worked hard to defeat this bill and succeeded with two of the three items. Future hires will see no subsidy for their health care upon retirement unless future legislatures change this provision.

As you all know by now, PEBP has been changed dramatically effective July 1, with Medicare eligible retirees being shifted off PEBP and into the private market, but with a modest subsidy, something NFA and others fought for very hard. Also, active employees on PEBP will have a new high deductible, no-co-pay plan that is called “consumer driven.” The only part that makes this at all palatable is the establishment of the Heath Savings Accounts (HSAs) for those employees (and somewhat similar accounts, HRAs, for non-Medicare retirees). PEBP will place money in the HSA each year and employees can add to those account through payroll deduction. This money will accumulate each year if not spent and thus represents an opportunity for individuals to save for future health expenses. Faculty members can add to their HSA through payroll deduction, and should consider doing so as a way to save for health related costs in the future.

In conclusion, we can only hope that in the coming biennium, the state economy will stabilize and, more importantly, a consensus will be forged on the need for revenue reform and on adequate funding for quality, affordable higher education. Only if that happens will the next legislative session provide an opportunity to start the rebuilding process for higher education in Nevada.

The agreement reached yesterday by Governor Sandoval and Democratic leaders sets state general fund support for NSHE at the level approved by the legislature on May 24  – which is to invest in the Nevada System of Higher Education an additional $40 million more each year of the biennium than the governor had originally recommended and to replace the $120 million in Clark and Wahoe County property tax revenues with general fund dollars. This means that instead of the original 29-percent cut in state general funds  proposed  by the Governor, the cut will be 15 percent from the 2009 level.

Make no mistake: This is a still a very severe budget cut; the largest of any state agency. And it comes on top of the 20-percent cut from state support in 2009-2010.

The agreement means that the NSHE Chancellor and Regents’ “four point plan” was accepted in large part, so the proposal bore fruit, and offers a guide about how NSHE and its institutions can proceed with restructuring and operating over the next two years.

Things certainly could have been worse, as we all know, but they also could have been better. Fifteen per cent is still the largest  budget cut on any entity for which the state is responsible, and hundreds of faculty and staff positions will still be cut, permanently, though we have some hope that through careful budget planning by administrations (in consultations with faculty leadership) the number of outright layoffs on each campus should be greatly reduced from the worst-case scenarios we have been planning for.

Still, many educational opportunities will be lost for students, thousands of whom will not be able to get classes they need, and student fees will still have to be increased markedly – perhaps as high as 28 percent over the biennium.

Four-Point Plan

NSHE's four point plan has not been widely reported upon and may not have been well understood , so it is worth reviewing the key points here. It is based upon a principle of shared sacrifice among state, students and faculty, and all four points are equally important to achieve fairness and financial stability.

Part one was the “smoothing” that has been discussed, whereby the budget cut is larger in the first year (requiring some internally developed “bridge” funding) and resulting in there being about $35 million more in the base budget at the end of the second year than the governor originally recommended. The smoothing was approved in the budget closing, and was included in today’s budget deal.

Part two of the plan involved a commitment from the Chancellor that NSHE campuses would make a total of $40 million in permanent reductions in operating expenses each year of the next biennium. This means we will have to consider, on a campus-by-campus basis, program reductions, loss of positions and potentially further layoffs. This will be necessary even with the level of funding in the final agreement. But the cuts will have to be deeper if the other points are not adopted as well.

Part three included significant additional contributions from students in the form of additional fee increases of 13 percent each year of the biennium, which amounts to a total increase of 28 percent over 2007 levels. This is a steep increase, but a necessary one. After roughly 15 percent of additional revenue is set aside for financial aid, this point would generate an estimated $21 million in additional revenue in fiscal year 2011-2012 and then an additional $43 million the second year, as the two separate tuition increases were to be compounded. The student leadership agreed reluctantly to support this increase, in an effort to save jobs, classes, and entire programs, and the student leadership reiterated that support in a letter to legislative leaders this week.

However, the closing documents approved last week included only the first 13-percent increase, which the budget committees had voted to cap at a time when they were voting to add back $100 million in state funding – thus covering the hole. Also at that time, the budget committees made clear their intent that a cap in student fees should not result in additional cuts to instructional programs (and thus deeper faculty layoffs), as they were under the impression at the time that NSHE had adequate uncommitted reserves to cover this hole.

In fact, a cap on student fees – as desirable as that might be – still leaves a significant hole in the NSHE budget and shifts the balance in the four-point plan from shared sacrifice to steeper cuts in faculty and staff and thus in instructional programs.

We have urged legislative leadership to reflect the full intent of the budget committees in their communications to the regents, and NFA will call upon the regents to exercise their constitutional autonomy and revisit this issue at their June 16-17 meeting, as they will have to balance the desire to limit fee increases against the impact this loss of funds would have on instructional programs on our campuses. A rough estimate is that the loss of those funds could mean up to 200 more people losing jobs System-wide.

Part four of the Plan was that the State would put in $40 million additional funding each year. This funding is apparently included in the agreement reached yesterday, and for this, we all should be grateful.

Still, the budget includes significant additional sacrifice from faculty and staff:  All faculty and staff will see a 2.5-percent salary cut, plus a 2.3-percent cut in pay due to a six day per year unpaid furlough. Retirement contribution will be paid on the 2.3-percent portion, but not the 2.5-percent salary cut. And the 2.5-percent salary cut will be reduced from base pay. And there will be no COLA or merit pay for another biennium.

There are other aspects of the NSHE budget closing which are worth noting, such as consolidation of accounts, which should give greater authority to campus presidents to prioritize instruction moving forward.

Importantly, there seems to be agreement for the legislature to fund a study of NSHE funding formulas during the interim, an important goal for the entire system.

Some issues remain unresolved. One is the Millennium Scholarship funding, which has yet to be approved. If what the governor recommended is not approved the fund will run out of money within months, which would be a severe problem for many students seeking an education.

Also, the Knowledge Fund that is in AB 449, the economic diversification bill, still has no funds. We can only hope and assume that someone has a method of infusing some funding apart from forcing NSHE institutions to produce the funding needed.

Finally, there are still bills outstanding that would allow NSHE campuses that do not currently maintain reserve accounts to retain year-end money and/or establish a rainy day fund.

Health benefits

PEBP will be cut severely, an action we have long opposed. The element added in yesterday's agreement is to make any staff or faculty (or other state public service workers) hired after January 1, 2012 ineligible to earn any credits at all towards retirement subsidies for health coverage after retirement.  Those individuals will have to rely on personal resources to participate in PEBP or anther health plan after retirement. During their working lifetime they would be expected to accumulate funds in their health savings account for use in their retirement years for health care.

Other PEBP issues were approved as presented by the PEBP Board, so the plan will be considerably different this coming biennium, and Medicare eligible retirees will be shifted off PEBP into the private market, but with at least a modest subsidy.

As the legislature approaches the final days of its 120-day session, the back-and-forth and political positioning around the budget has become both more intense and less worth detailed reporting. The overall situation has changed very little; the System of Higher Education and each of its campuses are certain to sustain significant reductions in state general fund support.

The impact on students, faculty, staff and the state will be painful in ways that have been well-established for months. No one, at any level, should be under any illusion; the outcome will be a step back for Nevada.

The specific form of that detrimental impact will be determined, finally, at the level of the Nevada System of Higher Education Board of Regents (likely at its June meeting) and on each campus – and the NFA will be an active, vigorous and responsible advocate for faculty when those decisions are made. 

In the legislature, the magnitude of cuts and the structure of higher ed financing remain to be determined.

Several important questions seems settled already, and it is worth keeping these realities in mind before entering into any discussion of the legislative "end-game" so hyped by journalists, but which is very unlikely to change any of the following:

• It is near-certain that all NSHE faculty and staff will sustain a 4.8-percent reduction in take-home pay from 2009 levels and some portion of this reduction (at least 2.5 percent) will be a permanent reduction in base pay, with corresponding reduction in retirement contributions. 
• It is even more certain that health coverage for all faculty and staff will be significantly scaled back; and that the premiums, deductibles and co-insurance paid by faculty and staff and their families will rise significantly for all plans, increasing out-of-pocket costs by at least $1,000 for individuals and $2,000 for families – beyond the already increased out-of-pocket levels of the last two years.
• Access will be reduced significantly for students, thousands fewer of whom will be able to enroll each year on all campuses (including open-access colleges). For those who are able to enroll, fees will almost certainly increase 13 percent for the coming year and stand a high likelihood of increasing another 13 percent for 2012-2013.
• Academic programs will be eliminated at UNR and UNLV, with the near certainty of faculty being issued terminal contracts (i.e., laid off, effective July 1, 2012) and with the very high likelihood, based on what we know now, that this will include tenured faculty. Faculty layoffs through program review have also been announced by the Western Nevada administration.

Now, as for legislative action of the week:

On Tuesday, as widely reported, the Democratic majority effectively abandoned the compromise budget alternative it had proposed three weeks earlier. That proposal combined significant cutbacks in state spending and significant reforms in state and local government  operations with significant long-term reform of the state's broken revenue structure. For NSHE, this meant that the roughly $100 million in state investment that had been restored as part of that compromise proposal (leaving cuts of $60 million for the coming biennium, thus a total reduction of close to $150 million in state support since 2008) was reduced.

The result was a proposal to cut state investment in higher education for the coming biennium by $80 million, with that hole to be filled by both additional student fee increases and reduced access and program cuts (including layoffs) on campuses. Presuming some unresolved issues concerning how student fees are to be calculated get worked out, and that shortfalls in county property tax revenue will be covered by the state, this proposal closely resembles the revised "4-point plan" proposed by Chancellor Klaich and endorsed by the Board of Regents more than a month ago.

But while the Democratic majorities in both the Assembly and Senate supported this compromise-of-a-compromise, it does not represent a real compromise in the ordinary sense of the word – because the Republican caucuses in both houses still refuse to accept a continuation of current tax rates and are insisting on a roll-back of business and sales taxes to 2007 levels. Because current tax policies enacted in 2009 are set to expire on June 30, 2011, some Republicans must vote to retain current policies for even the compromise-of-a-compromise budget to pass. 

So to resume, the only question that really remains to be decided by the legislature is in the hands of the Republican caucus: Do they support the Governor's proposal, which has become known among higher ed leaders as the "full pain path" (also referred to by some as "burn it to the ground") and whose impact on the state's future has been well documented and decried by students, faculty, and business leaders for months.

Or do they support what they say they have sought: educational reforms such as performance reviews for individual faculty and for degree programs (which are standard operating procedures on all NSHE campuses); reductions in operating expenses; culling of low-yield programs (which have been done at NSHE to a more significant extent than at any public or private entity in the past two years, and are certain to continue for the next two to four years); and higher output of degrees and certificates (which is the case for almost every campus for the past several years).

In short, if the Republicans really want reform, the time has long since passed to stop holding the state's future hostage. And Democrats ought to stop negotiating with themselves, declare that enough is enough, and simply wait for their colleagues to join them in passing a budget that – in all honesty – does little to move the state forward but at the least slows our relative rate of economic and educational decline.

Dear NFA Members:

Thank you for participating in the NFA State Board officer election, and a special thanks to the candidates who have and will continue to contribute to the functioning of NFA. Please note that the elected officer is highlighted with the percentage of the vote cast for each position. Percentages have been rounded and based on a total of 142 votes.

Scott Huber, NFA State Board President
 
President:
Greg Brown-60%
Sondra Cosgrove- 40%

Vice President:
Angela Brommel- 100%

Secretary:
Dorothy Chase- 38%
Janet Usinger- 12%
Leah Wild- 50%

Treasurer:
Eric Hutchinson- 40%
Shari Lyman- 60% 

Editor's note: This message was originally sent to constituents by the Nevada State Assembly Speaker and Senate Majority Leader on Thursday, May 19.

As Nevada's budget crisis looms, we're working to bring people together to find a balanced approach that will position Nevada for success.

For too long we've struggled to fund our schools and the reforms we need to improve student achievement. We've suffered through cycles of boom-and-bust because our tax code is so narrow and its revenues so unpredictable. We've let our colleges and universities - the engine of our economy - falter even as more Nevadans seek job retraining in the tough economy.

Meanwhile, Governor Sandoval has failed to look for common ground. He's out of touch, and adopting his extreme position works against job creation and would sacrifice a generation of students. It's the Jim Gibbons approach all over again - and we know that won't work.

Our legislators need your help. We will only find a compromise approach to the budget if you raise your voice. Will you email or call these key legislators and tell them to make only strategic cuts and reform our tax code to make it stable and sustainable? Tell them we need reform, but we need a tax base that's stable enough to support it. That's how we end the boom-and-bust cycle and position Nevada for success.

Take action NOW. Email these key legislators and make your voice heard. Grassroots action will turn the tide, but it will only happen if you participate.

Thank you,

John Oceguera, Assembly Speaker
Steven Horsford, Nevada Senate Majority Leader

Legislative switchboard: 1-800-995-9080

Joe Hardy (R) jhardy@sen.state.nv.us
Mike McGinness (R) mmcginness@sen.state.nv.us
Dean Rhoads (R) drhoads@sen.state.nv.us
Ben Kieckhefer (R) bkieckhefer@sen.state.nv.us
Pat Hickey (R) phickey@asm.state.nv.us
Pete Goicoechea (R) pgoicoechea@asm.state.nv.us
Lynn Stewart (R) lstewart@asm.state.nv.us
Ira Hansen ihansen@asm.state.nv.us
Randy Kirner rkirner@asm.state.nv.us

The closing of the budget for the Nevada System of Higher Education by the joint budget committees in the state legislature yesterday turned out to be a partial closing, with much decided, and one major issue left hanging – how the state will generate the revenue it needs to fund this essential investment in higher education.

Generally NSHE fared well with the decisions, with $100 million in General Fund dollars added back to NSHE budgets. This includes the $20 million recommended by the Governor. These funds would be distributed using the proportional distribution figures included in the Governor’s budget, which means the funds would be allocated following a flat enrollment assumption that relies on current base budget figures. There were a couple of additional small increases as equity adjustments: $1.5 million to CSN and $600,000-plus to TMCC. (This is on top of the $100 million, and came from a major correction concerning funds for health coverage part-time faculty, mainly in the Medical School.)

Legislators approved a key part of NSHE's four-point plan, its request to “smooth” the budget cut over two years. This will have the effect of leaving the base budget at the end of the second year about $35 million higher for the System than what the governor originally  proposed. One major change from NSHE's proposal was the rejection of a second-year, 13-percent tuition and fee increase. This decision will force NSHE institutions to find an extra $22 million the second year of the biennium – funds that will apparently have to come from capitol improvement funds on campuses or some other source. A decision was made to allow retention of 100 percent of the tuition and fee increases to count toward the general fund allocation for NSHE.

The committees voted to suspend the funding formulas for the next biennium again, and also to have another interim study to revamp the current formulas. Chancellor Klaich pledged to send the committee a copy of the internal study that the System recently conducted. A vote was taken to consolidate a number of accounts into the two universities' instructional accounts, and the main System Administration account. This means that the regents and institutional administrations will be able to mange available funding better, and it takes the Legislature out of some specific funding decisions. The committees also approved allowing movement of funds among those remaining budget accounts, with the approval of the Legislature’s Interim Finance Committee.

New space that has been completed recently on the campuses was added to that included in the formulas for O&M, which was a good result. And the transfer of the Fire Science Academy to the Military was approved, with implications of some funding for UNR when this is finalized by Congress.

Thursday morning, Senator Hosrford clarified that the nearly $120 million of the proposed property tax transfer from the two large counties to the two universities, which the Governor had proposed, would be replaced with state general fund dollars, in the version of the budget that goes to the floor of the Assembly and then the Senate to be voted on.

Editor's note: On May 13, the NFA's Elliott Parker, of University of Nevada, Reno, made the following statement before the Senate Committee on Revenue in support of SB491, the revenue reform bill.

I came to Nevada from the University of Washington 19 years ago, and have become a proud transplant Nevadan. One thing I always appreciated about Nevada was the non-ideological pragmatism of its state government. The state motto is Omnia Pro Patria, to give all for the state. I thought you could vote for the person, not the party, since legislators and the Governor worked together for the best interest of the state.

Lately, I must admit to being disappointed. We have become infected by the national infection of excess partisanship. The motto seems to have been misread by many people, as Omnia Pro PARTY.

I am here to speak about the Margin Tax, but first want to discuss the context.

All governments need tax revenue. Those without state revenue don’t turn into a capitalist paradise, they turn into Somalia. It is no accident that Nevada is always mentioned alongside Mississippi and West Virginia.

Most taxes have negative consequences, but you have to consider also what those taxes are used to fund. All government agencies need to be well managed, to make sure they spend these tax revenues wisely, and there are certainly reforms we should be looking at to do that. Always.

But nonetheless, in general, what the state spends money on has both positive short-term and long-term effects that outweigh the negative effects of taxes.

In the long-term, the state provides public goods that benefit the economy. The state builds roads and schools, maintains law and order, provides an education and a public university to create a better educated workforce, and provides social services – since intervention generally costs less than crime and prison, and some people cannot fully take care of themselves.

Public education in particular is what creates an economic climate that attracts business. Good universities really matter. It is no accident that we are losing ground as a state to other states, and losing ground as a nation to other nations that are investing heavily in public education, while we dis-invest. How can we attract new firms to Nevada if they don’t trust us to educate their children, or to provide them an educated workforce? What kind of companies would come to Nevada otherwise?
In the short-term, both taxes and spending affect spending. Yes, raising taxes can reduce what people have to spend on goods from the private sector, but cutting state expenditures can reduce it even more.

My own research finds that even when you consider the negative effects of taxes, cutting public spending in a recession hurts the private sector more than a comparable tax increase. When the economy is booming, this is not a problem. But in a recession, cutting public expenditures affects private incomes, hurting the private sector even more.  People who lose their jobs no longer pay rent, a mortgage, eat out, et cetera.  We enter a downward spiral.

My estimates are that cutting state and local government expenditures by 10 percent, in a recession like the present one, could reduce Gross State Product by as much as 5 percent relative to where we could have been. We are bleeding the patient, and wonder why he is not recovering.

I heard a speaker recently arguing against these taxes, but I think he works for a major construction company. As a thought experiment, how would his testimony differ if he was told the state would no longer fund road construction or repair? We cannot be NIMBYs. We can’t count on always exporting our taxes to other people. We need to find taxes that we all pay, to provide what we need to provide for the good of the state.

As Bill Raggio keeps saying, first figure out what we need to provide, then find the revenues to provide it. Why are we doing this backwards?

Recessions are hard on states without mechanisms for significant savings. Revenues drop, needs rise, and in a long recession like this – the Nevada depression – all the state’s resources are slowly drained. But Nevada also has a structural problem that goes beyond this recession, and we never fixed it when times were good. Now that times are bad, we must fix it.

For many decades, we have been overly dependent on a narrow tax base. Gaming is no longer a Nevada monopoly, and as a share of our revenue it has been in long-run decline. The gaming tax rate may be low compared to other states, but we are so overbuilt and have so many casinos on the edge that we cannot afford to raise that tax again.

We also have a sales and use tax with many, many exemptions. We implemented this tax when gaming was dominant, and when other services were not such a significant part of our economy. It is also at a relatively high rate, when you add in all the county and city components. We need to end many of those those exclusions, and we should also reduce that rate.

But we first need to replace the revenue we have lost, and build back up our reserves before we do so. We need to create a broad-based tax, with a more stable source of revenue, that better reflects our economy. Low rates applied to many things are better than high rates applied to a few things.

No tax is perfect, but some are less imperfect than others.

The current Modified Business Tax applies to payroll, not other expenses, and exempts many types of businesses, big and small. While the rate is not burdensome, and the sunsetting increase from the last session was not a big deal, nonetheless we might not want to have a tax that increases the relative cost of labor.

Now, regarding the business margin tax.

Relative to a profits tax, which the vast majority of states have, it is a more stable source of revenue that would not decline as much in a recession. Anyway, some think a profits tax may be constitutionally difficult as a tax on income. I disagree, but I am an economist, not a lawyer.

It does not apply to firms with revenues of less than $1,000,000, so it won’t be a burden on little Mom & Pop shops. It does apply to more than just corporations, however. I am not sure why sole proprietorships are specifically excluded, since most of them would already be excluded by the $1,000,000 threshold anyway.

The rate is low, at 0.8 percent. That is a good thing in theory, though I worry that it won’t provide enough revenue. Some worry that this is the camel’s nose under the tent, but I would remind everybody that NRS limits general fund expenditures to the late 1970s amount, adjusted for population and inflation, so no tax can get too out of control. Anyway, that argument could be used against any tax, current or proposed.

Relative to a gross receipts tax, it provides firms three alternative ways to reduce their tax. They can deduct a fixed share of 30%, they can deduct their total employee compensation, or they can deduct their cost of goods sold. As best I can tell from the bill, the definitions are reasonable. Thus, the administrative burden for the firm will not be less than the savings from using one of the alternative methods.

Finally, I like the idea that this tax will replace the MBT after this biennium. It is not a perfect tax, but it is a better tax.

In sum, we should not hide our head in the sand and pretend that our state revenues are adequate for our public needs. This recession has stripped away our ability to kick the can down the road. We need replacement revenues, and we need a better tax structure than the one we have now.

The NFA's Sondra Cosgrove, of CSN, filed this report from Carson City, Monday, May 9.

The Joint Senate Finance and Assembly Ways and Means Committee voted to accept the Public Employees Benefits Program changes. There was spirited debate over these changes, but without any extra funding, there were few alternatives available. Two issues received the most attention: southern HMO participants subsidizing northern HMO premiums, and the number of sacrifices public employees are being expected to shoulder.

A number of committee members asked why the northern and southern HMO rates are being “blended.” The Executive Director of the PEBP Board stated that the Board felt it was an equity issue; that all employees should be treated equally. Assemblypersons Maggie Carlton and Marcus Conklin specifically rejected this argument and asked why participants are not paying only for the services they themselves receive.

It was explained that the HMO contract is more in the north than in the south, so up to now northern HMO participants have paid a higher premium than southern participants. Under the PEBP Board changes, the southern premium will be going up more than is warranted under the southern contract to keep the northern premium from going up even more. Some of the southern legislators (not all) voted to not allow this blending, but they were unsuccessful.

It was also noted that, in addition to these drastic changes to health, retirement, and life insurance costs, public employees also are being asked to accept a 5-percent salary reduction. Many committee members noted that this seemed to be a disproportionate share of the sacrifice, but without any other funding, nothing could be done to ameliorate this inequality.

A motion to send a Letter of Intent to PEBP Board asking them to review this item failed on a close vote. However, the PEBP Board has a mechanism to offer some temporary relief if it has the funding to cover it.

In addition, Governor Sandoval's plan to cut the health subsidy for part-time state workers – which would have affected higher education more than any other entity – failed in a close vote.

Candidates for office on the Nevada Faculty Alliance State Board of Directors have released their statements in advance of the election, which began today.

The following is a list of offices and the candidates who are running for each:

• President: Greg Brown, Sondra Cosgrove
• Vice President: Angela Brommel
• Secretary: Dorothy Chase, Janet Usinger, Leah Wilds
• Treasurer: Eric Hutchinson, Shari Lyman

Please click on the active links above to read candidates' statements.

Only NFA members can vote in the election. They can do so by registering a vote with NFA Secretary Mary Philips. Voting will end Monday, May 16, at 5 p.m. Winners will announced Tuesday, May 17.

Since the Economic Forum released its revised revenue projections on Monday, May 2, two plans have been released, a revised one by the Governor that focuses only on cuts to public services, and a new one by the Democratic majority that balances revenue reform with spending cuts.

On Tuesday, the governor reiterated his commitment to cut the state's budget rather than raise taxes. He relied on the logic that, if we do nothing, the economy and our budget problems will fix themselves. On one hand, the governor touted our economic growth as a means to fill holes resulting from his proposed cuts; on the other hand, he said the economy is still too weak to reform our current boom-and-bust revenue structure.

That is not what the Economic Forum heard from analysts who gave their testimony on Monday, nor is it what history tells us.

What the Economic Forum actually heard from analysts was that gaming revenues will never return to their previous levels, because Asian gamblers can now go to Macau, and American gamblers can gamble in their own backyards due to the spread of gaming throughout the U.S.  (Moreover, as we learned from a story today from the Nevada News Bureau, gaming companies contribute more in Pennsylvania and several other states than they do to their home state of Nevada.)

The Forum also heard that high paying constructions jobs will not return for a very long time, if at all, because the state is over-developed. It also heard that mining is making record profits due to gold selling at a record $1,500 an ounce. Barrick Mining is so profitable that is is able to bid on reserves in China at inflated rates – effectively moving Nevadan's treasure to China to secure its future profit rather than our state's future.

We need a tax structure that recognizes this new reality. Today, one is being presented by the Democratic leadership in the legislature as part of a budget alternative. This plan still involves significant cuts to services such as higher education, but it is a balanced approach, combining necessary cutbacks with a fairer, more equitable revenue policy.

Because it includes a plan to scale back the payroll tax, the Democratic alternative helps promote employment in the private sector, while providing the basis for adequate investment in our needed public services, such as higher education.

It is a plan to step out of the boom-and-bust cycles of the past to secure a more stable and prosperous future for our state.  

This plan delays the sunset provisions built into the 2009 revenue package – in effect, it is not a tax increase, but rather a decision not to cut taxes. Governor Sandoval’s assertion that not sunsetting the 2009 revenue enhancements is tantamount to raising taxes, and thus harming our chances for recovery, belies an important fact: Even with taxes at their 2009 levels, Nevada currently has one of the nation’s lowest overall tax rates, which has not lead to economic growth.

We call on all legislators to put aside ideologies and political agendas and come to the table now to govern – to find a sensible, compromise solution based on the very realistic and pragmatic plan presented today. Las Vegas Review-Journal columnist Steve Sebellius called the Governor's "cut-our-way-out" plan "faith-based economics," not a realistic plan. The legislature now has a realistic plan before it to discuss, and it should do so.

For higher education all of these issues are extremely important. Over the past 10 years, the Nevada System of Higher Education has grown exponentially, taxed its students by raising fees and taxed its employees by cutting their pay and benefits and increasing their workload. Yet all our efforts have only netted the System an extra $20 million under the Governor’s revised plan.

All we have left to cut are faculty jobs, rural sites and centers, and whole institutions. If we lose any of these remaining assets, Nevada will no longer have a complete system of higher education. We will go back decades to a time when students struggled to find complete programs, at reasonable prices, in-state.  In other words, we’ve grown and cut all we can without causing the state long-term harm and doing further damage to our quest for economic diversification by eliminating the educational institutions and programs that smart business leaders want and need.

At the Economic Forum meeting, more than one analyst cited the loss of public sector jobs as a potential drag on economic recovery. They noted that both increased visitor rates and increased spending by locals have to kick in before we’ll get out of this hole. But if you cut just as many public jobs as the private sector is creating, you end up with a net zero gain – especially in light of Nevada already having one of the lowest proportions of state workers to population of any state.

And consider this in the bigger picture: If you decimate higher education to protect business, you will also end up with a net-zero gain. Indeed, you will lose, because the businesses we want the most to protect and attract will avoid the state at all costs.