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July 1, 2015

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MEMO FROM CARSON CITY:

Why $2.2 billion a better estimate of state’s deficit

Andrew Clinger

Andrew Clinger

Sheila Leslie

Sheila Leslie

Instead of providing clarity, the Economic Forum’s ruling on how much money the state can spend over the next two years set off an even more heated debate on the actual size of the budget deficit.

On one side, there’s Gov.-elect Brian Sandoval and conservatives who say the state has a deficit of $1.2 billion.

On the other side, Democrats and advocates for maintaining current government services say the deficit is $3 billion.

The real number is somewhere in between, about $2.2 billion, according to a Sun analysis.

The budget office, which is supposed to be an impartial authority in such matters, said in October that the deficit will actually be $3 billion. That figure reflected the cost of maintaining government service levels and ending the state worker furloughs initiated in 2009, set to expire in 2011.

Both sides have accused the other of using fuzzy math to further their ends.

“This is clearly the spin coming from the governor’s office to minimize the budget hole, so he can maintain his no-new-tax pledge and convince the public that the problem isn’t as big,” state Sen. Sheila Leslie, D-Reno, said.

Heidi Gansert, Sandoval’s future chief of staff, said it’s wrong to assume that government services will automatically go up in cost.

“The numbers are the numbers,” she said.

But numbers inevitably take on political tinges. They can be manipulated in multiple ways to make a point.

So how big is the state’s money problem?

It’s likely somewhere between the two figures being tossed about — probably about $2.2 billion. In an ideal world people would have the facts before forming opinions, so here’s the math both sides use to bolster their positions, plus why the actual number is likely somewhere in the middle.

$1.2 billion

Sandoval’s team, including state Budget Director Andrew Clinger, on Thursday issued the latest on the state’s financial position. Including some leftovers from the current budget, Clinger said the state will have $5.46 billion to spend.

On the spending side, Sandoval’s staff made some assumptions, including:

• Ten percent cuts in all state agency budgets, which the budget office requested in October. That’s worth $820 million.

• A cut in the Nevada System of Higher Education of $175 million.

• A savings of $480 million by extending furloughs and pay freezes for state workers and teachers.

The problem with that number? The 10 percent cut in state agencies is no slam dunk.

In fact, Sandoval has ruled out some cuts proposed by agencies to protect “the most vulnerable people,” Gansert said. For example, personal care attendants for the elderly and disabled, which cost the state $55 million, would not be cut, she said.

But for every “ugly” cut that Sandoval objects to, his team will have to find a cut someplace else. The university system will protest a $175 million cut, which would likely mean higher tuition and the elimination of more programs.

$3 billion

The Economic Forum projected the state will collect $5.3 billion in taxes over the next two years, assuming that the tax increases passed in 2009 expire. Meanwhile, state agencies said in October they need $8.3 billion to preserve services, according to the budget office.

That figure assumes a loss of $600 million in federal stimulus funding; declines in sales and property taxes will cost school districts $551 million; and furloughs and pay freezes for state workers and teachers end.

The problem with that number? The governor and lawmakers will likely extend the furloughs or some other salary savings. That translates into an easy $480 million cut.

Plus, Clinger said the state budget outlook has improved in some respects — such as people applying for Medicaid or unemployment.

Why the truth’s in the middle

The $480 million savings from furloughs and pay freezes is virtually assured to be extended. So we can subtract that from the $3 billion.

The state has made new projections improving the budget outlook, further reducing the number. Still, the 10 percent ($820 million) cuts Sandoval is including seem a generous assumption — especially considering such a proposal will have to make it through the Legislature.

Same goes with the $175 million cut in higher ed. Students, faculty and school boosters won’t let that happen without a fight.

So add back that combined $1 billion in proposed cuts to Sandoval’s number. That leaves a $2.2 billion deficit — and tough decisions for legislators and the governor to make.

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