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October 25, 2014

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Good state budget planning can help build a strong economy

Accustomed to finding the Silver State at the top of all the “bad” lists, Nevadans may be pleased to learn that the state ranks sixth in the nation in the effective use of budget planning tools. A new report by the nonpartisan Center for Budget and Policy Priorities (CBPP) found that Nevada has built a strong foundation of budget planning tools. Decision-makers have implemented many best practices that make the budget process professional and credible.

For example, revenue estimates for the state are calculated by an appointed, independent body called the Economic Forum. The governor and legislature must use these estimates in the budget process. In addition, the nonpartisan Fiscal Division of the Legislative Counsel Bureau provides analysis to both the Senate and Assembly. Fiscal notes are also prepared by state and local government staff to estimate the cost of each bill with a fiscal impact. Nevada also has a well-designed rainy day fund to weather tough economic times and has limitations on issuance of debt.

The CBPP study identified several areas where Nevada can make key improvements to build a stronger economy over the long term. Nevada’s budget does not currently include multiyear forecasts of revenue and spending. The Silver State also lacks independent review of pension assumptions methods and investments. Implementing these tools will help Nevada take a long-term view of its future workforce, population, and infrastructure needs.

Nevada also has many “tax expenditures,” which are tax credits, deductions and exemptions that reduce state revenue. While some tax expenditures have sunset dates, others do not. CBPP recommends that states require reports on tax expenditures to ensure that the impacts are reviewed on a regular basis. Nevada’s leaders are taking proactive steps in this direction. In the 2013 legislative session, a bill was approved that requires a report on tax expenditures every two years beginning in November 2014.

Still, any observer of Nevada’s budget process would argue that there is room for improvement. Trying to decipher Nevada’s proposed budget is no easy task for the layperson. Budgets often reflect the structure of state departments, not the activities each department performs. During budget hearings, legislators laboriously trudge through individual line items for several months. In addition, performance indicators in the budget have traditionally measured service levels but not outcomes.

But there are some promising efforts on the horizon. Since 2011, Gov. Brian Sandoval has been working on incorporating performance-based budgeting into the budget process, with the goal of tying budget resources to performance measures and outcomes. For the 2015-2017 biennial budget, the Department of Administration plans to implement a pilot program for major budget initiatives that will track whether the initiative accomplished its stated purpose or goal and whether the agency providing services has met its performance measures. The department is also developing the capacity to organize the budget by activity instead of by line item, and to tie expenditures to each revenue source.

A subcommittee of the Interim Finance Committee is also exploring whether Nevada should join the Pew-MacArthur Results First Initiative, which is working with more than 14 states to implement a cost-benefit analysis to help them invest in policies and programs that provide the greatest return on investment. The services of the Results First Initiative are free, but Nevada would need to dedicate staff to collect data and implement the model.

Nevada’s efforts to implement performance-based budgeting and cost-benefit analysis complement the budget planning tools recommended by the CBPP study by helping lawmakers make informed, responsible budget decisions. Fully implementing CBPP’s recommended budget planning tools is vital to Nevada’s economic future. Long-range planning and budget safeguards can help reduce uncertainty for businesses about the taxes they will owe and services they will receive — making the Silver State a more attractive place to do business.

Nancy Brune is the executive director of the Kenny Guinn Center for Policy Priorities. Victoria Carreon is the center’s director of research and policy.

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