Nevada think tank: Fundamental budget reform needed

CARSON CITY - Nevada's budget process is broken and needs fundamental change to bring about reasonable spending and improved performance in public education and the delivery of other government services, a free market think tank says in a new report.

The report, released today by the Nevada Policy Research Institute, says Nevada needs to move to performance-based budgeting. Policy makers also need to give agency administrators more authority over spending in exchange for measurable performance improvements.

Nevada's current "baseline" budgeting process, where every program is carried forward every two years with spending increases factored in for inflation or caseload growth, has helped bring the state to its current financial crisis, says Geoffrey Lawrence, deputy director for policy at NPRI and author of the report, "Better Budgeting for Better Results."

The current process has generated spending requests from agencies totaling $8.3 billion for the upcoming two-year budget even though general fund revenues are projected to bring in only $5.3 billion.

Lawrence says in the report: "An inherent flaw in the baseline budgeting method is that it incorporates an implicit assumption of perpetual spending increases for all programs, even if they're obsolescent, and even during years when revenue growth is insufficient to fund those assumed increases."

"If lawmakers adopt the more aggressive reform proposals offered here, they will realize more than $3.5 billion in potential savings through simple changes in policy design or implementation measures - and do so without negatively impacting the quality of government services," he says.

Gov. Brian Sandoval said Wednesday he had not seen the NPRI study but that he embraces the concept of performance-based budgeting. Just rolling up costs on existing programs every two years doesn't work, he said.

"That's part of the reason where this budget deficit figure came from," he said. "You're going to see a different approach with regard to . . . performance indicators that I think will be refreshing."

Despite the gulf between budget requests and revenue reality, Sandoval has said he will balance the state general fund budget without tax or fee increases. But increased fees for college students, which would have to be approved by the Board of Regents and which the NPRI report supports, and the use of some local taxes to fund state programs, are expected to be part of his budget solution.

Sandoval will unveil his budget on Monday in his state-of-the-state address.

Assembly Speaker-elect John Oceguera, D-Las Vegas, had not yet reviewed the NPRI report either. But in an email statement provided via his office, Oceguera said all workable ideas are welcome to help solve the state's financial problems.

"At this stage of the process we can't rule anything in or out," he said. "We have to see what the governor proposes. We have to take a close look at the budget and figure out what's working and what's not working. We have some big decisions to make."

While moving toward the objectives outlined in the NPRI report would require the Legislature to give up some of its broad authority over how agencies and the education system spend their tax dollars, other states have done just that, Lawrence said.

Both Washington state and Iowa have implemented budgeting reforms under Democratic leadership, he said. Nevada's Legislature is controlled by Democrats. Sandoval is a Republican.

"All lawmakers should be able to get on board with that because what they perceive as priorities may differ, but everyone wants to know that when you allocate funding towards a specific project that you are going to get results for it," Lawrence said.

In the report, Lawrence says performance-based budgeting was developed by Washington Gov. Gary Locke and resulted in a general fund spending reduction of $2 billion.

This new budgeting process would require lawmakers to identify a prioritized list of broad policy objectives, agree on the proper methods for evaluating progress to the objectives and tie funding to successful achievement of the objectives.

Lawrence says one method of getting state administrators to embrace this process is to use Iowa's "Charter Agency" model, where officials are charged with meeting performance goals in exchange for greater flexibility in how they spend their funds.

Under this model, an agency director might chose to use the services of a private-sector payroll company than the state Personnel Department, he said.

"There definitely is a case to be made that the incentive structure within the bureaucracy needs to be changed significantly in order for government to more efficiently realize the Legislature's own priorities," Lawrence said.

Many of the specific recommendations contained in the report are likely to get a mixed reaction from lawmakers, such as ending the class-size reduction program in the lower elementary grades and eliminating all-day kindergarten in Clark County. The study says the programs have not resulted in improved student performance.

The proposal also recommends changing Nevada's collective bargaining law to allow local governments to reduce public wages to bring them more in line with the private sector. This one proposal would account for much of the savings identified in the report, anywhere from $656 million to $2.7 billion.

Still other suggestions, such as establishing a tax credit program for private school tuition that the study suggestions could save $1 billion over a decade, would require major legislation.

Lawrence said these are just suggestions for lawmakers as they begin the 2011 session, and that the change to the budgeting process, with other accompanying reforms, are the focus of the report.

"Nevada lawmakers should approach the 76th legislative session knowing that a wide range of options are available that would allow them to improve the efficiency with which state services are delivered," Lawrence said.