As a plain-speaking nerd, I talk numbers, policy and operations a lot, a habit I try to curtail in my columns.
I’m driven today to talk nerdy in public by the very misleading and even just plain false propaganda put out by the proponents of The Education Initiative, a/k/a the Margins Tax. That proposal would tax businesses on the revenues they receive, not the actual after-expenses income they earn. So, even a business losing money would pay.
In turn, prices you pay for nearly everything as a consumer would increase. And some companies would go out of business while others would leave Nevada, and so jobs would be lost. But the tax does not at all assure that spending on K-12 education would rise because politicians could reduce existing K-12 funding sources by exactly the amount the tax would raise and spend the new revenues elsewhere.
Supporters of the tax include people who want to milk other taxpayers for more for themselves, either as public employees or as users of public services.
But their selfish greed is human, if not noble. What’s really galling, though, is their dishonesty.
For example, The Education Initiative website says “Education in Nevada has suffered through over $700 million in cuts since 2009.” This is the latest version of a 2012 myth concocted by the Clark County School District (CCSD). District officials claimed they had cut $536 million in 2008-12, even though spending for school year 2011-12 was the same as in 2007-08: $2.091-billion.
A year later, they claimed $60 million more in cuts, raising the total almost to $600 million, even though that year spending actually went up $16-million. And other educrats and their political allies inflated the figure to $700-million to cover other counties in the state. Meantime, CCSD student enrollment was essentially flat.
So, what are the facts and how can they justify these claims? The secret — and here’s where we get really nerdy — is called baseline budgeting.
When normal folks say their family or business “suffered through … cuts” they mean that their income and spending actually went down. If your family had incomes totaling $75,000 in 2012, followed by $70,000 in 2013, everyone would agree you had a $5,000 cut. But if the 2013 figure was $80,000, we’d all say you enjoyed a $5,000 increase.
Not so for public agencies using baseline budgeting. They start with the $75,000 figure and make adjustments upward for various factors to get the next year’s “baseline”. Sources of the additions include headcount increases, either for employees or recipients of aid or services. Imagine telling your boss you need a 17 percent increase in pay because you’re expecting your fifth child (upping your headcount by 17 percent)!
Then there’s the cost-of-living adjustment to cover inflation, which sounds reasonable. But don’t forget to add to it step increases in pay employees get as they climb the public salary scale by putting in another year. Notice that the obvious and significant downward adjustment that should be realized for presumed productivity gains is never made.
Don’t forget costs of new programs, often the bacon that politicians bring home for their pet constituencies and for which the rest of us pay.
My favorite, though, is annualization of new spending in the current year. Via this dodge, politicians can add a program to start late in a fiscal year and they’ll not be held accountable for its actual cost because spending on it was only, say, one-twelfth the full-year cost. In the new baseline budget, the increase by a factor of 12 or more will be “justified” because it’s an unavoidable part of “maintaining current service levels.”
Try that with your boss: “Uhm, I need an increase of $12,000 for next year because I bought a boat for Christmas and the payments are $1,000 per month.”
With all these increases, the $75,000 spending figure for the current year becomes, say, an $83,000 baseline budget for the next year. So, by public-sector math, if the adopted new budget is $80,000, it’s not a $5,000 increase, but a $3,000 cut!
That’s how Margins Tax proponents turned actual spending increases into $700 million in cuts “suffered”. Instead of referencing real income and real spending, they whine about phony “budget” cuts as if they had an absolute right to the amounts on their wish lists because the wish lists were built using dysfunctional baseline budgeting practices.
Another trick is to misrepresent the big, long-term picture by focusing on the rare year when actual spending cuts were made. But that’s a nerdy story for another day. Meantime, when bureaucrats and politicians whine about cuts, just tune them out.
Ron Knecht is an economist, law school graduate and Nevada higher education regent.