Alright, I’ll admit it.  There’s nothing “sexy” about fiscal policy.  There’s a reason why taxes are compared to death when we speak about the “certainties” of life.  Any time one begins to talk about taxes and fiscal policy, most people glaze over.  All they know is that they don’t like them!  Well, unfortunately, or fortunately as the case may be, people do like having a police officer or firefighter show up to their house when they call 911.  They like paved roads without potholes!  They like having the streets cleared of snow and they particularly like it when the municipal sewer system works.  What they may not realize, at least consciously, is that police officers, firefighters, road workers and public works employees like to be paid and the only way we can pay them is through public dollars and public dollars come from taxes.

 

I was particularly amused about a month ago when I was reading in the Reno Gazette Journal that the City of Reno’s Mayor, the Honorable Robert Cashell, and other elected officials in Northern Nevada had begun to pressure the State of Nevada to consider changes to the State’s fiscal system – the way in which tax dollars are generated, collected and apportioned – to prevent the inevitable financial problems the State, and state-wide local jurisdictions, face during times of economic decline or slowdown.  I was amused primarily because about two years ago the NSBDC hosted a regional “property tax summit” to discuss these same, various issues.  Well, that was during a time of economic expansion and public monies were so large that no one wanted to talk about it.  Oh my how times have changed.  I applaud the efforts of the Mayor and other elected officials to broach this highly politically sensitive issue but I fear that without sustained discussion little positive change will come of it.

 

One of the major results or conclusions of the NSBDC’s “property tax summit” was that Nevada’s fiscal system is in need of MAJOR revision.  The State’s current fiscal system is almost identical to the fiscal system that was developed at the turn of the 19^th Century during the State’s forming.  Little has changed.  Other than the “shift” from property tax dependency to sales tax dependency in the 1980’s, Nevada’s fiscal system has remained unchanged for the better part of 200 years.  Like then, the system we have in place today is dependent on a current stream of tourists and visitors to support the State’s spending needs.  It assumes a small “home grown” population and assumes that the “home grown” population is young and eager to spend a large portion of its income.

 

Now that the calendar has finally changed to 2008, it’s important to realize two important changes that have occurred in the past 20 or so years.  First, Nevada NO LONGER HAS A MONOPOLY on gaming!  All but two states throughout the United States have some form of casino gaming.  Washington, Oregon, Arizona, New Mexico and, of course, California, have all legalized casino gaming to some extent.  Nevada as a state, and its local jurisdictions, can no longer assume that gaming and tourism will pay all the bills.  Although Las Vegas remains an international destination for tourism and gaming, Northern Nevada has long since lost that designation.  That means Nevada, especially Northern Nevada, must diversify its fiscal system to “wean itself off” the proverbial “teat” of gaming and tourism.

 

Second, Nevada’s population is growing.  We are no longer a “small state”.  Our population is also aging and that means the population as a whole is shifting its spending from taxable retail expenditures to non-taxable retail expenditures like pharmaceuticals, food and housing as more and more Nevadans move to a fixed income.  That means Nevada, especially Northern Nevada, must diversify its fiscal system to “wean itself off” the proverbial “teat” of sales tax revenue.  As Northern Nevada’s population ages and more and more Northern Nevadans begin living on fixed incomes, sales tax revenue receipts will begin to decline.  Fewer automobiles will be sold, fewer “home improvement” materials will be sold and fewer taxable retail sales per capita will be generated.  In the end, we can expect consistent declines per capita in the amount of sales tax revenue local jurisdictions and the State of Nevada generate annually.

 

So what are we to do?  The first step has to be the recognition that Nevada is no longer a small state.  For everyone out there that wishes Nevada could remain the “big empty” state of vast expanses and rural living, stop fooling yourself.  If you live anywhere in Northern Nevada near Reno, Sparks, Carson City, Lake Tahoe or Fallon, it’s time to accept the realities we are faced with today.  The houses and suburbs that have been built over the past 20 years are NOT going to be torn down.  They are here to stay.  It’s time for Nevada to grow up and develop a fiscal system that, although maybe not “recession proof”, can at least tolerate some intermediate shocks to its economy.  If we don’t accept these realities then the next time you dial 911 you might not see a police officer, paramedic or firefighter for awhile.

 

The second step is to put ALL options on the table.  That means considering (I didn’t say accepting – just CONSIDER) the potential of a statewide income tax for citizens and businesses alike.  I know that everyone is going to freak out now that I’ve said that but consider that California has a state income tax for citizens and businesses alike and, by themselves, are the 9^th largest economy on the planet.  For those that have persistently argued that a state income tax would destroy Nevada’s economy, I have only one question:  Where is your proof?  State’s like California that have state income taxes seem to be economically no better or worse than Nevada.  We may also have to consider expanding the sales tax base to begin to consider those retail expenditures that are currently non-taxable.  Remember:  Taxes = Tax Rate * Tax Base.  We could up the Tax Rate to increase Taxes.  Or we could expand the Tax Base.  Just a thought.  We may also have to reconsider how personal property – homes and businesses – are taxed.  Why is it that when a business’s income declines it can reduce its property tax burden but an individual whose income declines can’t get the same break?  Just a thought.

 

In any case, it’s time for a serious and frank discussion regarding the State’s fiscal system.  Caving to political demands and making “cute” political speeches on protecting the pocketbooks of Nevadans is not responsible governance.  To ensure Northern Nevada’s economic future, we must make the hard and serious choices today concerning our fiscal system.  To not do so only threatens the future of Northern Nevada’s economy and the economic future of all Nevadans.

This entry was posted on Tuesday, January 1st, 2008 at 6:07 pm and is filed under Economic Development. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a comment, or trackback from your own site.