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The federal stimulus at age two: Legislators left with budget gap

By ThisIsReno

By Andrew Doughman, Nevada News Bureau: State senator Mo Denis, D-Las Vegas, has had enough of percentages.

Just the numbers, please, was his basic request at a Senate Finance committee meeting this past week as various state agencies delivered their budget reports.

The percent game continually disrupted budget hearings during the week before the legislative session commenced. Legislators argued over the “real” numbers and hurled accusations of budget “trickery” and rudeness.

Much of the numbers game has to do with the $2.9 billion money Nevada received from the American Recovery and Reinvestment Act, or federal stimulus, during the past two years.

The money is running out, and Nevada’s legislators cannot agree how to best cope with the funding shortfalls the sunset of the stimulus has caused.

Approaching “the cliff”
Nevada spent about $900 million in stimulus money between July 1, 2010 and Jan. 21, 2011, according to the State Controller’s office.

The state has $400 million left to spend, but that occurs over the next two years.

“That’s the cliff,” said Mary Keating, a state official who tracks ARRA spending for the State Controller’s office.

During this past budget cycle, the federal spending made the state budget situation look better than it was.

“Nevada spent its ARRA funds in areas that experienced shortfalls and needed stabilization,” said Senate Majority Leader Steven Horsford, D-Las Vegas, when asked in an e-mail whether he thought the money was spent wisely.

The problem now is that the state still has shortfalls and the stream of ARRA funds flowing into Nevada is slowing to a trickle.

That is what is causing the percents game in the Legislature. Horsford has said the governor’s budget fails to account for the loss of stimulus money. Therefore, he says, the budget deficit is $2.7 billion.

The governor has submitted a $5.8 billion general fund budget that he says is balanced, and takes into account the loss of the stimulus funds.

It is a game that has led Chancellor Dan Klaich, head of the Nevada System of Higher Education, to stop using percentages entirely because, as a Las Vegas Review Journal story highlighted, different groups can rig the numbers to their advantage.

It’s a lot of bad news. Aside from the squabbling about percents, the stimulus money is mostly gone, the federal government is knocking to collect interest on its loans and will soon ratchet down the stimulus’ extra Medicaid funding.

The federal government also isn’t offering another broad stimulus, unless one counts the more targeted spending proposals for high speed rail and renewable energy.

Unlike the federal government, state governments must balance their budgets. They cannot go into debt to balance their operating budgets.

“They either have to cut or they raise taxes,” said Elliot Parker, chair of the Department of Economics at the University of Nevada, Reno. “They can’t borrow.”

Some say Nevada should simply cut spending

One camp, mostly Republicans, argues the state should not spend if we don’t have the money. Coupled with a Congress wary of deficits and increased spending and a governor who has pledged not to increase taxes, that scenario becomes something of a self-fulfilling prophecy.

Congress provides no new stimulus, Governor Brian Sandoval vetoes any new tax and suddenly you cannot spend money you don’t have.

Sen. Barbara Cegavske, R-Las Vegas, called the stimulus funds a “one-shot” injection into the budget.

Sandoval addressed the loss of stimulus funds in his proposed budget with cuts and shuffling other funds into the state’s general fund.

Others say Nevada should sustain services

Another camp, largely Democrats, says the state needs to support education and health services even if the federal government no longer provides help.

Although it’s impossible to know whether Nevada would have been worse off without the stimulus, this camp projects a future of funding shortfalls and budget cuts that hamper growth and cripple the state.

“The absence of the funds this biennium is a wake-up call to legislators that the responsibility for improving our state will require a long-term vision,” Horsford said. “We must have an open and honest debate about the essential services our state should provide, and I welcome that discussion.”

Going forward, the debate about what to do in the shadow of the stimulus could have significant impact on Nevada’s budget situation. Depending on your political philosophy, how Nevada copes with the loss of ARRA dollars could either help or hinder economic recovery.

Then again, talk of an economic recovery may be premature.

“Nevada’s problems are so particular that we really haven’t started recovery yet,” Parker said.

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