blank.gif (51 bytes) Cover Story
The Bryan-Miller legacy
they’d prefer you forget

Are  Almost Two Decades
of Tax Recklessness Finally Over?

State spending in the U.S. has grown dramatically out of proportion to inflation and population growth. Between 1950 and 1990 state government spending grew by more than 500 percent—two and a half times faster than population growth during the 1970s and four times faster than population growth during the 1980s.

—The CATO Journal, 1994

By 1998, according to a report from the National Governors Association, state budget surpluses in the U.S. totaled $24 billion—not $24 million, but $24 billion. Tax collections are surging, the state/local sector now collects almost the same amount as the federal government. Some of this is being salted away but much of the surplus is being used exactly as voters desire. In 1996 alone 31 of 50 states cut taxes.

—The Economist, 1998

by Ralph Heller, NPRI Senior Research Fellow

he changing of the guard in Carson City after 16 years of Democratic governors—six years for Richard Bryan and 10 years for Bob Miller—has been marked by the sort of "happy talk" commentary in the press Nevadans are used to. In a painfully long feature, "Miller’s Legacy: Families Come First," the Las Vegas Review-Journal reminded readers of everything from his obsession over schoolroom class size to his love of Doritos, but hardly mentioned the legacy for which the Bryan-Miller years will be remembered—unprecented tax increases.

Not to be outdone in the area of worshipful reporting, the Reno Gazette-Journal settled for an Associated Press article that suggested reporter Brendan Riley had almost fallen in love with Nevada’s outgoing governor.

There was no mention in the press of the fact that in the last 18 years—since enactment of the "tax shift" in 1981—Nevada governors signed into law more tax and fee increases than the governors of any other state during that period. This was not an easy distinction for Nevada’s governors to earn as the quotations above make clear. State and local taxes were soaring everywhere up to the mid-1990s, even if not quite so dramatically as in Nevada.

Setting the Stage for Trouble

eginning in late 1976 and continuing in 1977 and 1978, rapidly escalating real estate values in Nevada resulted in a ballot initiative similar to California’s Proposition 13, known in Nevada as Proposition 6. It was not that property tax rates were being raised unduly, but simply that the value of homes being taxed was soaring upward. The taxpaying public’s problem was that increased home values represented deferred profits not to be realized until homes were sold, whereas resulting higher property taxes had to be paid immediately.

Proposition 6 passed by a margin of better than 3-to-1 as property values in Nevada continued to soar through 1978 and into early 1979, with property taxes rapidly going up accordingly. But by mid-1979 property values were beginning to level off and by 1980 residential home values in much of Nevada were virtually flat.

Property assessment practices vary widely across the country, varying in some instances even within the boundaries of a single state. Accordingly, in the 1970s and ‘80s only 41 of the 50 states had property tax structures suitable for comparisons. As of June, 1978, prior to Proposition 6, 20 of the 41 states had higher property taxes than Nevada and 20 had lower property taxes.

For comparison purposes tax bills were compared for homes judged to have a market value of $50,000 as of June, 1978:

Newark $3,237
Boston $2,800
New York City $1,969
Detroit $1,887
Washington, D.C $925
San Diego $924
Las Vegas $875
Reno $405

Moreover, a spot check of 10 cities of roughly the same population as Reno—Eugene, Oregon; Boise, Idaho; Elizabeth, New Jersey and seven others—revealed that as of June, 1978 Reno’s property taxes were the lowest of the 10 cities checked.

After some of these statistical comparisons were made known, perhaps it shouldn’t have been surprising that the second popular vote required for Proposition 6 failed. But the state’s politicians were still convinced that some corrective action was needed. In truth the tax shift was a response to a problem imperfectly understood and which in any event had begun to cure itself as real estate market values leveled off.

Nevada home owners had begun to panic at the rapidly rising real estate taxes caused by escalating home values, and if Carson City had exercised a bit more discipline, a simple "lid" on property taxes considered on its own merits might have served Nevada home owners admirably—if legislative action had not gone beyond establishing the lid.

A Good Idea Turned Sour

he tax shift enacted in 1981 provided immediate property tax reductions around the state averaging 47 percent, along with increases in other taxes and fees intended to compensate for reduced property tax revenue.

But what no taxpayer or newspaper could have anticipated was the fact that the Nevada Legislature in 1981 would proceed to pass the largest collection of tax and fee increases ever enacted by a legislature in a single session. Here are some of the increases that issued forth out of Carson City in a floodtide of legislative bravado unmatched before or since: 

Sales tax up 64%
Gasoline tax to be hiked in two steps up 90%
Drivers' license fee up 80%

 In addition, several Nevada counties experienced serious property tax shortfalls and wasted no time in hiking county gasoline taxes (levied in only a dozen states) and county sales taxes (levied in only 23 states) all over the state, plus a long list of county fee increases ranging from 6 percent to 132 percent.

Even so, had the next legislative session in 1983 and county leaders around the state put a stop to further increases while seeing to it that the promise of reduced property taxes was adhered to, the tax shift still could have been rationalized. But what former Governor Bob List couldn’t foresee when he proposed the tax shift was that his successors, Bryan and Miller, along with succeeding legislative sessions, would continue to use the cut in property taxes to justify a veritable tidal wave of tax and fee increases.

As shown in the "Tax Rampage" chart accompanying this article, the 1981 state gasoline tax increase of 90 percent would in the next decade and a half be transformed into increases totaling 290 percent. Similarly an increase of 64 percent in the state sales tax was transformed into increases adding up to 85 percent, an increase in the cost of driver’s license fees that began at 90 percent ended up as four increases totaling 250 percent . . . and in instance after instance Carson City just kept piling it on year after year as the state’s newspapers just yawned and turned the other way.

And invariably, increase after increase was "justified" by the reduction in property taxes enacted in 1981 as part of the tax shift.

Taxpayers Betrayed And Myths Perpetuated

he problem with such tortured reasoning is that there is not one homeowner in all of Nevada who is not paying higher taxes on his property than owners of the same property were paying before the tax shift. Indeed, Nevada’s press published no information about the tax shift in 1981 that had not originated in Carson City, and more than a year after enactment the tax shift had still not been analyzed independently. In many parts of the state an accounting of increases like the list accompanying this article has never been published.

No less significantly, the press continued to spread false information about government and taxes in Nevada. For example, it was claimed that government in Nevada was "skeletal" and "lean," which was pure nonsense. In 1980, prior to the tax shift, Nevada had 501 state, county and municipal employees for every 10,000 residents, compared to a national average of 488—and just 468 government employees for every 10,000 residents in supposedly more liberal California next door. Interestingly, these comparisons the Nevada press seems unable to find are published fairly regularly—even sometimes in the National Enquirer. At the time the tax shift was passed in 1981 the "per capita state, county and local tax burden" in Nevada was about average in the country. But by the end of that decade we had already long since become a high-tax state, with our national per capita tax ranking among the 50 states destined to go higher and higher 16:

1989 16th highest
1992 14th highest
1994 12th highest
1997 6th highest

The comparative rankings are published annually by the Tax Foundation in Washington, D.C.

Yet only a few years ago former Governor Miller was boasting that Money magazine had listed Nevada as the state with the third-lowest taxes in the country. Conveniently ignored by Miller was the fact that Money compared three taxes only—property taxes, income taxes and general sales taxes. In a state like Nevada with the nation’s second highest state and county gasoline taxes and which is one of only six states to tax insurance premiums—just to name two major revenue producers for Carson City—the Money comparisons were misleading.

No less amusing—or infuriating—has been gubernatorial insistence over the last decade and a half that rapid population growth has required tax increases. To the contrary, in a state like Nevada with exceptionally high sales taxes, excise taxes and users’ fees, population growth more than pays for itself. Interestingly, the U.S. Census Bureau published some comparative statistics for the decade 1980 to 1990:

Nevada population growth, 1980-1990 50%
Nevada tax revenue growth, 1980-1990 190%
Average tax revenue growth all states, 1980-1990 104%

Indeed, only four states enjoyed tax revenue growth greater than Nevada’s during that decade.

A few years later (in 1995) the U.S. Department of Labor published certain comparative growth percentages for the 11-year period Fiscal Year 1981-82 to FY 1992-93, figures even more startling than those from the U.S. Census Bureau released a few years earlier:

Nevada state tax revenue up 223%
Nevada population up 59%
U.S. Consumer Price Index up 49%

Note that during that 11-year period tax revenue in Nevada rose more than twice as fast as population and cost of living combined.

Gubernatorial Legacy

s Nevada entered the new year its newspapers were focused not on former Governor Miller’s real legacy, but on the legacy Miller himself would like to be remembered for—like reduced class size in public schools. The problem with this is that when it comes to the effectiveness of smaller classes the jury is still out. The results of three comparative studies on public school class size have been released so far. Two of them indicate that within certain limits class size has no impact on student academic performance, while the third study revealed only a very slight improvement in student performance in smaller classes.

That third study was conducted in California and the results were released only conditionally with a word of caution, because differences in economic circumstances and ethnic backgrounds of students had not yet been factored into the results.

The truth is that the relationship between class size and student performance is not unlike the relationship between teachers’ salaries and student performance. Logic suggests that smaller classes and higher teacher salaries will result in improved student performance, which is why the topics of class size and teachers’ salaries are popular with politicians. But note that the highest paid public school teachers are found not necessarily in the schools that are performing best academically, but in school districts where recruiting teachers presents a special challenge. After all, how much more would you have to pay a teacher presently living comfortably in his own home in Las Vegas or Reno to move to a new teaching position in Harlem or Fairbanks?

Where Miller Performed Fairly Well

t a number of points during his tenure former Governor Miller responded ably to one crisis or another, but not necessarily in a timely fashion. For example, corrective legislation was badly needed at one point to straighten out Nevada’s State Industrial Insurance System, but no action was taken until the dollar amount of unfunded SIIS liabilities had reached an alarming point. Similarly, some corrective measures were implemented in the Division of Motor Vehicles, but not until the DMV had wrongly fined several hundred motorists for not having automobile insurance—even though virtually all of the fined car owners were actually properly insured. The inability of a succession of governors to do much about Nevada’s notorious DMV remains a mystery, perhaps a reminder that during the tenures of recent governors state employees seem to have been considered more important than the citizens they are supposed to serve.

As the Miller governorship ended in December we were told of a Reno woman who tried to re-register her father’s car after his death. She had even taken a copy of her father’s death certificate to the DMV in Carson City, but was told that nothing could be done without talking to the car’s registered owner—a dead man. Perhaps the woman should have dragged along to the DMV office the corpse of the car’s registered owner. Suffice it to say that if Governor Kenny Guinn were to shake up the DMV from top to bottom, the public applause would echo off the Sierras like thunder.

To his credit, former Governor Miller squarely faced recession in 1993 with a hiring freeze, but the fiscal discipline didn’t last long. Just three years later, in 1996, Nevada ranked first among the 50 states in the area of increases in government employment. Public employment in Nevada shot up 5.4 percent in that year, compared to a U.S. average among the states of 0.9 percent. (The second biggest increase, at 4.4 percent, was in Arizona).

But the part of the Bryan-Miller legacy most likely to be remembered a few years from now will be the unprecedented onslaught of tax and fee increases which are contributing to some of the less pleasant changes in fortune Nevada is now experiencing. For some years Nevada ranked l2th highest in the nation in per capita income, but that is about to change. In 1997, for example, the last year for which comparisons have been made, Nevada’s annual rate of growth in per capita income ranked 48th highest. Similarly, Nevada’s formerly robust housing market has also slipped. While some state home owners are still doing well—up at Lake Tahoe, for example—existing home prices for the entire state rose only 2.2 percent last year, ranking Nevada 49th among the states.

Meanwhile state government in Carson City has proceeded as though nothing were amiss while assuming entitlement to the people’s money. On the eve of Governor Guinn’s State-of-the-State Address, Democratic legislative leaders pledged their opposition to any new taxes or any additional tax increases. So maybe they will refrain from authorizing $400 million for something that may or may not work—which is how much has been spent on reduction in class size to date.

Ah, well. Better late than never, one supposes.  NJ

Ralph Heller is senior consulting editor of Nevada Journal.

News to Use
The Tax Foundation
http://www.taxfoundation.org
The Economist
http://www.economist.com
U.S. Department of Labor: Statistics and Data
http://www.dol.gov/dol/asp/public/dollabdata/labdata.htm

The Cato Institute
http://www.cato.org
Forbes

http://www.forbes.com
Ralph Heller

rh@npri.org

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