Where Does the State of Nevada Spend its Money?

his is the second column based on the Controller’s Annual Report for fiscal year 2017 (FY17). Here we disclose where the state spends its money.

Total state spending for FY17 was $12.29 billion: $11.033 billion (90 percent) from regular state accounts, including pass-through federal funds; $1.211 billion (ten percent) from tuition, fees, contracts, grants and other service charges by higher education; and $46 million in two other areas. The total was 74 percent higher than in FY06, or 17 percent more in real per-person terms.

Health and social services (HSS) and all education accounted for 77 percent of the $12.29 billion. Their growth was 91 percent of the growth in state total spending from FY06 to FY17. In FY17, HSS consumed 45 percent ($5.5 billion), with primary and secondary education (K-12) taking 18 percent ($2.2 billion) and higher education another 14 percent ($1.8 billion). All other activities – law, justice and public safety, transportation, unemployment insurance, general government, regulation, etc. – totaled 23 percent ($2.8 billion).

HSS and K-12 spending grew rapidly while all other government spending, the Nevada economy and the wellbeing of Nevadans declined significantly. Over the last eleven years, HSS spending grew 150 percent, or 68 in real per-person terms. K-12 outlays rose 79 percent, or14 percent in real per person terms.

So, total real per-person state spending rose 17 percent despite significant decreases in higher education (-8 percent) and all other government spending (-19 percent). Real per-person income of Nevadans (-10 percent) and gross state product (-19 percent) also contracted.

As a consequence, the burden of total state spending on Nevada families and businesses, driven by HSS and K-12, was 30 percent higher relative to their incomes in FY17 than in FY06. The growth in burden from HSS spending was 87 percent. For K-12, it was 33 percent. Higher education saw only a two percent burden increase. The total of all other state spending grew eleven percent slower than incomes.

These burden figures mean that, besides covering spending increases due to inflation and growth in HSS client and student headcounts, rising HSS and K-12 spending required families and business to pay taxes and fees 30 percent higher in FY17 than in FY06. Had we not had the contraction in other state spending, the increase in taxes and other burden would have been even bigger.

More than $3.55 billion (64.5 percent) of HSS monies was spent on Nevada Medicaid. This spending will likely continue to rise in coming years due to the state’s decision to expand Medicaid eligibility pursuant to the federal Affordable Care Act (Obamacare). However, federal contributions toward this spending decreased in 2017 and will continue to do so, requiring additional state dollars.

Nearly $1.5 billion (67 percent) of K-12 funds was paid from the Distributive School Account to county school districts to supplement their local revenues. By various measures, Nevada K-12 education continues to deliver poor results, despite rapid increases over the last decade in state K-12 spending.

Despite the well-known lack of statistically significant correlation between spending and student achievement, in 2015 the legislature and governor further increased K-12 budgets by hundreds of millions of dollars through FY17.

Total higher education spending rose 32 percent, but the state-funded portion fell 19 percent. Large increases in tuition and fees, grants and contracts, and self-supporting operations (meal plans, housing, ticket sales, etc.) shifted significant portions of the cost burden from taxpayers to students and their families, who get most of the benefit of the services.

Transportation spending rose from $508 million in FY06 to $802 million in FY12 before falling to $180 million in FY16 and then climbing back to $845 million in FY17. Much transportation spending is capital investment in large projects, so there is no trend in annual spending.

Unemployment insurance (UI) costs rose nearly ten-fold from $239 million in FY06 to $2.233 billion in FY12, before falling to $313 million in FY17. Their 31 percent growth rate in spending since FY06 is only a small part of the state spending growth total, and it was driven mainly by the Great Recession, poor recovery and federal UI policy. There is no meaningful time trend in UI spending.
Next time: Where the state gets its money.

Ron Knecht is Nevada Controller. James Smack is Deputy Controller.