Nevada Goes Bust

Nevada Goes Bust

A severe budget crisis has put all state services–from education to eldercare–in jeopardy.


In the deeply impoverished community of North Las Vegas are two contrasting schools. The first is Rancho High School, the largest public high school in the state of Nevada, with more than 3,000 students.

Rancho has a thriving magnet school embedded in it, drawing 1,000 highly motivated students from around Las Vegas into a program that offers specializations in pre-med, biomedical engineering and aeronautics, and opens the doors to the country’s top universities. For the more than 2,000 students in the general education high school, however—more than 70 percent of whom are poor enough to qualify for the free and reduced-price lunch program, more than 200 of whom the school district has identified as being homeless—the prospects are bleaker. Only 52 percent of these students graduate, and years of funding cuts have led to retrenchment on a grand scale. Over the past few years, as Nevada’s budget situation deteriorated, the school lost upward of twenty of its 160 teaching positions. The grounds, which used to be cared for by a full-time gardener, are now episodically tended. The "block schedule," which allowed students to take eight classes instead of six, over two days, has been eliminated—the unpalatable alternative would have been to increase class sizes from about thirty-five to forty-five. Teachers have had to make concessions, including accepting additional furlough days. Further budget cuts down the road, after the school uses up the $771,000 of American Recovery Act money it received last year and the $638,000 it received this year, plus a roughly $1 million school improvement federal grant, make it possible that there won’t be teachers for the noncore classes within a few years. In what could well be a sign of things to come, some AP classes are now offered only every other year.

A couple of miles west of Rancho, 625 lucky students are enrolled in the Andre Agassi College Preparatory Academy. The state-of-the-art K-12 charter school, which opened in 2001 (it is the brainchild of the retired tennis star), is backed by state funds and the deep pockets of donors from around the country. It has the declared aim of preparing all of its students for admission to college.

The sprawling campus, a swirl of walkways, airy teaching buildings, a grass-covered amphitheater, inner courtyards, libraries and music labs, cost more than $40 million to build. The school’s charter stresses that admission preference will be given to local residents whose families live in poverty.

The students are almost all African-American; if they were in the local public school system, it is doubtful, to say the least, that they would be taken on expenses-paid fifth-grade field trips to visit universities across the country, or on senior trips to Paris. It is a fair bet they wouldn’t have access to Suzuki violins in kindergarten, or a Senegalese drum instructor who recently returned from a drum-buying trip to West Africa, or a hall in which Cirque du Soleil teachers come to work with the kids on balance and focus. "We surround the entire student," explains the school’s chancellor, Marsha Irvin. "We have the counseling support, the resources, our athletics program. We have what’s called a balanced scorecard."

Rancho versus Agassi Prep. The underresourced versus the opulent. The collapse of the state sector despite the resources available via the private. The sense of possibility versus the sense of impending doom. It is, in many ways, a metaphor for Nevada as a whole these days.

When it comes to ink spilled on states in crisis, California, which has seen its budget contract from more than $100 billion to about $80 billion over the past three years, has been getting the lion’s share of attention. Yet some of the country’s smaller states are seeing revenue shortfalls that, as a proportion of their total budget, far exceed California’s.

Nowhere is this more so than in Nevada. Four years ago, at the height of the real estate boom, when people from around the country flocked to Las Vegas to gamble and to gambol, the state government could count on about $6.8 billion in revenues for its biennial general fund. Like most other states, it went on a spending spree—hiring more teachers, expanding an array of social service programs and so on. Since then, the state’s revenues have imploded, while those spending obligations remain in place. Nevada’s fabled housing boom has turned into the country’s worst housing bust; unemployment statewide, as of July, stood at just over 14 percent; in Las Vegas it stood at nearly 15 percent. And as construction skidded to a halt in some of the recently thriving desert exurbs east of Reno, unemployment skyrocketed to nearly 20 percent. At the same time, fewer outsiders are visiting; the tourism and gambling industries, long the drivers of state wealth and two of the biggest sources for state revenues, have shrunk dramatically. While on the surface Las Vegas’s casinos and hotels seem flush, occupancy numbers are down and nightly rates have been heavily discounted. That has led to a hemorrhaging of jobs—which, in turn, has turned Vegas’s real estate market to desert dust.

"The housing market has dramatically impacted Nevada," explains embattled GOP Governor Jim Gibbons from his Carson City office. "Construction became our number-two industry for a while—it started in the early 1980s, when growth was overwhelming. We were building two or three elementary schools in Nevada per month to keep up with the population influx. It lasted all the way to the beginning of this recession—’06–07, and really impacted us in ’08."

Last year, when legislators worked on the 2009–11 biennial budget, the shortfall was roughly $2.5 billion, before huge infusions of federal stimulus dollars. Over the governor’s opposition, the Democratic-controlled legislature cobbled together a needed two-thirds majority to enact a series of temporary tax increases, which are slated to sunset next year. The legislators coupled those tax increases with spending cuts, the depletion of rainy-day funds, creative use of the state’s tobacco settlement dollars and other budgetary gimmicks to kick the worst of the crisis down the road. "We saw what was coming," recalls Josh Hicks, a Reno-based tax attorney who was working as Gibbons’s chief of staff during the budget negotiations. "We’d try to take steps to resolve it, but it was a difficult political situation. In hindsight, nobody really knew how bad it was going to get, or where it was going to stop, or what steps to take to solve it." Like legislators and governors around the country, Nevada’s leaders improvised, hoping they would keep finding new roads to kick the crisis down.

But now those roads have been traversed, and the fiscal catastrophe is that much worse. The Retail Association of Nevada recently estimated that Nevadans have cumulatively lost $25.4 billion in income since 2008, translating into a staggering $9,800 per resident. As a result, services at every level of government are being curtailed.

Monthly services for in-home care have been cut by more than 60 percent, says Erik Schoen, with more reductions on the way. Schoen, an employee with the Community Chest of Storey County, whose 23-year-old daughter lives with multiple disabilities and requires around-the-clock care, says that he and his wife—who was paid through the state’s shrinking program—might not be able to afford to care for their child at home much longer. "It’s much harder in terms of the stress load for us as a family," Schoen explains. "A year from now, we don’t know what we’re going to do if they cut it further. We don’t want to lose our house, don’t want to lose our livelihood, everything that matters to us."

But, says Jon Sasser, a healthcare activist and employee of Washoe Legal Services, that’s precisely the sort of thing that might soon be happening to Nevada’s vulnerable populations. And, he says, it isn’t only home healthcare that’s on the chopping block. If conditions continue to worsen, the elderly would face possible elimination of state aid for buying eyeglasses, dentures and hearing aids—they’ve already experienced ignominious cuts to the adult diaper program. And the mentally ill, particularly in rural counties, are facing huge reductions in services. In Lyon County, for example, the only mental health clinic for miles was recently closed (some worry that all of the state’s rural mental health clinics will soon be shuttered). The wait time to be seen, says Schoen, has increased from one month to three. Perhaps not coincidentally, in the wake of the clinic’s closure, the county’s suicide numbers rose from eleven in 2008 to eighteen in 2009.

The premiums for Nevada’s S-CHIP program, providing health coverage to low-income kids, are likely to triple. Medicaid recipients have lost outpatient cancer and dialysis clinics, and are going to face even steeper cuts next year. And hospitals and residential treatment centers working with Medicaid recipients have had their reimbursement rates reduced by 5 percent, with more cuts on the horizon. Ray Bacon of the Nevada Manufacturers Association even argues, from out of right field, that it is time for the state to seriously consider walking away from the Medicaid program entirely. Even autistic children aren’t immune: they are facing a 22 percent cut in the monthly support rates paid for their care.

All across state and local government services, from healthcare through public safety, the news is just as bleak. There’s talk of shuttering Nevada’s twenty-five state parks, and pushing firefighters and police officers to accept rollbacks to their pension benefits. Several DMV offices have shut, causing long lines at the few that remain. Gibbons and other top state officials have openly pondered the possibility of closing the Nevada State Prison, in Carson City, not because the state has dramatically decreased its prison population but because it can’t afford to keep its antiquated facilities open and staffed. And huge cuts have been implemented at the county and city levels. Carson City officials slashed the city budget by 10 percent in March, resulting in the loss of nearly thirty public-safety jobs. In Las Vegas, the police department has lost $40 million over the past year alone, with more cuts likely on the way. In April, the sheriff announced a reduction in his force of nearly seventy officers.

Last year, the Reno-based Desert Research Institute lost hundreds of thousands of dollars used to fund an innovative cloud-seeding program that scientific supporters argue increases the snow yield of winter storms, and thus the state’s precious water supply, by 5 to 15 percent. This year, university campuses have been slashing an assortment of majors, firing support staff, eliminating departments. Class sizes in schools are up; year-round school has been rescheduled to nine months. The Nevada Conservation League reports that the state reduced the Department of Wildlife’s diversity program by nearly $800,000 (a cut of approximately 50 percent), sacrificing $2.4 million in federal matching funds in the process.

Teachers, who have already agreed to a freeze on some salary increases, may soon be asked by cash-strapped local school districts to accept more reductions. Rancho’s principal, James Kuzma—an enthusiastic leader and animated speaker, whose brushed-back brown hair, pressed shirt, patterned tie and black trousers make him look a bit like an up-and-coming politician—had been hoping to plug the holes over the coming years with federal Race to the Top grants. Nevada didn’t qualify for those funds, but the likely state cuts to education are so large that even if the application had been accepted, Race to the Top money would have been only a Band-Aid on an increasingly gaping wound. Similarly, the recent influx of $83 million in education funds (allocated to Nevada through the federal jobs bill Obama signed in August) can buy only so much time. More than 1,000 teaching positions were recently eliminated in Clark County, dominated by Las Vegas, and at Washoe County School District there had been talk of losing up to 1,500 teaching positions. The influx of federal money has allowed both districts to hire new teachers this year. But Kuzma, whose school is part of Clark County School District, worries that he might lose more teachers once federal stimulus money goes away, especially now that the state is out of the running for Race to the Top funds. His worst-case scenario? Rancho could "see class sizes go up for students already at risk regarding graduation to begin with. Kids this age need a place where they feel they belong. All those extra things—sports, fine arts—give students a place to belong. Those things may be the things keeping you here. When they go away, it increases the chance you won’t want to come back to school."

And all of this might be only the first course presaging a feast of cuts to come.

Most analysts believe that Nevada is facing a shortfall of about $3.4 billion for the coming two-year budget cycle—meaning it does not have the revenues to fund about 50 percent of its current obligations. The state thus confronts a crossroads moment: find ways to stabilize and increase its tax base to at least partially plug these holes or face a rollback of government services unprecedented in the modern era. The Silver State is constitutionally required to balance its budget and prohibited from imposing a state income tax; it does not have a stable, across-the-board business tax and is being buffeted by increasingly strong anti-tax winds from the Tea Party movement. For all these reasons, a 50 percent revenue shortfall means the state would face the fiscal equivalent of a St. Valentine’s Day massacre: line up large state programs, have them face the wall, mow them down. (Were California in a similar position, its budget would have to shrink to $50 billion from the already denuded $80 billion that is being talked about as the new bottom line.)

"It’s going to be much more difficult to raise taxes this year," Governor Gibbons argues. "The American populace, including Nevadans, aren’t enamored of raising taxes. They’re more keen on reducing government expenditure. Government’s not going to look the same. It’s not going to be the same. We have to all roll up our sleeves, get out of the wagon and push."

Wild West homilies aside, however, it’s not at all clear that a little bit of good will and a sense of shared sacrifice will be enough to get Nevada through this crisis. After all, when it comes to government spending, it’s not as if Nevada is starting from a high plateau. According to data generated by the Progressive Leadership Alliance of Nevada (PLAN), the state ranks at or near the bottom for proportions of state GDP controlled by the government or allocated to general fund expenditures. On a white board in PLAN’s Reno offices, in a beautiful old building on the north side of the Truckee River—the city’s moneyed elite live across the way, in mansions on the bluffs above the south shore—is a chart comparing states’ GDPs and expenditures. In 2007, when Nevada was still flush, it had a $127.2 billion GDP; of that, total state expenditures (general fund spending plus miscellaneous other expenditures) came to $8.2 billion, a mere 6.4 percent of state GDP. According to the chart, Nevada ranked fiftieth in the country when it came to the percentage of GDP spent by the state. It also ranked dead last for the number of state employees per 1,000 residents.

Put simply, after decades of underinvesting in vital public infrastructure, there just isn’t much fat to trim on this particular cut of meat. "What is so hard," says Assemblywoman Debbie Smith, "is right now we’re forty-ninth in the nation for K-12 education funding, and we don’t suitably fund mental health services, and on and on. That’s what’s so stunning about where we are. We’ve gotten down to bare bones. You get to a place where you have to look at closing offices and eliminating services. It’s brutal."

The situation is so brutal, says Mary Lau, president and CEO of the Retail Association of Nevada, that without new taxes Nevada’s decision-makers could eliminate all spending not related to education or health and human services—including all funding for police, prisons, highway patrol and the like—and still be left with a budget deficit. Lau argues that the state can’t cut its way out of trouble; it has to agree on new tax sources to raise additional funds. Like many analysts, she supports a tax on services in the state, making last year’s temporary tax hikes permanent, perhaps some additional taxes on businesses. "I don’t think you can say, ‘Screw you and the donkey you rode in on—no new taxes!’ You still have to maintain a certain level of government services." You have to fund schools adequately, for example, if you want the state to attract a growth industry like green tech, which state boosters believe might offer Nevada a way out of the economic wilderness but which requires highly skilled workers.

Outside Republican government circles, most of Nevada’s major institutional players accept the need for more taxes. They just can’t agree on what to tax or how to sell the idea to a skeptical public. The Mining Association, riding high on $1,200 per ounce gold prices, agreed to some tax increases last year; but it fiercely resisted PLAN’s push to get voters to approve an initiative that would tax gold-mining profits at a higher rate, instead preferring a general business tax. (Launce Rake, the 47-year-old communications director of PLAN’s Las Vegas office, says the group may revisit this initiative and thinks rising public support has improved its prospects for future passage.) The Manufacturers Association is wary of implementing taxes considering a forthcoming increase in unemployment insurance. And the Reno-Sparks Chamber of Commerce recognizes the need for the state to have quality schools in order to attract educated workers and their families, yet it balks at the imposition of new corporate taxes, preferring to rely on cost-saving suggestions generated by a spending and efficiency commission established by Governor Gibbons in 2008. Meanwhile, nobody believes the public would be willing to overturn the constitutional prohibition on a state income tax.

"I’m not sure the electorate understands just how deep this deficit is," says Josh Hicks, "and how much of a risk of reduced government services we’re facing regarding schools, public safety and even healthcare. There’s serious exposure to federal lawsuits around education and healthcare, because there are mandates in those areas." Lau shares the sentiment. "I don’t know how the public gets educated and how you articulate a defense of government," she says in bewilderment. "The public doesn’t quite get that."

At his more optimistic moments, George Flint thinks he might have the answer. The flamboyant 76-year-old is the lobbyist in Carson City for the state’s brothel owners. He suggests imposing a $5 or $6 entrance-fee tax on visitors to the state’s famed houses of ill repute. (The brothel owners, he said, would gladly accept a small tax on their business if it granted them more legitimacy and made it that much harder for antibrothel politicians to propose outlawing them in the future.) But, he says glumly, sipping an Absolut on the rocks, since prostitution is illegal within Las Vegas city limits, and since the vast bulk of the state’s paid sexual transactions actually occur in Sin City, that would make only a dent in the state’s budget deficit even if you could simultaneously legalize mega-brothels in Las Vegas. And that, he says with a twinge of realpolitik regret, probably isn’t going to happen anytime soon.

And so, absent a viable route to increased tax revenues, the state is left with little option but to slash and burn its way through the deficits, undermining its future in order to try to save its present.

Rake, a phlegmatic ex-journalist, calls it a "Hurricane Katrina in slow motion." He leans back in his swivel chair and looks out of his chaotic, paper-and-detritus-strewn office a few hundred meters north of the Stratosphere Hotel, at the dilapidated northern end of the strip. Used to be, he says nostalgically, people’s image of Las Vegas was one of glamour and glitz. These days, one of the most popular shows on cable television is Pawn Stars. And where is it filmed? In the pawn shop on the street below his window. It is, Rake figures, a suitable symbol of his state’s decline.

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