Nevada’s main budget fund for K-12 education is expected to bring in about $160 million less in revenue for the upcoming budget cycle than projected at the start of the year, raising questions about how much the Legislature can do to expand education funding and programming for the next biennium.

The forecast, prepared by state finance analysts and obtained by The Nevada Independent Thursday,  predicted the State Education Fund will bring in about $8.6 billion during the 2025-2027 biennium. The fund is a special budget account devoted solely to education filled with specific tax revenue, including room taxes, marijuana taxes and a special mining tax. The decreased projections largely result from downturns in expected revenue from the local school support tax, which is a 2.6 percent sales tax included as part of the state’s overall sales tax.

During the 2023 session, more than three-fourths of the state’s education funding bill was bankrolled through the State Education Fund. That money is then distributed through the Pupil-Centered Funding Plan, the state’s funding formula for K-12 education. It supports auxiliary services such as food and transportation, local special education funding, per-pupil base funding and weights, which are additional funds for students identified as English language learners, at-risk or gifted and talented. 

Legislative and education leaders told The Nevada Independent following the forecast that the first priority will be maintaining existing programs and funding levels, which could result in tapping into a pool of money used to fund programs during emergencies and might come at the expense of expanding certain education programs. 

However, they also acknowledged that it remains a fluid situation with more than a month to go in the 120-day legislative session. Gov. Joe Lombardo told reporters last month that he would “ensure that education stays whole throughout the process” in the event of any budget downturns, and would prioritize it alongside public health care programs such as Medicaid.

“With the final projections being determined on Monday, the Governor’s Office will continue to work with the Legislature to determine how best to address the decreased revenue projections for the SEF, as previously stated in relation to the decreased revenue projections for the General Fund,” a spokesperson for the governor’s office told The Indy.

Top-of-mind among education officials is the state’s per-pupil funding, but those interviewed by The Indy on Friday said there was not enough information to know what the updated forecast would mean for per-pupil funding. 

Lombardo's proposed budget would see Nevada’s per pupil funding remain relatively flat during the next fiscal year — increasing just $2 — but that amount would increase by $70 in fiscal year 2027. Nevada’s per-pupil funding remains behind the national average by about $4,000.

There are also more immediate concerns. The forecast expected $153 million less in projected education revenue for the current fiscal year that goes through June, compared with projections made two years ago. But Assembly Speaker Steve Yeager (D-Las Vegas) noted the difference is actually closer to $200 million because of money that was transferred from this year to a prior budget year.

“I don't think there’s an option to say, ‘We're not going to find a way to backfill that money,’ because what's going to happen is the schools are going to run out,” Yeager said in an interview. 

News of the forecast came on the same day that the state’s Economic Forum — a panel of five private-sector economists that project the size of the two-year general budget that lawmakers must use — estimated a $191 million downturn in revenues for the upcoming cycle, bringing the total shortfall to more than $350 million.

Though public schools rely less on federal funds than other parts of state government, Yeager added that federal uncertainty looms in the background. Congressional Republicans are discussing hundreds of millions of dollars in potential federal cuts that could leave Nevada in a worse financial position overall, potentially forcing a special session later this year to further cut the state budget.

“I think this is going to get worse,” Yeager said.

Effect on legislation?

John Vellardita, executive director of the Clark County Education Association, told The Indy on Friday that he expected “an effort to at least keep the status quo.”

“I don’t think it’s gonna be so much where we cut as much as what we stabilize,” he said. “In terms of any additional expenditures — that I think is where the real hard discussion are gonna be.”

Heading into the 2025 legislative session, some of the most significant education-related policy goals for Democrats would require a hefty price tag, including universal pre-K — part of a $500 million proposal outlined pre-session — universal school meals (the latest iteration of which would cost $33 million) and extra pay for teachers in hard-to-fill positions. 

Yeager said there’s potential for those priorities to not go through because of the budget shortfalls.

“We still got a month to go, so I think we can get creative in the way that we move money around,” Yeager said. “Those are still priorities. They're good programs. So we'd love to be able to find a way to do some kind of expansion if we're able to.”

Already, there appears to be a tamping down of expectations for universal pre-K. Senate Majority Leader Nicole Cannizzaro (D-Las Vegas), who brought forward the proposal last year, released her education bill last week that calls for free early childhood literacy and readiness programs “to the extent money is available.”

Lombardo, who has also advocated for expansion of school programs, unveiled his priority education bill last month, which focuses on open enrollment and charter schools — funding transportation so students can leave their neighborhood schools for other options. Initial estimates of the proposal, which has not been formally introduced as a bill, would cost the state $70.8 million, with about $11 million coming from the general fund and the rest from “other sources.” 

In a statement issued Thursday after the Economic Forum, Lombardo’s communications director Elizabeth Ray, pointed to a record amount of money in the rainy day fund.

“Should any unexpected budget issues arise later in the upcoming biennium, Nevadans can rest assured that the state is well-prepared to navigate moments of fiscal uncertainty,” Ray said.

What can be done?

To backfill the current fiscal year deficit of about $200 million, legislators have a few options: pull from the state’s emergency Education Stabilization Fund — which has more than $2 billion in reserves — or consider a more drastic measure: transfer money out from the rainy day fund, which is just under $1.3 billion. 

The latter option, intended to ensure essential services continue during a severe economic downturn, would require a joint emergency declaration from Lombardo and the Legislature, or for tax revenue to fall below 5 percent the amount predicted by the Economic Forum, which didn’t occur this cycle. 

After that, the Board of Examiners — composed of the governor, the secretary of state, and the attorney general — would recommend to lawmakers an amount to transfer from the rainy day fund to the state’s general fund.

The state could also pull $200 million from the general fund to balance the education budget, according to Yeager, but he cautioned that money wouldn’t be available for the next biennium. Last session, lawmakers increased the size of the rainy day fund and education stabilization account to more than what was recommended — an effort which Yeager said paid off. 

“When you're projecting your budget, things don't always work out,” he said. 

Education advocacy groups, including the Nevada State Education Association and Educate Nevada Now, say lawmakers should pull from those funding reserves, saying that it's necessary to keep up “momentum” from funding increases last session.  

“They have to be prepared to use those reserves,” Alexander Marks, a spokesperson for the Nevada State Education Association, said.

There’s also two legislative proposals on the table that could help fill those spending gaps by raising taxes; AB453, which would impose a retail tax on certain digital products. AJR1 would make it so that property taxes reset and new homebuyers would pay significantly higher taxes on a property compared with the previous homeowners. But because that is a proposed constitutional amendment, it would take years to go into effect.

But it's unclear if AB453 would survive — even if it passed —- given Lombardo’s promise to “never” raise taxes. In the 2023 session, the governor did not approve any bills that explicitly increased taxes. 

Those bills are aligned with recommendations from the Commission on School Funding, a state panel of experts created by the Legislature. 

Guy Hobbs, the commission’s chair, said without these changes, he doesn’t see the state meeting the commission’s 10-year funding plan, which calls for increasing revenue each year of the next decade until the state is funding schools at a level $2.5 billion over the status quo and the state’s per-pupil funding hits the national average.

"There probably needs to be some attention given to the way that we generate revenue in the state if we're going to be able to make a meaningful impact on education funding," Hobbs said. "From the commission's perspective, in their current form, they will probably not allow for significant improvements to education funding over time."