Economic Forum's $42.8 million budget boost not expected to make a dent in big-ticket legislative priorities

Megan Messerly
Megan Messerly
Michelle Rindels
Michelle Rindels
Assembly Chambers during speech

Nevada lawmakers will have $42.8 million more to work with than they expected as they wrap up budgets in the final month of the legislative session after the Economic Forum finalized its revenue projections on Wednesday.

Although that’s enough to accomplish Gov. Steve Sisolak’s $8.8 billion proposed budget, it’s well short of what some education leaders say is needed to carry out Sisolak’s promise of teacher raises. And it leaves little room to fund hundreds of millions of dollars in proposals not included in Sisolak’s budget, including plans for a new need-based scholarship, money for enhanced autism services and changes to the Medicaid program.

“It’s a little bit better than I heard it would be, which is helpful, but it doesn’t go very far toward what we need,” said Democratic Sen. Joyce Woodhouse, who chairs the Senate Finance Committee, which now has 150 bills with financial impact in its jurisdiction. “There’s a lot of big ticket issues still there.”

Sisolak praised the budget boost in a statement Wednesday but stressed his desire to “ensure our economic success reaches every Nevadan across the state,” starting with teachers and working families.

“For the remainder of this session, the Legislature and I will work together to build a structure upon which we can transform the way we fund our schools in the years ahead,” Sisolak said. “Over the next biennium, my focus will be on determining how best to strengthen our public education system, which is the foundation of any long-term economic development and diversification."

Most of the surplus comes in fiscal year 2019, which includes a $20 million settlement the Gaming Control Board struck with Wynn Resorts over allegations that it turned a blind eye to its founder Steve Wynn’s sexual misconduct. Democratic Assemblywoman Maggie Carlton said that the additional money could be used on one-shot appropriations but not to fund ongoing expenses like salaries, since the same level of funding doesn’t exist for the two next fiscal years.

“I'm sure that right now there are press statements being drafted to put pressure on the building to spend it on certain issues, them not realizing that if we did that we would be setting ourselves up for failure next year,” said Carlton, who chairs the powerful Assembly Ways and Means Committee. “The only thing worse than not having any money is having money because everybody wants it.”

Revenues for the coming biennium, meanwhile, are only $11.4 million above a December forecast.

“I think it’s certainly a sign that we need to be cautious about how much we ramp up our spending growth if they’ve only increased that projection for the next two years by $11 million,” said Republican Sen. Ben Kieckhefer, a member of the Senate Finance Committee. “That’s practically budget dust.”

Legislative leaders say they don’t have plans to raise taxes beyond what is included in Sisolak’s budget, even though the Clark County School District is calling for $120 million more funding, for example. The constitution requires them the Legislature have two-thirds of lawmakers support any increase in revenue, and Democrats are one vote shy of that threshold.

“I think that we would need two-thirds to raise revenue and until I have an indication that there’s ... an appetite for that conversation, I plan on working within the structure that we have in place to prioritize our money,” said Democratic Assembly Speaker Jason Frierson.

The negligible changes in revenue projections come as economic analysts warn a recession — or at least a period of slower growth — could be on the way. The nation is approaching a record for the longest-ever period of economic expansion.

Economist Dan White of Moody’s Analytics told members of the Economic Forum the national economy was “exceptionally good” and pointed out that Nevada has the fastest-growing economy in the country in terms of jobs coming online. But Moody’s is still projecting a slowdown before the end of calendar year 2020, slightly later than mid-2020 as they had projected at a meeting of the Economic Forum in the fall.

Still, White expressed optimism that Nevada’s economy is “much more diverse” today than it was a decade ago when the last recession hit and that many of the open jobs are more specialized and downturn-proof than those of recessions past. That means that Nevada’s economy won’t “be hit quite nearly as bad with that cyclicality” in the next recession, he said.

“Health care jobs, professional services jobs, manufacturing jobs — the fact that there are so many jobs in those industries really makes us a little bit more optimistic going forward that the leading edge of that next recession won't be quite as much of a cliff as it will be just kind of a steady downhill decline,” White said.

Annual job growth in Nevada fell in February and March from its January high, but the 3.4 percent job growth rate is still outpacing the rest of the country, according to David Schmidt, an economist with the Department of Employment, Training and Rehabilitation.

“We've also been growing pretty much double the rate of the nation as a whole as far as total jobs for some time now,” Schmidt said. “We've been higher than the nation for 80 conscutive months.”

The biggest percentage gains have been in the manufacturing and construction industries, which have seen an 18.4 percent and 13.3 percent 12-month average job growth, respectively. Even then, the construction workforce is only pushing 100,000, whereas it numbered 150,000 during the housing boom before the last recession, Schmidt said.

White said there actually aren’t enough skilled tradesmen to build the houses the market demands, but that shortage may have put Nevada in a better position than it was before the last recession.

“I think it’s a result of your labor force saving you from yourself,” White said. “The shortages in construction workers I talked about early have prevented not just Nevada but a lot of the Mountain West from building as fast as they maybe would have liked to. And certainly as fast as they would have in 2005 and 2006.”

Unemployment in Nevada still exceeds the national average, though the 4.2 percent rate is the lowest since April 2007. But most of that unemployment is not because of job loss — as it was in the wake of the recession — but rather other reasons like people quitting their jobs or re-entering the job market.

“This is an encouraging sign because it shows more voluntary unemployment instead of involuntary unemployment,” Schmidt said.

Members of the Economic Forum reviewed presentations from experts before deciding on revenue projections that lawmakers must abide by when they finalize their balanced budget. Below are highlights on the state’s major revenue sources.

Sales and use tax

The forum is projecting that the sales and use taxes, the state’s single largest funding source, will pump $2.6 billion into the state’s coffers over the upcoming biennium. The forecast includes a 5.1 percent bump in the 2020 fiscal year and a more moderate 3.1 percent increase in the 2021 fiscal year, representing the economic slowdown expected to hit sometime by the end of 2020.

Both the governor’s finance office and the Legislative Counsel Bureau’s fiscal analysis division had recommended 4 percent increases, with legislative fiscal analyst Russell Guindon pitching to the panel that the state would see significant, continued spending in the state because of the ongoing construction of the Raiders stadium in Las Vegas and an expansion and renovation of the Las Vegas Convention Center.

But economists opted to design their own, more conservative 3.1 percent growth rate in 2021, though their forecast still exceeds the 1.5 percent rate from Moody’s and the 2.4 percent rate from the Department of Taxation.

Both taxes are assessed on the sales of goods and services, though sales taxes are levied on sellers while use taxes are imposed on items purchased in an effort to capture taxes on items and services purchased out of state. They represent about a third of the state’s budget.

White, the Moody’s analyst, told forum members to anticipate a slower sales and use tax growth in 2020 because of the wind down of a federal stimulus created by the federal government through the 2017 Tax Cuts and Jobs Acts. The stimulus boosted consumer spending as people received tax breaks but will peter out with time, White said.

“In 2018 they got a big tax cut compared to 2017. In 2019 they might see a little bit of a tax cut but not much compared to 2018,” White said, “and in 2020, they’re going to forget all about what their tax liability was in 2017 and they're just going to think they've paid the same amount of taxes as they did the year before.”

In 2021, growth is anticipated to slow further as the recession hits, but isn’t expected to drop as quickly as other revenue sources. White said consumption typically remains relatively stable as consumers maintain spending patterns even as their income begins to drop, but those numbers are contingent on relatively healthy population growth in the state.

"If, for whatever reason, we see that revert back to trends from 2008 or 2001, and really decline year over year, then these could be overly optimistic,” White said.

Gaming percentage fee tax

The Economic Forum predicts Nevada will bring in $1.6 billion in gaming percentage fees in the upcoming biennium. The fees make up about 18 percent of the state’s budget.

Moody’s Analytics economist Dan White says that Nevada gaming revenue is becoming increasingly detached from the larger national economic trends and more tied to “idiosyncratic” things such as when the Lunar New Year happens, who plays in the Super Bowl and how the Chinese economy is doing.

But he did note that per-visitor gaming spending is growing after a steep drop since the recession. Just before the recession, Las Vegas was producing about $280 in gambling revenue per visitor, but that dipped to about $230 in 2016 and is now up to above $240.

The number of visitors overall has rebounded much more quickly than the gambling revenue figures.

Nevada Gaming Control Board Analyst Mike Lawton said his agency is scaling back earlier, more bullish predictions out of concern of a forthcoming national economic outlook, but also because the agency predicts the Resorts World project on the Las Vegas Strip could continue to be postponed. Current predictions point to that casino opening in the first quarter of calendar year 2021.

Modified business tax

Economists expect that the state will rake in $1.3 billion from the state’s payroll tax, known as the Modified Business Tax, over the two-year budget period. The tax, which represents about 16 percent of the state’s revenue sources, is a 1.475 percent tax on wages, excluding the first $50,000 and health-care deductions, with different rates charged to financial institutions and mining industries.

But the forum’s forecast doesn’t take into account the removal of a so-called MBT buydown, which Gov. Steve Sisolak has proposed to generate additional revenue for the state in the upcoming biennium.

Insurance premium tax

The forum projects Nevada will collect $959 million in taxes on insurance premiums over the next two years.

Insurance premium taxes account for about 11 percent of Nevada general fund revenues.

Forum members characterized this tax as a “good growth tax.” It’s driven mainly by growth in personal income, as people acquire more things to insure, but also by the rising cost of health insurance.

Real property transfer tax

The forum expects the state will collect $211 million over the biennium from the real property transfer tax, which is levied based on the value of real estate that’s sold. The tax provides about 2 percent of general fund revenues.

Forum members noted that this tax is probably the hardest of all to predict, especially several years out. That’s because so many factors are driving home buying trends and Nevada’s market remains volatile.

On one hand, the number of single-family home building permits remains at about one third of what it was just before the economic crash. At the same time, prices are leaping upward and have only recently started to slow, making them unaffordable.

“I think it’s clear that the market has shown there needs to be some sort of corrections,” said Michael Nakamoto, a deputy fiscal analyst with the Legislative Counsel Bureau.

Commerce Tax

Forum members are anticipating that the state’s Commerce Tax will bring in about $454 million in revenue over the biennium, representing an 8.8 percent increase over the prior two-year budget period. The tax was enacted by the Legislature in 2015 and is applied on a business’s gross annual revenue over $4 million, with rates determined by business type.

The tax represents about 5 percent of general fund revenue, though after factoring in tax credits businesses can take against their modified business tax payments, it’s closer to 2.5 percent.

Live entertainment tax

The forum predicts the live entertainment tax will bring in $260 million over the biennium. That includes $208 million from gaming-related LET and $52 million from non-gaming sources.

The tax is a 9 percent admission charge on a live entertainment venue that seats more than 200 people, although there are major exceptions, such as for tickets to a professional sporting event in which a Nevada-based team is playing. It brings in about 3 percent of state general fund revenue.

Live entertainment tax is considered volatile because it can change depending on the popularity and duration of Las Vegas Strip residencies — economists considered the end of Celine Dion’s lengthy residency in June as a factor in determining their predictions.

Analysts noted that there may be a “substitution effect” when people choose to spend their money on events such as Golden Knights games that are not subject to the tax, but balance that with the notion that people attracted to Las Vegas for a Knights game may be adding a show that is subject to the tax to the itinerary on their trip.

Lawton said his talks with businesses suggest there is excitement over upcoming residencies and remodeling projects that make him more optimistic about the tax’s outlook.


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