by Elliott Parker

Nevada created the Economic Forum in 1993 to provide an official forecast of state revenues that would inform and guide the budgets of the Legislature and governor. Five people are appointed from the private sector to review available data and make an informed guess. The eventual budget must then be at least 5 percent below that forecast, though if money remains from the previous budget it can be rolled in.

The Forum released its final revenue projections on May 1, and the news was good.  Relative to what they projected last December, they now expect the state to receive an extra $44 million in revenue by the end of the current 2015-2017 biennial budget, and $96 million more during the upcoming 2017-2019 budget.

Tony Bennett once crooned that it's a long, long while from May to December, and for the two biennia combined, this improved optimism caused an increase of almost 1 percent  from one forecast to the next. From this biennium to the next, the annual rate of revenue growth increased from 2.8 percent  to 3.1 percent.

It sounds good, and most of us prefer growth to decline. But consumer price inflation is currently about 2.5 percent per year and projected to rise now that unemployment rates are below 5 percent. Our population is currently growing around 1.8 percent per year, more than double the U.S. average. Thus, if these rates hold for the next two years, the real general fund budget per capita will decline by 1.2 percent per year.  As Mr. Bennett continued, the days grow short when you reach September.

Why are the state’s tax collections not even expected to keep up with population growth and price inflation? Half of our state tax revenue comes from sales taxes and the gaming win. But casino gambling is an increasingly competitive industry, and the Las Vegas Strip is no longer growing like it once was. Sales taxes are applied to goods more than services, and to brick-and-mortar stores more than sales on the Internet. Since both services and Internet sales account for a rising share of consumer spending, sales tax revenues haven’t keep up with growth. The state has also been using tax breaks as a lure to draw businesses to Nevada, and transferable tax credits alone counted for a drop of 2 percent in the state’s projected revenues.

City and county governments are also affected, because while they receive revenue from sales and use taxes, they are also dependent on property taxes, which has more problems than can be described in a single column. Property taxes plummeted during the recession but caps have kept them from recovering since then. In addition, property taxes also fall over time at a set depreciation rate, even as market prices rise, so we undercut our tax base if we don’t build new homes at our previous fast pace.

If Nevada were a state that funded decent schools and “not bad” infrastructure, the slow growth of tax revenues would be a good thing, and something we could point to with pride as we explained to businesses why they should move to Nevada. But as the following figure shows, Nevada is not even an average state when it comes to funding per capita.

The figure shows Nevada’s annual general fund revenues, adjusted for population and inflation, and compares that to the national average for state budgets. In spite of two upward jumps (the Commerce Tax in 2015 and the Modified Business Tax a decade prior) and one big set of cuts after the Great Recession, Nevada’s general fund has remained relatively stable over the long term. Our general fund revenues are currently 2.5 percent of our state GDP, or about $1,250 per person per year.

Nevada is not an average state. The figure suggests that, in general fund revenues at least, Nevada is only half of an average state. The average state collects about $2,500 per person, or about 4.2 percent of GDP. Perhaps those other states don’t spend all that extra money as well as we do. Spending less than our neighbors could be a good thing, if only Nevada didn’t have so many things that could benefit from state investment, particularly in education.

We are at the bottom in high school graduation rates, but our school districts are pushing early retirement to get rid of our most experienced teachers, and we have a difficult time retaining new ones. We have the fewest students going to college of any state in the nation, but the state still allocates less to higher education than it did a decade ago, almost a third less if you adjust for inflation and population growth. Our community colleges struggle to find the funds to improve the skills of our workforce. We aspire to create good universities that keep our best students in the state, but some of our best professors are leaving for other schools because their pay has not come close to keeping up with the market, and it sometimes seems an impossible task to make sure students can get into the classes they need.

How long can we keep attracting new businesses to Nevada if they have to import much of their workforce with them? Wouldn’t it be great if more employers were able to find more skilled Nevadans?

Most cities and counties are strapped when it comes to funding the roads, schools, and infrastructure that people moving here would expect to find when they arrive. Instead, when their kids start school they find growing class sizes and mobile units parked on school property for classrooms. How long will skilled workers be willing to move here from outside the state if they have to worry about the schools their kids will attend?

We also have yet to set aside much in the rainy day fund for the next economic downturn. When the autumn weather turns the leaves to flame, as Mr. Bennett said, one hasn't got time for the waiting game.

So let’s not get too excited by the good news out of the Economic Forum. Yes, our economy is doing better than we thought it would be doing, but not by that much. Yes, the Legislature will be able to fund the budget the Governor put forth in January, and then some, but the budget still fails to address the structural needs of our state to build in resiliency and the opportunity for a better future. Truth be told, the extra projected revenue is but a drop in a very big and empty bucket, and when the Legislature adjourns sine die in a few weeks there will still be so many problems unaddressed.

Elliott Parker is Professor of Economics at the University of Nevada, Reno. “The September Song” cited in this column was composed in 1938 by Kurt Weill, with lyrics by Maxwell Anderson, and has been sung by Frank Sinatra, Tony Bennett, Willie Nelson, and many, many others.