Nevada tax revenues exceed general fund budget by more than $1 billion
Nevada’s faster-than-expected economic recovery from the COVID-19 pandemic and a period of high inflation triggered record-setting amounts of sales and gaming tax revenues, leading the state to collect more than $1 billion more than tax revenue projections for the last fiscal year.
The $5.5 billion collected through the fiscal year that ended in June represented a significant increase over projections set more than a year ago in May 2021 by the state’s Economic Forum. The revenue forecasts from that time were used to set the two-year general fund budget approved last year by the Legislature and governor.
Amid a period of surging wages and prices of goods — the national inflation rate hit a 40-year high in June — sales tax collections in the 2022 fiscal year exceeded projections by more than $311 million, according to data from the Legislative Counsel Bureau’s fiscal analysis division.
The state’s gaming industry, meanwhile, has recorded a historic streak of $1 billion-plus gaming revenue months, including every month of the 2022 fiscal year. July 2021 marked the state’s highest revenue month of all time, with $1.359 billion in revenue recorded. Collections from the gaming tax exceeded projections by roughly $255 million.
State fiscal analysts shared the data Thursday during a meeting of the Economic Forum, a state-appointed panel of private sector business experts who provide forecasts of tax revenue streams used to determine the state’s budget.
Russell Guindon and Michael Nakamoto, analysts with the Legislative Counsel Bureau, highlighted how unexpected those collections were at the time the projections were made in May 2021, when Nevada’s unemployment rate was still nearly 8 percent and the national inflation rate had only just climbed above 4 percent.
“If any of us had come into the last meetings back in December of 2020 or May of 2021, and said that we would have consecutive months of gaming win above $1 billion per month, or that taxable sales would be growing by double digits, or that inflation would be where it has been, I don't know if any of those forecasts would have been necessarily taken seriously,” Nakamoto said.
Guindon pointed to factors unknown at the time that eventually helped contribute to greater spending, and more tax revenue, including the expansion of the Child Tax Credit, which made payments available to families on a monthly basis beginning in July 2021. Guindon said those credits helped “expand people's disposable income.”
The excess general fund revenues also triggered a major deposit into the state’s “Rainy Day Fund,” which can be used during emergencies, such as a global pandemic or economic recession, to help fund state government operations.
Guindon said roughly $400 million would go to the state's Rainy Day Fund, pushing the fund’s balance to a record high. In January, the treasurer’s office announced that the fund hit a balance of $340 million, amounting to about 85 percent of the pre-pandemic high for the fund of $401 million.
The transfer of those funds is required annually under a state law, which calls for shifting 40 percent of the unrestricted general fund balance to the Rainy Day Fund, after subtracting 7 percent of all appropriations made from the general fund in the prior fiscal year.
Having a well-stocked Rainy Day Fund puts the state government in a more secure position at a time when the national economy sits in a precarious position, experts say. As Guindon noted, the Economic Forum will have to make a forecast with the Federal Reserve trying to orchestrate a “soft landing,” referring to the delicate balance of raising interest rates to try to bring down inflation, without triggering a recession.
The Economic Forum will meet again in early December to forecast general fund revenues in the current and upcoming two fiscal years. Those estimates (with a final update in May) will be used to set the general fund budget used by the governor and Legislature during the 2023 legislative session.
Thursday’s meeting marked an opportunity for the members of the Economic Forum to learn more about the outlook of the state’s economy, as they prepare to make their forecasts in December.
David Schmidt, chief economist with the Department of Employment, Training and Rehabilitation, highlighted the rapid recovery of jobs since the beginning months of the pandemic, as well as nearly 8 percent growth in hourly wages over the past year.
He also expressed a positive outlook for the state’s economy in the face of national discussions about a potential recession. Schmidt said he expects to see some “loosening” of the labor market over the next two years, including a slowdown in employment and wage growth, rather than a dip into recessionary conditions.
Steve Hill, president of the Las Vegas Visitors and Convention Authority, said visitor volume has not completely recovered since the pandemic, as convention and trade show attendance and international customers still trail their previous levels. He also highlighted conditions that have contributed to the record gaming revenue totals.
“Our visitors have a bigger gaming budget than they have had in any time in the past, by as much as 50 percent more,” he said.
Hill also pointed to major upcoming sporting events, including a Formula 1 race in November 2023 and the Super Bowl in February 2024, which are expected to bring Nevada millions of dollars in ticket sales and Live Entertainment Tax revenue, a factor in the forecasts the Economic Forum will set in December.
Revenue from the Live Entertainment Tax also significantly exceeded projections in the past fiscal year, with actual revenue recorded ($139 million) amounting to more than double the amount projected ($61 million), as live events widely returned as more people felt comfortable attending those large gatherings.
Despite concerns about a possible recession affecting tax collections, Nevada is set for a bigger general fund budget in the short term with major revenue streams, including the sales and gaming taxes, continuing at a high pace.
“The current forecast for [fiscal year] 23 is $4.7 billion, so I think we know what's probably going to be happening to the [fiscal year] 23 forecast,” Guindon said, followed by laughter from the committee. “Now, 24 and 25, I don't know.”