An increasingly popular tool of public finance in Nevada is the use of tax credits, whereby qualifying entities are issued credits against future tax liabilities that can either be redeemed or sold to others. In fact, Nevada now has separate tax credit programs for economic development, film, the Catalyst Fund, New Market Tax Credits, Educational Choice scholarships, college savings, affordable housing and a major league baseball stadium.

However, besides a brief discussion at the Economic Forum, no public report consolidates the state's tax credit obligations and provides information about tax credits that have been awarded, redeemed and remain outstanding. 

Combing through the available information suggests that more than $600 million in tax credits have been authorized since 2017. Still, the public cannot be certain what funds are "spent" and what funds are an ongoing liability. Proposals to increase the film tax credit program this legislative session could add another $1.6 billion in contingent liabilities.

If Nevada is going to rely on tax credits to fund its priorities, then there is an increased need for transparency. To fail in this obligation is to risk becoming what Richard Darman, Office of Management and Budget director for President George H.W. Bush, called "Hidden Pac-men that are waiting to spring forward and consume another line of resource 'dots' in the budget maze."

In Nevada, tax credits are budgeted as "negative revenues" in the forecasting process. They are also off-balance sheet commitments that have priority over regular appropriations. Unlike an appropriation in the biennial budget that can be increased or decreased depending on available revenue, tax credits are established in statute. And unlike a regular or one-shot appropriation, unused tax credits can be carried over to the next budget cycle. 

The net result is that future legislatures are bound by the decisions of their predecessors, even if those policies are no longer desired.

The Center on Budget and Policy Priorities notes that the transferability of tax credits creates a damaging cascade of impacts on state budgeting, particularly during economic downturns. By being issued an asset, the recipient of a tax credit gains an immediate benefit, but the costs may not appear on the state's books because purchasers can redeem tax credits when they choose. 

Assuming that tax credits are purchased as a hedge against future revenue declines, purchasers may choose to redeem their credits when the economy is faltering, and government revenues are declining.

The Governmental Accounting Standards Board (GASB), in its Statement 77, requires state and local governments to report their current year spending on such tax credits but not the overall contingent liability. The Annual Comprehensive Financial Report for the state of Nevada, from the State Controller’s Office, complies with Statement 77, but that is limited to annual expenditures.

The Tax Expenditure Report from the Department of Taxation also reports expenses, but not the outstanding authorization.

The Legislative Counsel Bureau’s (LCB) Fiscal Analysis Division works diligently to forecast the consumption of the tax credits, but there is no published report on the larger contingent liability. Until 2018, the Silver Sage Report issued by the Governor's Finance Office contained a table reporting credits allowed, redeemed, and remaining. The last report, issued in September 2024, reports only the fiscal year expenditure and the forecast. The executive branch agencies that administer the programs file periodic status reports with LCB; however, these are on different reporting schedules and lack uniformity, so it is impossible to understand the long-term implications of tax credits and the totality of the commitments.

At a minimum, the executive branch should develop a consolidated, standardized and publicly available report on the tax credit programs detailing the amounts authorized, awarded, redeemed and outstanding. Where it is feasible, the Legislature should also consider applying a similar requirement proposed in AB441 — that tax credits issued for the educational choice scholarship program be expended within 18 months — to other tax credit programs. 

Increased reporting requirements and sunsetting of outstanding tax credits would benefit policy development by reducing ongoing obligations on future legislatures and provide Nevada with a prudent safeguard against a runaway Pac-Man.

Michael Brown is a fellow at the Lincy Institute, the former executive director of the Governor's Office of Economic Development, and the former director of the Department of Business & Industry.

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