State budget inadequacies: Where things stand, what we know

By: - June 15, 2020 2:09 am

Gov. Steve Sisolak delivering remarks to state employees via video in June.

It’s like having a snowglobe when you need a crystal ball.

That’s the metaphor conjured by Nevada’s top fiscal analyst on Friday to describe the predicament of the economists who have to predict the state’s fiscal future.

A five-member panel of private-sector fiscal analysts known as the Economic Forum is tasked with setting and revising the forecast used for the state’s biennium budget. In 2008 and 2010, when Nevada dealt with the Great Recession, the Economic Forum was called on to revise the budget forecast over the summer — earlier than they are statutorily required to.

That hasn’t happened this year, and Legislative Counsel Bureau Principal Deputy Fiscal Analyst Russell Guindon told the panel during their regularly scheduled meeting Wednesday that he doesn’t expect it to.

“We believe the forum won’t be called, given the current uncertainty,” he said.

Recessions are nothing new but the circumstances leading to the current one have never been seen before. As another state economist put it: Whatever hyperbole a person uses, it still winds up being an understatement. These times are indeed unprecedented, never-before-seen, unparalleled, extraordinary, etc., etc.

Guindon said any forecast could be outdated in the next week or month. After all, the public health crisis is still ongoing, and delays or reversals of reopening plans would greatly affect forecasts. So, instead, the Economic Forum will proceed on its normal schedule, which involves several meetings this fall leading to a revised forecast due December 3. That budget sets the ground for the 2021 Legislature.

In the meantime, much of what the governor’s budget office and the fiscal analysts at the Legislative Counsel Bureau are doing is watching the actual revenue flow into the state and adjusting estimates accordingly.

Budgets at all levels have been (or soon will be) devastated by the abrupt halts in revenue generation caused by the mandatory shutdowns.

When it comes to Nevada’s signature industry, the impact is straightforward and absolute. Gaming flatlined with the closures. The gaming tax generated only $19,000 in tax revenue during April, according to Guindon.

“Statistically zero,” he added.

Because of that, analysts can easily revise their estimates for the current fiscal year. They know nothing else will come in before the fiscal year ends June 30. Economists have already estimated that at least $160 million in gaming revenue was lost during the shutdown.

Projections for the state’s live entertainment tax — another major revenue generator — is also easy to revise. That too flatlined when venues were forced to shutter along with other non-essential businesses.

What’s more difficult to predict is how other revenue sources fared during the shutdown.

The state’s largest revenue generator is sales tax. In addition to being criticized as regressive, sales tax is notoriously volatile and prone to economic conditions. Prior to the pandemic, taxable sales numbers for the first eight months of Fiscal Year 2020 were 6.8 percent higher than the previous fiscal year. The pandemic wiped much of that excess out within just the first two weeks of the shutdown.

Guindon said analysts would have to wait for the actual revenue numbers for May and June to “see how badly we missed” and revise estimates accordingly. Those numbers will be reported at the end of June and July, respectively.

“For some of these revenue sources, guesstimate is the better term than forecast or estimate,” he told lawmakers during an Interim Finance Committee meeting Friday.

One silver lining for the state is that the 2019 Legislature passed Assembly Bill 445 — a bill prompted by a U.S. Supreme Court decision that allowed states to collect sales tax revenue from online “marketplace facilitators” like Amazon or Ebay. That bill went into effect in October 2019 and was generating more revenue than forecast before the pandemic. It has continued to generate additional revenue as brick-and-mortar stores shut down and people presumably turned more to online retailers to buy things they needed or wanted.

Guindon cautioned that the AB445 revenue won’t save the state, “but it’s clearly softening some of the losses.”

How the state is balancing the 2020 budget

Nevada is estimating a General Fund shortfall of $812 million for the current fiscal year, which ends June 30. To balance the budget, lawmakers have already drained the $401 million Rainy Day Fund (formally known as the Account to Stabilize the Operation of State Government). Public agencies, at the direction of the governor, have also reduced their budgets by 4 percent for a total savings of $67 million.

To help cover the rest of the shortfall, the governor this week proposed reversing $22 million in one-time appropriations made by the 2019 Legislature. That includes $3.1 million to the Department of Health and Human Services to replace its child support enforcement program, $2 million for census outreach, and $1.6 million from the Department of Conservation and Natural Resources for various projects.

The seven Republicans on the Interim Finance Committee have raised objections each step of the way and voted against them, citing transparency issues. The motions have passed regardless with the votes of the 15 Democrats on the committee.

Republican state Sen. Ben Kieckhefer on Friday criticized the handling of the budget crisis, calling it a “piecemeal approach spoon fed” to the Legislature by the governor.

“I know we’re in a time crunch,” he said, “but I think a collaborative approach with this body, with the Legislature more broadly, could have yielded a better, a different result.”

Assemblywoman Teresa Benitez-Thompson, a Democrat on the IFC, said she supported the motion but encouraged “a greater flow of information” so the public could have more details on the impacts of cuts.

State Sen. Maggie Carlton, who chairs the IFC, has defended the process in meetings, saying the budget crisis cannot be solved in one fell swoop and will need to be handled step by step. She pointed out that further details on the budget changes proposed by the governor would appear on the committee’s June 25 board meeting.

Beyond the aforementioned steps, the governor’s office has identified an additional $107 million worth of “potential actions to be addressed later.” Many of these require statutory changes, meaning the governor and Interim Finance Committee alone could not authorize the recapturing of those funds.

They include taking $25 million in capital improvement project funds set aside for UNLV’s medical school, $7 million from the state’s Disaster Relief Account, and $10 million set aside for the implementation of Marsy’s Law. It also includes reimbursements of $27 million for coronavirus-related expenses.

According to a breakdown provided to the Interim Finance Committee, the governor’s proposed plan would put the Fiscal Year 2020 ending balance at $170 million.

And what about Fiscal Year 2021?

Sisolak’s office has announced the state is estimating a $1.3 billion shortfall in fiscal year 2021, which begins July 1. The majority of that — $900 million — is within the General Fund, with the remainder falling under the Distributive School Account that funds K-12 education.

The governor announced in a letter to state employees that he is planning furloughs and salary freezes for all state employees to help combat that.

In that letter and an accompanying press release, the governor’s office said “without significant federal funding to assist with the state’s revenue shortfall, Nevada will not be able to avoid severe reductions in general fund support for agencies and services that represent the majority of the general fund expenditures, including health and human services, K-12, higher education and public safety.”

He acknowledged that a special session is forthcoming and said he is working with staff and legislators to “coordinate timing.”

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April Corbin Girnus
April Corbin Girnus

April Corbin Girnus is an award-winning journalist with a decade of media experience. She has been a beat writer at Las Vegas Sun, a staff writer at LEO Weekly, web editor of Las Vegas Weekly and a blogger documenting North American bike share systems’ efforts to increase ridership in underserved communities. An occasional adjunct journalism professor, April steadfastly rejects the notion that journalism is a worthless major. Amid the Great Recession, she earned a B.A. in journalism from the University of Nevada Las Vegas, where she served as editor-in-chief of the student newspaper. She later earned an M.A. in media studies and a graduate certificate in media management from The New School for Public Engagement. A stickler about municipal boundary lines, April enjoys teaching people about unincorporated Clark County. She grew up in Sunrise Manor and currently resides in Paradise with her husband, two children and two mutts.