Without new revenue & a big stimulus, state budget will be slashed again

State program requests total $9.7 billion; Forum projects $8.5 billion in revenue

By: - December 4, 2020 5:47 am

The casino floor inside the MGM Hotel and Casino on the Las Vegas Strip on Tuesday, June 30, 2020. (Photo: Daniel Clark)

Viable covid-19 vaccines on the horizon have many people feeling like the end of the pandemic is in sight. But that promised return to normalcy isn’t likely to come fast enough to avoid painful budget decisions for the governor and state Legislature over the next few years.

Nevada’s Economic Forum on Thursday approved a forecast of $8.5 billion in tax revenue being collected during the upcoming 2021-2023 fiscal biennium, which begins July 2021 and runs through June 2023. That amount will be the foundation for Democratic Gov. Steve Sisolak’s recommended budget, which will be handed to the Democratically controlled state Legislature during the 2021 Legislative Session scheduled to begin Feb. 1.

The $8.5 billion figure represents a recession recovery economists agree will be sluggish and dependent on factors largely beyond the state’s control — such as what additional federal stimulus might look like and how soon vaccines are distributed to the masses.

In May 2019, the Economic Forum forecast a state budget of $8.85 billion for the current fiscal biennium, which began July 2019 runs through June 2021. That forecast never manifested, derailed by the coronavirus pandemic and shutdowns that shuttered businesses for months and brought gaming and entertainment revenue to a standstill. Actual revenue collections and the revised estimate for the remaining months of the current biennium now sit at $8.1 billion.

The adjustments made to the current biennium budget during the spring and summer involved draining the state’s Rainy Day Fund and cutting hundreds of millions of dollars. Many of the cuts were directed at health and human services and K-12 education, which each make up about a third of the overall state budget. Several programs and initiatives saw their funding wiped out completely, including a popular literacy program and a program benefiting economically disadvantaged children. Nevada Medicaid also saw its reimbursement rates decrease, an undoing of increases that happened after a decade of stagnation.

During that slash and burn budget session over the summer, lawmakers expressed hope they could restore funding through additional federal stimulus funds or new revenue at the state level. But Congress failed to act on additional stimulus. And state lawmakers failed to strike a deal on taxes.

The forum’s newly approved projections do include conservative assumptions regarding additional stimulus being passed. Additional stimulus is expected to impact sales tax, which is the biggest contributor to the state general fund.

Sales tax is expected to contribute 29.9 percent of general fund revenues, or $2.592 billion over the upcoming biennium. Gaming tax is expected to contribute 16.6 percent ($1.389 billion). Modified Business Tax is expected to contribute 16.7 percent ($1.449 billion) before commerce tax credits. All three revenue sources are expected to see decreases but expected to bounce back within two or three years.

The revenue source most affected by the pandemic — at least in terms of percentages — is the Live Entertainment Tax. LET is expected to end the current fiscal year at $6.2 million, a decrease of 93.2 percent from the prior fiscal year. Strip productions, concerts, nightclubs and dayclubs all pay LET, and all have been shuttered by the state’s social distancing guidelines and reduced capacity restrictions.

The forum forecasts LET will recover to produce $182.9 million over the course of the biennium, but the economists conceded LET is one of the most difficult budgets to forecast. One noted that even after capacity restrictions are loosened or lifted, large productions will need time to prepare after being dark for months. Another worried the talent associated with the industry will have dispersed. A third struck a more optimistic note and said he believed pent-up demand and pent-up supply will inspire a burst as audiences and artists alike clamor for live events once it’s legal and safe to do so.

That assumption — that people will return to their previous ways in short order after a vaccine — carried to the gaming percentage fees as well. The forum noted that some locals markets are already seeing pre-pandemic revenue levels and that the drop is primarily connected to the Las Vegas Strip, which is dependent on international tourists, and convention and special events attendees. Numerous Strip resorts are closed midweek due to reduced demand.

Economic Forum Chair Craig Billings said he believes the state will see a J-curve recovery. Another economist during an earlier meeting of the forum described the possible curve as a “Nike swoosh” — referring to the icon brand logo.

The forecast approved by the Economic Forum on Thursday has the state reaching pre-pandemic levels of revenue in 2023. The forum will revisit their forecast in May 2021 and may adjust it based on updated information.

In the meantime, for the upcoming fiscal biennium, state agencies submitted budget requests to the governor totaling $9.67 billion. Last month, they were asked to identify “budget reserves” of 12 percent from their requests. Those reductions would bring the budget request within striking distance of the $8.5 billion revenue projection.

Sisolak on Thursday released a statement about the projected forecast, calling it “a sober reminder of the devastating impacts COVID-19 has caused.”

“Once the legislative session begins, I look forward to working with Nevada lawmakers on finalizing the budget,” he also said.

The statement did not mention new revenue, though groups are already pushing for revenue options to be put on the table.

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April Corbin Girnus
April Corbin Girnus

April Corbin Girnus is an award-winning journalist with a decade of media experience. 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, three children and one mutt.