Nevada faces $700M shortfall if state economy doesn’t improve
If Nevada’s economy doesn’t begin to recover, the state budget shortfall could climb to more than $723 million for the biennium, nearly $160 million higher than was projected just two months ago.
That projection is based on six months of collections for not only the gaming and sales taxes but the other large revenue sources that feed the general fund.
Gov. Jim Gibbons has proposed using nearly all of the Rainy Day Fund ” currently at $267 million ” to reduce the impact on state agencies. All agencies including the university system and K-12 education have already been ordered to cut general fund spending 4.5 percent to make up the difference.
But if the shortfall continues to climb past the $700 million mark, more cuts could be necessary. The governor’s office has made no public comments on whether more cuts will be ordered.
Gaming and the sales tax, which make up the bulk of Nevada tax revenues, are reported monthly. But the other large revenue sources, including the business and insurance taxes, are reported to the Department of Taxation on a quarterly basis.
Through the second quarter of the fiscal year, gaming revenues were 5.9 percent below the amount used to build the state budget. Sales taxes were 7.6 percent behind. Those numbers are actually better than the 6.6 percent gaming was lagging after the first quarter and about the same as the 7.7 percent shortfall in sales tax revenues.
But nearly all other revenue sources that feed Nevada’s general fund were worse off as the second quarter ended than after the first. The 8.4 percent shortfall in the modified business tax increased to 9.2 percent as of Dec. 31 and the insurance premium tax shortfall grew from 9.6 percent to 13.6 percent. That amounts to a $14 million gap in the business tax and $20 million in the insurance tax revenues.
Those two taxes are budgeted to bring in about $70 million each quarter for the treasury – about 10 percent of total revenues apiece.
The biggest percentage deficit, however, was in the real property transfer tax which has been in the tank because of the collapse of the housing market. After one quarter, that revenue source was 19 percent behind projections used to build the budget. As the second quarter ended, it had fallen 25.3 percent behind projections – $16.3 million in the red.
Even the relatively stable cigarette tax was slumping, falling from 2.3 percent short after the first quarter to 5.8 percent behind after the second. That translates to a $3.4 million shortfall.
Also down are the casino live entertainment tax, liquor tax and secretary of state’s commercial recordings revenues.
Gaming and sales taxes are, by far, the largest state revenue sources, generating about one third of the total collections each. Overall, gaming tax revenues were $32.3 million behind projections as of Dec. 31. Sales tax revenues were $40.5 million behind.
When all the shortfalls are added together, revenue collections were $129.3 million behind projections after just half the first fiscal year of the biennium. And that figure doesn’t include the sales tax revenues collected for Nevada’s school districts – likely to add about $45.6 million to the shortfall over that same six month period. State law requires the general fund make up any shortfalls in school district revenues.
Add to that the $23 million shortfall from the fiscal year which ended June 30.
Projected out over the biennium, that brings the total shortfall to just over $723 million – nearly $160 million higher than the $564.7 million projected by the budget office two months ago.
Both the Legislative Counsel Bureau and the budget office are reworking their projections. Neither would release their figures, saying that after they develop new numbers, legislative leadership and the governor’s office must review them before publication.