State's sales tax revenues projected to drop $285M over two years

Budget Director Andrew Clinger said Wednesday new projections show the state's budget crisis may require cuts even deeper than the 5 percent agencies were told to prepare for three weeks ago.

Clinger presented the information at the governor's forum on the budget situation. He said state sales tax revenues may lag $78.6 million behind the projections used to build this fiscal year's budget and $94.3 million behind for fiscal 2009. Sales taxes are critical since they provide one-third of the state's general fund revenue.

Unfortunately, that's only about half the total revenue the state would lose if taxable sales don't rebound. Because the state guarantees the Local School Support Tax which funds K-12 education statewide, the general fund would have to make up their losses as well. That shortfall would be slightly larger than the state's loss since schools get 2.25 percent compared to the state's 2 percent.

Fortunately, Clinger said, school enrollments were about 5,700 lower than projected and budgeted for, offsetting about $21 million of the amount the state must provide to keep school districts whole.

Even so, the state will have to make up $58.9 million to the schools this fiscal year and $53.1 million in 2009.

Added to the state's direct shortfall, Clinger said, the hit on the general fund will come to $137.5 million this fiscal year and $148 million next - a total of $285.6 million.

That is about 7.7 percent, half again the 5 percent agencies were originally asked to plan for.

According to figures from the Department of Taxation, taxable sales have been down every month for a year in key categories including building supplies, restaurant and bars and home furnishings. In building supplies and construction materials, the drop has been in the double digits every month. In home furnishings, the month-over-month decline has been more than 50 percent in nine of the past 12 months.

In addition, motor vehicle sales, which make up more than 12 percent of total taxable sales, have been down for 11 months straight, eight of those months showing double-digit drops.

The budget office, Clinger said, has made no changes in projections for other revenue sources the state relies on.

Gaming taxes, 31 percent of the total general fund, are down about $10 million in the first two months of this fiscal year, but Clinger said he is hopeful they will recover.

First-quarter numbers for other major funding sources such as the Insurance Premium Tax, Real Estate Transfer Tax and Modified Business Tax, each worth more than $100 million a year to the general fund, won't be available until the end of November. The real estate tax is expected to be down between $10 million and $15 million.

He said those projections may have to be modified at that time.

The insurance tax has been a steady performer, growing at or above projections for more than a decade. But others watching the state's financial situation say the real estate tax in particular is expected to take a hit because of the collapse of the housing market. Sales of single-family homes, apartment condos and co-ops fell more than 26 percent the first quarter of 2007 and 37.5 percent the second quarter of the calendar year.

The business tax is more of a mystery because the total number of employees working in Nevada is growing. But since the tax paid is a percentage of wages paid, it depends on what kind of jobs those are and how much workers are paid.

The state is also expecting to take hits in two other key areas - most critically, Medicaid.

The percentage of total Medicaid costs the federal government covers is based primarily on personal income in each state. The higher the growth of personal income, the lower the federal match.

Initial projections are Nevada's percentage will fall to the minimum level of 50 percent - a 2.64 percent drop in 2009.

While that doesn't seem like a big number, Human Services Director Mike Willden said it works out to more than $24 million, which the state general fund will have to make up.

If that projection holds, the state's Medicaid reimbursement percentage will have fallen nearly 6 percent since 2005. A total of 21 states can expect an increase in 2009.

Nevada is one of 17 states expecting a cut.

While it isn't general fund money, the Governmental Services Tax, added to the basic vehicle registration fee and based on the value of the vehicle, is coming in below projections. That tax provides about $100 million each year to the K-12 education budget but, unlike the sales tax, isn't guaranteed by the state.

That means even though public schools have been exempted from any general fund cuts, school districts will lose whatever amount the services tax is down.

Gov. Jim Gibbons has said the administration will work out exactly what should be cut between now and January.

• Contact reporter Geoff Dornan at or 687-8750..


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