A combination of flat projections for state General Fund revenues and the impact of tax credits given to Tesla, film companies and others blew a near $170 million hole in the proposed Nevada state budget on Friday.
The Economic Forum projections added $30.8 million to the projected revenues for the remaining two months of Fiscal 2015 — nearly three quarters of it from an increase in the Net Proceeds of Mines tax.
For the coming biennium, the forum projected less revenue than it did in December — although just by $19.6 million.
That leaves total revenues for this and the next two fiscal years just under $12 million ahead of December.
But Fiscal Analyst Russ Guindon told the forum the potential impact of tax credits, most of which are already committed to companies, totals $178.7 million.
When those costs and the slight increase in this fiscal year are put together, that’s an impact of $166.9 million not accounted for in the budget Gov. Brian Sandoval presented to lawmakers in February.
The largest of the tax credits on the list is the $45 million in 2016 and a like amount in 2017 to Tesla for its “gigafactory” battery plant in Storey County — a total of $90 million.
But there also is $10 million already committed in film company tax credits, up to $66 million in new market tax credits and $10.5 million over the biennium in educational credits plus a couple of smaller pieces. Minus the $12 million plus this fiscal year, that brings the total of $166.9 million.
Guindon said when those credits will impact the state can’t be completely determined yet because they don’t know when they will actually be taken by the companies involved.
Before deducting the tax credits, projected General Fund revenues total $3.31 billion for the coming two year budget cycle — pretty much the same as forecasted in December.
Minus the estimated tax credits, lawmakers have $6.15 billion in General Fund revenue to spend in the coming biennium, significantly less than the $7.3 billion General Fund spending in the plan recommended by Sandoval’s administration.
In a statement, Sandoval said Nevada’s economic trends are encouraging but the state must change its revenue structure.
“It is my job to be honest with the people of Nevada about our entire economic outlook,” he said. “Our current revenue structure is not capable of fulfilling the demands of our growing population and not adequate to achieve the priorities and principles of the New Nevada.”
Sandoval’s proposed budget includes extending temporary taxes and restructuring other taxes such as the business license fee to raise an extra $1.1 billion during the next two years.
Throughout the meeting, the five members of the forum were conservative in their decisions, even projecting only $8.9 million more in sales tax revenue than they did in December despite comments from more than one member they were pleased with the direction sales tax revenues were taking.
“I feel good about the major source of revenue, the sales tax is performing well,” said forum member Marv Leavitt.
They reduced projected gaming tax revenues by $21.76 million in the coming budget cycle while keeping their Modified Business Tax and Real Property Transfer Tax projections the same as in December.
Member Matt Maddox, president of Wynn Resorts, said his projections are Baccarat revenue would be down some 25 percent in the next 12 months, in good part because of the Chinese government’s crackdown on gambling activities and spending.
The casino Live Entertainment Tax, Gaming control Board Analyst Mike Lawton said, was declining in good part because the increasing number of off site festivals and nightclub offerings weren’t subject to the tax.
The forum projected a near $19.1 million drop in LET collections for the coming two years.
The panel did see an increase in the insurance premium tax in 2016 and 2017, by about $10.6 million.
In addition, it accepted the Technical Advisory Committee’s recommendations on the more than 70 so-called “minor” revenues totaling some $945 million.
The forum’s projections must be based on current law and, therefore, don’t take into account such things as extending the laundry list of tax increases scheduled to sunset June 30. SB483, which extends those tax hikes, is scheduled to be heard in the Senate revenue committee Tuesday.
Those sunsets are a vital part of the governor’s plan to fund the budget since they generate an estimated $879 million. As written, the bill makes those tax hikes permanent.
While the Senate passed a Sandoval-sponsored bill in April that changes the business license fee and is projected to bring in $437 million over two years, the Assembly is charged with hammering out a final tax plan. Leaders in the lower house have proposed a different method for raising taxes. But they placed those discussions on hold until the Economic Forum released updated revenue projections.
“This is the baseline for everything that we need to work up from,” Republican Assembly Majority Leader Paul Anderson told the Associated Press. “It’s critical in the process.”
The Assembly is also trying to determine which programs in Sandoval’s proposed budget it wants to keep.
“We have to define what that target is,” said Republican Assemblyman Derek Armstrong, who chairs the Assembly Taxation Committee. “The Assembly is not going to put a revenue plan forward until we know what we’re going to pay for.”