Recovery yields more tax revenue than anticipated in Nevada

Nevada Capitol

Nevada Capitol

Nevada's economy is rebounding more quickly than in some past recessions, but coronavirus variants continue to raise questions about the state's path toward full recovery.
The five-member panel responsible for economic forecasts on Tuesday said the state had collected more sales and entertainment taxes than forecasted, but would have less from sources including a payroll tax, which a state court limited in May.
David Schmidt, an economist at the Nevada Department of Employment, Training & Rehabilitation, said indicators such as the employment rate and hire rate had diverged by region and sector throughout the recovery; the unemployment rate in Northern Nevada has rebounded more than it has in Las Vegas. Sectors like warehousing now employ more workers than they were before the pandemic, while casinos and hotels remain far from pre-pandemic employment levels.
Though the hospitality industry continues to struggle, Nevada has collected 34% more in tax revenue than forecasted last year, economists said. The state has collected $385 million in sales and use taxes since June and $38 million in live entertainment taxes. Nevada initially projected collecting $294 million and $5 million, respectively.
Nationwide, states are reporting budget surpluses due to their tax revenue from sales and income being higher than projected. Economists attribute a bounce-back in consumer spending — and, in turn, sales tax revenue — to stimulus checks and other new tax credits.
Unlike states that tax personal income, consumption taxes have particular importance in Nevada because the state is one of seven that doesn't impose state income taxes on residents.
In a state where the economy relies heavily on tourism and in-person entertainment, 66,200 less workers employed at casinos and hotels than there were before the pandemic. Restaurants and bars employ almost as many workers as they were pre-pandemic.
Nevada's unemployment rate fell almost 5 percentage points from October 2020 to October 2021, but remained tied for the nation's highest at 7.3%. The recovery has been uneven, disproportionately affecting minority groups, people without high school diplomas and women with young children, Schmidt said.
"We've been in a slower growth phase for the last six to nine months. The current recession has been incredibly focused in the Las Vegas area, and the casino-hotel industry, in particular," he said in Carson City, while Gov. Steve Sisolak held a widely publicized jobs fair in Las Vegas.
Decisions from the Legislature and the courts required the Economic Forum to revise some previous projections.
The state Supreme Court's May ruling that the Democratic-led Legislature violated the state constitution by extending a payroll tax increase will cost the state an estimated $197 million over three budget years, economists said. In 2019, the extension didn't receive the two-thirds support required to raise state taxes. Due to the decision, businesses will be refunded part of what they've paid since 2019 and pay less in the future.
The losses cut into what Nevada expected to collect toward its general fund, but will be partially offset by a mining tax increase passed in May, which earmarked revenue for K-12 education. Russell Guindon, a fiscal analyst in the Legislature, said Nevada expected to collect more than $80 million in proceeds from mines in the each of the next two budget years.
Analysts expect the revenue loss from the business tax decision to be higher than initially projected and mining proceeds to be less than projected in May.
The governor's fiscal staff said the federal government had approved $6.7 billion in coronavirus relief funds. Though there are rules for the funds and requirements portions go to services such as healthcare, education or housing, they will likely allow the state to better weather losses in payroll tax revenue and replenish budgetary reserves it spent through the pandemic.
"Money is money," said Craig Billings, a casino executive who serves on the Economic Forum.
"If you can use it for government services, then you're not using other revenue sources for government services."
Metz is a corps member for the Associated Press/Report for America Statehouse News Initiative. Report for America is a nonprofit national service program that places journalists in local newsrooms to report on undercovered issues.

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