Nevada economic forum adds $140 million to the revenue pot
Lawmakers and the governor have a total of $140 million more to spend this Legislative session.
An optimistic Economic Forum voted on Monday to increase its projections for General Fund revenues to $3.9 billion for the remainder of this fiscal year and $8.3 billion for the 2018-2019 biennium.
After the projected $477 million in transferable tax credits is deducted from the total, that leaves $7.98 billion in General Fund cash to spend.
Forum Chairman Ken Wiles said the members were optimistic looking forward because of the strong economic recovery and development not only in the south but northern Nevada.
“It’s very encouraging,” he said.
“I’m personally more optimistic now than I was in December,” said Forum member Matt Maddox. “I actually think our current forecast is too low.”
Even if all of the projected tax credits are taken by Tesla and the companies paying the commerce tax, the Forum added $44.2 million for the remainder of this biennium and $94.8 million for the fiscal 2018-2019 biennium.
And Legislative Economist Russell Guindon conceded that it’s highly doubtful all of those tax credits will be taken.
Going into the meeting, most analysts expected projections to be optimistic. Gaming fee projections, for example, were increased by $17.9 million for the coming cycle for a total just shy of $1.52 billion.
There was, however, some concern about the sales tax, the largest single contributor to the General Fund. Guindon told Forum members that, while taxable sales are up 6.4 percent, collections are lagging at are just 4.9 percent, “because of what’s going on with the Tesla project.”
The issue is a complex deal that funnels the state’s 2 percent sales tax from Tesla through an economic diversification district that then rebates the money to Tesla.
“You’ve got this growth that’s occurring in taxable sales, but it’s not yielding collections,” Guindon said.
But member Marv Leavitt said he doesn’t believe the state needs to pull back on sales tax projections.
“If you look out a few years, we’ve got some big projects coming on line in Southern Nevada,” said Leavitt.
He said those projects, including the Raiders’ stadium and convention center expansion, “are going to employ a lot of people at high wages.”
Also, even though those are public projects, they must pay sales tax on construction.
Other members of the panel agreed, voting to project 6.2 percent growth in 2018 and 5.2 percent growth in 2019 for sales tax revenues. That should generate a total of $2.46 billion over the coming biennium.
The Live Entertainment Tax that contributes more than $100 million a year to the state treasury, was down more than 9 percent this fiscal year. But Gaming Control Board Analyst Mike Lawton said that appears to be in large part because the tax is increasingly being generated by festivals and other events in what are traditionally non-gaming venues. The law was changed last session to impose the entertainment tax on events such as Electric Daisy and Burning Man, resulting in a 52 percent increase in the non-gaming LET in fiscal 2017.
The combined LET is projected to bring in some $216 million over the coming biennium.
One big performer turned out to be the commerce tax. Lawmakers expected it to generate about $120 million in 2016, its first year, but got $143.5 million. For FY2017, the Forum set the projection at $203.4 million with another $381 million in the coming two years.
In contrast, the cigarette tax, which was jacked from 80-cents a pack to $1.80 by the 2015 Legislature, is projected to continue its slow decline — albeit by just 1.4 percent a year. The tax is expected to produce $340.6 million for the 2018-2019 biennium. But LCB Economist Michael Nakamoto said the revenue could bump up when California’s new cigarette tax is felt; the raise went into effect in April. That state raised the per-pack tax from 87-cents to $2.87.
The Forum voted to bump up revenues from the Insurance Premium Tax by 4.6 percent in 2018 and 3.8 percent in 2019 despite the uncertainty over what Trump administration will do with healthcare.
“We may be even less certain today given the last two attempts,” Nakamoto said referring to the failed healthcare reform packages.
Insurance taxes are expected to generate $760.3 million during the biennium.
The Forum is a five-member panel of financial experts appointed to produce General Fund revenue projections for the governor and lawmakers to use in building the state budget.
Senate Majority Leader Aaron Ford and Assembly Speaker Jason Frierson, both D-Las Vegas, said the added funding wouldn’t fully meet the needs in education, mental health and other vital services but that they are committed to putting those tax dollars to work for Nevadans.
Gov. Brian Sandoval issued a statement immediately after the Forum adjourned saying that, while Nevada has needs in corrections and other areas, “I would like to see a majority of this new revenue go directly to education, specifically to students in K-12.”