Economic Forum projects state revenues
Nevada’s general fund will collect a record $6.99 billion in revenue over the coming two-year budget cycle.
That is the total approved Wednesday by the Economic Forum, the panel of appointed private-sector experts who review and project revenues for the governor and Legislature to use in building the state budget.
In the process, they also estimated this fiscal year’s collections will finish at $3.18 billion. That is $150.2 million higher than they estimated in May 2005.
The question, however, is whether the governor’s office can legally spend that money. According to Director of Administration Andrew Clinger, the statutory cap for expenditures this budget cycle is $5.93 billion. But the latest forum projections show the state will bring in nearly $6.24 billion this biennium. That leaves $310 million over the cap that the executive branch can legally spend only four ways: Capital construction, roads and highways, the rainy day emergency fund or a rebate to taxpayers.
Legislative fiscal analysts say the projected cap for the 2008-2009 budget cycle is $6.94 billion – very close to the $6.99 billion in estimated revenue.
However, Clinger said, agencies have requested nearly $1 billion more than that. His staff is working with them to cut budgets by that amount.
The forum projections approved Wednesday are actually conservative when compared to the actual growth in state revenues over the past few years. Collections grew 31.7 percent in 2004, the year after lawmakers increased taxes to stave off a budget shortfall. They grew another 14.1 percent in 2005 and 11.5 percent in fiscal 2006.
The projections approved Wednesday show just a 4 percent increase for this current fiscal year followed by 6.1 percent in fiscal 2008 and 7.3 percent in fiscal 2009.
The lion’s share of general fund revenue comes from two sources: Sales and gaming taxes.
Forum members predicted total sales taxes will rise 7 percent next year and 8 percent the following year to a total of $2.35 billion.
Gaming tax, they decided, will increase 5.9 percent in fiscal 2008 and 7.6 percent the following year, generating a total of $1.911 billion.
The revenue source forum members seemed most concerned about is the Real Property Transfer Tax.
“The housing market is heading for a very hard landing,” said consultant Jim Diffley of Global Insight.
He told the forum experts expected the housing market, which has increased both in prices and units built by double-digit percentages for the past several years, to soften. He said they didn’t expect that to happen “this year and rather abruptly.”
Fiscal experts from the state taxation department, the Legislature and the budget office warned this revenue source has been extremely difficult to predict accurately and has had wide swings in the past couple of years.
That said, the forum estimated revenues from real estate sales would drop 20 percent this year to $131.8 million, be flat in 2008 but then recover in 2009, increasing 10 percent to $145 million – a total of $276.8 million.
They projected cigarette tax revenues as basically flat, growing less than a half-percent each of the next two years but still adding $231.9 million to the treasury.
But forum members William Martin, Deborah Pierce, Cary Fisher and Michael Small saw a rosier picture for the modified business tax and the insurance premium tax.
They projected the insurance tax will bring in $611 million over the next two years. The business tax enacted in 2003, they said, should generate $593 million over the biennium.
In addition to the major taxes reviewed by the forum, members adopted their technical advisory committee’s recommendations for a host of smaller taxes, licenses and fees which generate revenue for the general fund. Those so-called “minor” revenue sources feeding the state treasury will produce $792.2 million over the next biennium in addition to $386.3 million this fiscal year, which ends June 30, 2007.
The forum’s projections aren’t final yet. They will meet again Nov. 30 to review the projections one more time before etching them in stone.
Those projections must be followed by both the governor and lawmakers until the forum meets one last time in May just before the end of the Legislature to adjust the numbers based on the economy and other events between now and then.