For months, members of the Nevada Legislature have been trying to figure out how to balance the state budget. Today, they moved several steps closer to their final goal… And they didn’t really have to do anything. What happened at the Nevada Economic Forum, and why should we care about it?
Let’s just say there are at least 140 million reasons.
Back in March, #NVLeg Democratic leaders signaled discomfort over Governor Brian Sandoval’s (R) proposed cuts to mental health care and other essential programs. Last Friday, they translated that discomfort into action when the joint health care budget subcommittee voted to reject several of Sandoval’s proposed cuts to mental health care programs in Reno, Las Vegas, and rural Nevada. Normally, something like this would lead to the kind of fiscal showdown the state endured in turbulent sessions like 2009 and 2011. However, the Legislature might have just received the ultimate Deus ex machina.
The Nevada Economic Forum announced a $95.7 million budget surplus for the next biennium in its final forecast.
The Nevada Economic Forum consists of five private sector financial professionals, three appointed by the Governor and two appointed by #NVLeg leaders. Since 1993, they have been providing the Governor and the Legislature with economic and fiscal data that include predictions of future tax revenue. Under state law the Governor must base one’s recommended budget on the Economic Forum’s December estimate, and the Legislature must use the Economic Forum’s final May forecast to determine the budget it sends to the Governor in June.
This is why May 1 tends to be one of the most critical days of the entire legislative session. This year, May Day was a good day in Carson City. Despite the U.S. Commerce Department’s announcement of a measly 0.7% annualized GDP growth rate during the first quarter of 2017 and ongoing trepidation over the health of the U.S. economy, Moody’s Analytics painted a more bullish picture of America’s and Nevada’s economic future. Although Moody’s Analytics’ Dan White admitted another recession is possible as early as 2019, he nonetheless concluded that continued population growth, falling unemployment, Reno’s booming tech sector, and steady tourism in Las Vegas should keep Nevada chugging along for the next two years.
Moody’s bullish outlook for the Silver State led members of the Economic Forum to up their revenue forecast.
State officials admitted sales tax revenue isn’t as strong as they expected in December. They also admitted that the state’s reliance upon a small group of super high-roller “whales” playing baccarat has resulted in Nevada being more vulnerable to outside influences, such as China’s anti-corruption crackdown. And they noted that tax subsidy deals like Tesla’s have resulted in the side effect of less tax revenue (despite that growth in Northern Nevada).
Still, the Nevada Department of Taxation, the Governor’s Budget Office, and the nonpartisan LCB Fiscal Division ultimately agreed that overall tax revenue is stronger than they originally expected last December. Also, the state is ending this biennium with an extra $44.2 million in its coffers. In addition, Congress’ tentative 2017 budget deal ensures that the State of Nevada will receive just about all the federal funding it needs to stay afloat. Once the Economic Forum took all this into consideration, members voted unanimously to approve their final forecast. Due to new Commerce Tax revenue and higher than expected Modified Business Tax (MBT) revenue, Economic Forum members left the Legislature and the Governor with a special gift worth about $140 million.
So how will the Legislature and the Governor decide to invest this additional $140 million?
That’s the big $140 million question. As mentioned above, several legislators want to preserve mental health care programs Governor Sandoval has targeted for cuts. In addition, state college and university faculty have demanded to be included in Sandoval’s proposal to boost higher education funding. And even though $140 million is nowhere near enough to implement reforms to the state’s outdated K-12 funding formula, public education advocates want to see the state build upon the reforms that Sandoval championed in 2015 (minus the ESA voucher program that would divert money from public schools if implemented).
These and other issues continue to keep legislators working late nights and scheduling additional negotiations. But thanks to the Economic Forum’s $140 million gift, the road to sine die has just become a little smoother.