Economic Forum told projecting tax revenue amid coronavirus pandemic will be difficult task

Nevada Legislature building

There’s no question that the COVID-19 pandemic and subsequent nonessential business shutdown have wreaked havoc on Nevada’s economy and ripped a massive hole in the state budget.

But while state leaders will, in coming months, need to find a way out of the health and fiscal crisis — including a 28.2 percent unemployment rate and $812 million budget hole — their actions will be guided by recommendations made by members of the Economic Forum.

The Forum, which is composed of five private-sector taxation and finance experts appointed by the governor and legislators, are tasked with projecting revenues from the state’s major and minor tax sources. In turn, the governor and legislative branch are required by law to use those projections in building the state’s two-year budget.

The group met remotely on Wednesday morning to hear updates on Gov. Steve Sisolak’s plan to address the budget crisis, which will be heard more in-depth during Friday’s legislative Interim Finance Committee meeting. Although the Forum isn’t required to take action or make new projections for several months, members said that they’re already feeling the pressure of trying to predict the behavior of Nevada’s economy amid an unprecedented global pandemic.

“Normally, we have a situation where we can look at the past, and it gives you some feel as to what the future is going to be,” Economic Forum member Marvin Leavitt said during the meeting. “Right now, we're dealing with so many unknowns. We're dealing with a situation that we've never ever had before.”

Under the normal operations of the Forum, the scheduled meeting for June would have been more of a general update on the status of past projections, not focused on making new or modified tax revenue projections. Although past governors have asked the Forum to revise tax projections during recessions, legislative fiscal analyst Russell Guindon said continued uncertainty about the pandemic and Nevada’s economic recovery meant projections could quickly become outdated.

“Given the current uncertainty in the information set that's available, we would possibly be having to convene the Economic Forum every week if not month,” he said. “As we're getting each month's numbers for the various taxes, we're trying to guess at what's going to be going on.” 

Still, members of the Forum were briefed by Guindon and other state fiscal analysts on the state’s plan to address an expected $812 million shortfall for the fiscal year ending in June. 

In particular, Guindon focused on a set of revised tax revenue projections assembled by fiscal staff from the Legislature and Governor’s Finance Office that projected a $545.3 million drop in expected tax revenue, as compared to the Forum’s projection made in May 2019. Current data is only available through early March, meaning state fiscal analysts have to throw out their old projections and try to accurately assess tax revenue behavior in the midst of an unprecedented pandemic in order to balance the state budget for the current fiscal year.

Guindon said projecting the behavior of some of the tax sources was easier than others; gaming and live entertainment revenue, for example, essentially halted between mid-March and early June, making it easier to project the behavior of those revenue sources. But he said continuing uncertainty over the state’s reopening, as well as the performance of things like the sales tax during the shutdown, could require yet more changes to the now-revised projections.

“We'll be looking at those, and depending on how badly we miss, we may have to come back in or do additional revisions so that we can continue to provide what we think is our best guesstimate of where we're at,” he said.

Members of the Forum were also briefed on the status of taxable sales data both in the state and in specific geographic regions. Though taxable sales appeared down through March, the most recent month that has data available, analysts highlighted the apparent growth in taxable sales through online sellers required to collect and remit sales tax from third-party sales. 

The number of taxable sales in that category jumped 112 percent in March, a promising sign that won’t fix the state’s revenue situation but will provide a “buffer” as other tax sources decline, Guindon said.

Members of the Forum also voted to approve using Moody’s Analytics for future economic projections; the state’s Board of Examiners on Tuesday approved a $72,000 contract with the forecasting agency for projection models. In the past, members of the Forum have made their projections by selecting one of three forecasts offered by analysts with the Governor’s Finance office, the Legislature and with Moody’s.

Amid strike threats, Clark County School District taking small steps to end fiscal watch

The Clark County School Board of Trustees and Superintendent Jesus Jara

In spite of a looming teacher strike and millions of dollars in budget cuts, the Clark County School District is still moving forward with plans to modestly add to its budgetary reserve account as part of a requirement to end state oversight of the district’s finances.

Monday’s meeting of the Committee on Local Government Finance — an appointed board within the Department of Taxation that oversees local governments under fiscal watch, or state oversight of finances — was less contentious than the meeting last month that saw the board spar with district Chief Financial Officer Jason Goudie over an alleged lack of budgetary information.

Although final budget numbers are still pending for a variety of reasons — including ongoing negotiations with employee unions and a pending lawsuit over an extension of the state’s payroll tax —  Goudie said the district’s budget was otherwise performing relatively well. But he cautioned that the district was still facing immense pressure to raid the ending fund balance to make up for shortfalls in other areas — a possibility he called “very dangerous.”

“I continually get pressure, the superintendent continually gets pressure about making changes primarily for union pay for employees, just pulling it out of the ending fund balance, and covering it there and figuring out what goes on later,” he said during the meeting. “I think this group has made it clear, and it's certainly clear to me, that that’s not an acceptable method of funding a recurring payment.”

Fiscal watch is a state-mandated budgetary monitoring condition; it doesn’t mean the state takes over any operations of the district, but adds additional requirements that the district (or any other entity under fiscal watch) submit monthly cash-flow statements and provide periodic reports to the committee (state law allows for many additional powers, such as temporary tax hikes and full state control of a local government if it faces a “severe” fiscal emergency).

Regardless of what actions the state’s largest school district takes to address the long-threatened strike by the Clark County Education Association and to reach agreements with them and other employee unions, the district is likely to stay under fiscal watch for the foreseeable future. 

The district was placed on fiscal watch by the committee in January 2018, after it had lowered its ending fund balance to just 0.78 percent ($6.4 million) of its general fund to address a $60 million budget shortfall. State regulations typically require a local government to reach a 4 percent ending fund balance before being taken off of fiscal watch.

Goudie reiterated that the district has made great strides toward increasing the ending fund balance since the 2018 low mark, raising the ending fund reserve to 2 percent of the district’s budget with plans to annually raise it 0.25 percent until hitting the required 4 percent reserve figure. But he cautioned that moving any faster toward a 4 percent reserve would be difficult given other funding obligations facing the district.

“As I mentioned last time, we are moving as quickly as we can to get there,” he said. “But with the negotiations and the funding that’s required for employees as well as other programs, I think it’s a pretty big challenge to move more than $6 or $7 million a year into that category.”

Goudie also said that in spite of the ongoing public tension and promises of a strike from the Clark County Education Association (the district filed a request for an injunction Monday in District Court), the district was close to reaching deals with other employee organizations who have not joined calls for a strike.

According to budget documents submitted to the committee, the district plans to have a $53.9 million ending fund balance at the end of the 2019-2020 budget cycle; slightly above an earlier projection of $52.7 million made as part of the district’s initial “final budget” (which varies based on student enrollment and other factors).

Committee Chairman Marvin Leavitt, who previously said he was “disappointed” with the district’s response to requests for budgetary information, said he was sympathetic to the pressures on the district to immediately use its reserve funds and not built up a reserve.

“It will not take much of an emergency situation, regardless of the type it was, to put you into a deficit position,” he said. 

Clark County School District plans more budget cuts beyond dean elimination; likely to remain under 'fiscal watch'

Front view of the building front of the Clark County School District administrative building

Clark County School District’s chief financial officer says the school district is preparing for even more cuts in the 2021 school year, regardless of how ongoing litigation over the district’s decision to eliminate school deans plays out.

In an at-times contentious meeting on Friday of the Committee on Local Government Finance — an appointed board under the Department of Taxation that oversees municipalities placed under ‘fiscal watch’ — district CFO Jason Goudie told the eleven-member board that while the district was on an eight-year plan to restore its budgetary reserve account to the necessary 4 percent required under state regulations, it nonetheless requires additional cuts to avoid a deficit in the 2021 fiscal year.

Goudie said the district had a projected $35 million deficit over the next two fiscal years, and while the projected elimination of the school deans would save the district $17 million, that alone would not be enough to cover the entirety of the deficit. He said the areas of the cuts would be announced “soon” but declined to give the panel any additional details, noting they would be shared with other “parties that the superintendent deems appropriate.”

“We're going to try and identify enough cuts during this period to roll out over the full biennium, and that way we have a list or a menu for when we close out 2020 or start getting closer in 2020 to build the 2021 budget, we have those available,” he said. “We're not going to wait until we get to 2021 and decide what those are, but I don't have any more detail at this point.”

The meeting became contentious not because of plans for future budget cuts, however, but over the district refusing to send the committee an updated version of their 2019-2020 budget (approved in late May). In a letter sent to the committee, district general counsel Eleissa Lavelle said it would be “premature” to submit an updated budget with roughly $151 million in money approved by the 2019 Legislature, given the lawsuit over attempts to cut dean positions, unknown enrollment of students until September and threatened litigation over a bill extending the state’s payroll tax that helps fund roughly $72 million for teacher pay raises statewide.

Though the district said it would submit an updated budget prior to December, that explanation left committee Chairman Marvin Leavitt “disappointed” with the district, saying their decision left the committee and anyone else looking at the district’s budget with a misleading impression.

“For anyone looking at the budget, they would have an idea that you are $154 million different than what your budget is actually going to be,” he told Goudie during the meeting. “And I suppose in your mind that's all right. But in my mind it's not.”

Goudie countered by saying that nearly all of the legislatively approved funds would go toward teacher salary raises and cost rollups that are already accounted for, and so creating a new interim budget before the other unknown factors affecting district income have been resolved would be quickly made out of date.

“It really doesn't matter whether we go budget for that school to have an extra $5,000 for that teacher, and then we take it away when we charge them,” he said during the meeting. “There's no operational challenges as it relates to that.”

The school district was placed on “fiscal watch” by the committee in January 2018 as a way to monitor its fiscal condition, after it had lowered its ending fund balance to just 0.78 percent (or $6.4 million) of its general fund as a way to address a $60 million budget shortfall, far below the 4 percent required under regulatory code.

Fiscal watch doesn’t mean the state takes over any operations of the district, but acts more as a monitoring mechanism with requirements that the district (or any other entity under fiscal watch) submit monthly cash-flow statements and provide periodic reports to the committee. 

Goudie told the committee that the district had substantially improved its reserve account since that low-water mark in 2018, and said the budget now included a 2 percent reserve that the board of trustees and superintendent had agreed not to touch. 

Although he said the district planned to slowly raise that ending fund balance by 0.25 percent every subsequent year, Leavitt said the district’s actions were “an improvement, but it’s still not very much,” and that he expected the board to take action during its upcoming fall meeting to add further restrictions or requirements of the district.

“I think if you have in your mind right now that you're going to go off fiscal watch in the near future, that thought is incorrect,” he said, “I think you're going to stay there for awhile until we see some improvement, particularly when you resist what we're trying to get you to do what we think is fiscally responsible.”

Goudie also told the committee that his “biggest concern” with the budget was the legal status of SB551, a bill passed by legislative Democrats that ended a scheduled reduction in the state’s payroll tax and will provide $53 million to the district earmarked for teacher pay raises. Legislative Republicans have threatened to sue over the bill, which did not pass with a two-thirds majority required for tax increases. 

Goudie said he was hoping for certainty from lawmakers and remained “very, very apprehensive about that money.”

“We're hoping that we can get something from the state from a more definitive perspective as to where that's going to last, or maybe a message from the state that says regardless of which way it goes, if it gets overturned and then the Legislature can't approve that, we will pull it out of the rainy day fund and ensure that the education piece is fine,” he said.