With faster-than-expected recovery, Nevada projected to have $586 million more to spend in next two years

A tree in front and the Nevada Legislature building behind it

Driven by a better-than-expected rollout of the COVID vaccine, a flood of federal stimulus dollars and pent-up demand to spend and travel, revenues flowing to Nevada’s general fund are projected to be more than $910 million more than what forecasters had predicted back in December.

The revised forecast is a marked improvement from the Economic Forum’s last revenue forecast from December, when the five-member panel of appointed economists and analysts projected general fund revenues of $8.5 billion over the next two years — down about half a billion dollars from the prior budget cycle. This time, the Forum projected $4.4 billion in the fiscal year that starts in July, and $4.7 billion for the following fiscal year, for a total of $9.1 billion in the next biennium — a $586 million upward revision.

The forum also projected higher-than-expected revenues in the current fiscal year, upgrading that forecast by $324 million. In all, the state expects about $910 million more for the general fund over the three fiscal years than was projected just five months earlier.

Gov. Steve Sisolak and state lawmakers built the state’s proposed two-year budget off that December projection (including about a 2 percent cut to the budget approved in 2019), meaning that the good economic news Tuesday will provide legislators with the flexibility to not only restore cuts, but to budget for additional priority projects over the final month of session.

“This is night and day different from December,” Moody’s Analytics analyst Daniel White said during the meeting. “No one thought there was any possibility of having that much vaccine manufactured by the end of the year. So that was the first miracle that kind of gets us where we are today.”

White said a smoother than expected rollout of the vaccine also helped, as did Democrats seizing control of the U.S. Senate in January. With a Democrat-controlled House and Senate, President Joe Biden’s $1.9 trillion American Rescue Plan was able to advance, and massive proposed investments in infrastructure and social programs have a path forward that was far less certain the last time the Forum met.

“It's no longer an aid package,” White said of the federal spending. “We're moving into trying to change the long run structural makeup of the economy going forward. And that has major long-term fiscal implications.”

The Forum approved the revised tax revenue projections after deciding between predictions submitted by state fiscal analysts, the governor's budget office and Moody’s Analytics. Established in 1993, the Forum meets regularly to review forecasts of the state’s seven major tax sources: sales and use tax, percentage fee tax on gaming revenues, insurance premium tax, modified business tax, cigarette tax, live entertainment tax and real property transfer tax.

Under state law, the Forum’s tax revenue projection out of the May meeting in odd-numbered years is what state lawmakers must use to craft the budget. Lawmakers are constitutionally required to balance the state budget — spending no more than incoming tax revenue.

Sisolak said he would work with the Legislature for the rest of the session “as we embark on the largest economic recovery effort in the State’s history."

"We must always remember the struggles we faced during the last year, and vow to use this opportunity to ensure we are never in that vulnerable position again," he said in a statement. "That means making strategic decisions through the lens of responsible fiscal management focused on transforming our State for future generations and developing a solid economic foundation that leaves no Nevadan behind.” 

Assembly Republican Leader Robin Titus responded to the news by saying the Legislature needed to "immediately review the Governor’s budget cuts and restore funding to critical areas in education, healthcare, and infrastructure."

“Additionally, we need to encourage consumer confidence and help businesses get back to where they were prior to the pandemic," she said in a statement.

Here’s a look at highlights of the state’s major revenue sources. 

Sales and use tax

Members of the Forum projected that the state would collect more than $2.7 billion over the next two fiscal years from the state’s 2 percent share of the sales and use tax, the general fund’s single largest revenue source. The forecasts represent about a 5 percent increase in sales tax collections for both fiscal years in the budget.

The Forum also opted to move forward with a projected forecast of $1.2 billion in sales tax collections for the current fiscal year, reflecting increased confidence that almost all sectors of the state economy will continue to recover over the last months of the remaining fiscal year, which runs through the end of June.

The U.S. clocked the highest rates of real disposable income on record last month, but with COVID restrictions, consumers have been less able to spend it on services and travel and have turned more to spending on durable goods. That could soon change.

“The pace of growth in consumer spending, especially over the first eight to 10 quarters of this recovery, is going to look very, very strong,” White said. “When business restrictions go away and travel restrictions go away, a lot of that is going to spill forth in terms of pent up demand in the rest of the economy and that plays very well for a tourism-dependent area like Nevada.” 

Approved forecasts for the upcoming biennium were still cautious — the 2022 fiscal year forecast was on the low end of options presented to the Forum, and the 2023 adopted forecast was roughly in the middle. Forum members and tax projectors said the revenue forecasts reflected expectations that the state’s gradual return of the leisure and hospitality business will drive economic growth, but could also run into headwinds including commodity shortages or inflation. 

“I expect the state to be pretty much open then and a lot of pent up demand, goods, services, tourism, all that good stuff, I'm hoping will come out of (Fiscal Year 2022), and then tempered but still strong growth in 2023,” said Nevada Department of Taxation Economist Hayley Owens.

Gaming percentage fee tax

Gaming is expected to bring the general fund $1.5 billion in the next two fiscal years, a slightly rosier projection than the $1.4 billion the Forum predicted in December.

Casinos saw their winnings at the highest levels in eight years this March, with slot win figures blowing past what would otherwise be expected under capacity limits.

“Stimulus checks have had a direct impact on the Nevada gaming activity,” said Susanna Powers of the Governor’s Finance Office. “Yet the rebound in activity is slower than what we experienced in the pre-pandemic years because I believe the business travel and convention business will not come back as quickly as the leisure travel will.”

Modified Business Tax

Economists predict that Nevada will bring in $1.6 billion in the coming biennium from the Modified Business Tax (MBT) assessed on payroll. That’s up from the $1.5 billion the Forum forecast in December.

Owens said that more than any other tax source, she has revised her MBT projections up from December.

“Definitely a much brighter picture,” she said. 

There are different MBT rates assessed on different types of businesses, including financial institutions, mining companies and others. Economists projected substantial growth in financial services payrolls as the industry is buzzing with Paycheck Protection Program lending and a refinancing boom.

Mining payrolls, on the other hand, are holding steady in spite of the relatively high price of gold. Powers chalked that up to efficiencies realized when major gold companies merged (Barrick and Newmont announced they were becoming a joint venture in 2019).

Still, the pandemic may have a lasting effect on hospitality, Nevada’s hardest-hit industry. David Schmidt, an economist for the Department of Employment, Training and Rehabilitation, said that many hotel casino jobs lost in recent recessions haven’t come back — a contrast to sectors such as food service that have seen much more steady upward trends.

“This is a very mature industry and not one where we're expecting to see a lot of growth and expecting to see some potentially permanent job displacement,” he said about hotel casinos.

Schmidt, who said he’s pessimistic that unemployment benefits will be extended beyond the current expiration date in September, said DETR is focused on getting people into jobs or retrained before then to avoid leaving workers in a lurch.

Insurance premium tax

Forum members project the tax on insurance premiums will yield about $1 billion over the upcoming biennium — a slight upgrade from what they predicted in December.

Revenue from the tax dropped during the early months of the pandemic, as many insurers gave clients rebates because they were driving less. In general, though, the tax source is far more stable than others more closely tied to tourism.

“It hasn't been as sensitive or reactionary to the current business cycle,” Owens said. 

Real property transfer tax

One revenue stream expected to crest and cool off during the upcoming biennium is the real property transfer tax — a $1.95 surcharge for every $500 of property value applied on home sales.

Members of the Forum accepted forecasts of $126 million in the 2022 fiscal year, but $123 million in the next fiscal year — predicting a gradual slowing of the state’s continued red-hot housing market.

Tax projectors said performance of the revenue stream is greatly affected by well-documented issues of housing affordability — saying that home prices affect tax collections, but changes in the volume of home sales and property transactions also have a significant effect on tax performance.

Analysts pointed to a variety of factors that could affect property tax performance over the next two years — eventual lifting of the eviction and foreclosure moratoriums, continued migration of Californians able and willing to pay cash for homes, potential labor shortages and the homebuilding industry struggling to keep up with demand, plus the potential of rising market rates making it more difficult for first-time home buyers to enter the market.

“This tax is extremely complex,” Powers said. “So it says what we think will happen, but they can always look in retrospect and say well it didn't happen.”

Several Forum members expressed some skepticism that amid predictions of economic growth and increased revenue collection for nearly all other tax streams, the state’s housing market would chart a different course. Members of the Forum ultimately decided to go with the legislative fiscal division’s recommendation, the highest of the three forecast options, which still predicts a 2.6 percent dip in tax collections in the 2023 fiscal year.

“Nothing very good lasts forever, which, in my world, is housing,” said Forum member Jennifer Lewis, who works as an executive at a real estate management firm.

Commerce Tax

One of the state’s newer revenue sources, the Commerce Tax — a gross receipts tax on business revenue exceeding $4 million, with different rates based on industry — is expected to raise $470.8 million over the two years of the budget cycle.

Unlike other major revenue sources, Legislative Fiscal Analysis Division Analyst Russell Guindon said that all three forecasts — the Governor’s Finance Office, Department of Taxation, and legislative fiscal division — worked on a consensus for the Commerce Tax, which operates differently than most other tax sources, as it is collected at a different time and involves tax credits against other taxes.

The adopted forecast was about 10 percent higher than the initial December forecast adopted by the Forum.

Live Entertainment Tax

The forum is projecting just shy of $180 million from the Live Entertainment Tax (LET) in the coming two years. That’s slightly lower than the approximately $183 the forum forecasted for the revenue source in December.

“It's not just, ‘is there pent up demand to come back to Vegas?’ It’s, ‘will the shows even open, when will they be profitable, when does that convention player come back?’” said Forum Chairwoman Linda Rosenthal. “This one’s a bit tougher in terms of projecting.”

The live entertainment industry has been among the hardest-hit by the pandemic and related capacity restrictions. Ninety percent of the revenue from tax — which is applied as a 9 percent charge on ticket prices for large events, with exceptions such as professional home sports games — derives from venues on the Las Vegas Strip.

Clark County officials have increased capacity restrictions to 80 percent of capacity and plan to raise the cap to 100 percent once 60 percent of eligible adults in the county have received at least one dose of the COVID-19 vaccine. As of April 29, that figure stood at about 47 percent.

Many large shows are unable to turn a profit with anything less than full capacity, which is delaying their return. They also need time to market their shows and sell tickets for events, and the same goes for large annual festivals such as the Electric Daisy Carnival.

Forecasters predict that LET revenues will rebound by the first and second quarters of calendar year 2022.

Updated at 5:03 p.m. on 5/4/21 to add statement from Robin Titus and at 6:14 p.m. to add a statement from Gov. Steve Sisolak.

Nevada lawmakers will have $8.5 billion to budget for next two years, $400 million down from current biennium

Nevada lawmakers are facing down a legislative session of austerity after a panel of economists projected general fund revenues of about $8.5 billion over the next two years — a figure down about $400 million dollars from the $8.85 billion they projected for the current biennium in May 2019. 

Members of the Economic Forum solidified their official forecast in a virtual meeting on Thursday after taking into account the economic damage caused by coronavirus and efforts to slow it, as well as the uncertainty of additional federal stimulus aid. But it also comes against the backdrop of more hopeful news — that hundreds of thousands of Nevadans could receive a COVID-19 vaccine in the next two months, signaling a return to more normalcy.

“That the vaccines are going to start getting distributed — I think that’s encouraging news to a forecaster,” said fiscal analyst Russell Guindon of the Legislative Counsel Bureau.

The forum — a five-member panel of appointed economists and analysts — approved the tax revenue projections after picking between predictions submitted by state fiscal analysts, the governor's budget office and Moody’s Analytics.

Though the forum will meet again in May to set a final revenue projection, the totals approved on Thursday give Gov. Steve Sisolak and the state’s Democrat-controlled Legislature a sense of the playing field as they craft and then fine-tune the state’s two-year budget during the 2021 legislative session. Nevada’s Constitution requires the state to adhere to a balanced budget, not spending more than it brings in.

But the tax revenue projections approved by the forum highlight the level of budget cuts that lawmakers will need to approve come February 2021 after years of sustained growth in the state’s general budget account.

Sisolak last month asked state agencies to prepare up to 12 percent cuts in their budget for each year of the coming budget cycle, down from the levels approved during the 2019 regular session. State agency budget requests submitted in October totaled out to 9.67 billion, so an across-the-board 12 percent reduction would likely bring spending totals in line with the tax revenue projected Thursday by the Forum.

In a statement Thursday, the governor said the Forum's report was a "sober reminder of the devastating impacts COVID-19 has caused in our state."

"This global pandemic has created both a fiscal and economic crisis in our state, and my Office, the Governor’s Finance Office and state agencies will continue the challenging task of preparing an Executive Budget based on our new fiscal reality with the goal of preserving vital services as we plan for a post-COVID future," he said in a statement.

A coalition of more than 60 organizations wrote to Sisolak this week asking him to include tax increases in his budget proposal. The group, which includes an array of unions and other  progressive groups, offered its support, saying it recognized that there would be “significant political capital and support needed to raise revenue, especially during an economic downturn.”

“We ask that as you prepare budgetary recommendations for the 81st Legislative session, you take bold action to diversify and increase revenue streams into the state coffers in lieu of making catastrophic budgetary cuts that will disproportionately harm the most vulnerable Nevadans,” the group said.

The Legislature may also take up two initiative petitions spearheaded by the Clark County Education Association — one to raise a tax on gaming and the other to raise the sales tax. The measures have garnered the required signatures, so barring a legal blockade, lawmakers will have the option of acting on the proposals or punting them to voters in 2022.

Lawmakers held a special session over the summer to cut the budget halfway through the two-year cycle in response to declining tax revenues. The projections approved Thursday for the biennium that starts next summer are $418 million above what the state expects to have collected at the end of the ongoing biennium, given plummeting revenues in recent months.

By fiscal year 2023, the state expects to have rebounded and be bringing in slightly more than the $4.287 billion brought in during fiscal year 2019.

Below are details on the projections that make up the overall general fund forecast.

Gaming percentage fees 

Forum members predicted the state will bring in $1.39 billion in revenue from gambling taxes in the upcoming biennium —  a number lower than the $1.6 billion the forum predicted in late 2018 for the current biennium.

Gambling revenues are rebounding from an effective standstill earlier this year when casinos were closed for 11 weeks in an effort to slow the spread of coronavirus. The amounts of money that casinos “won” from gambling in both the current fiscal year and the one that finished this summer is the lowest in at least a decade.

Casinos are still suffering as large events that bring gamblers were canceled, current restrictions limit casino floors to 25 percent capacity, and record-setting coronavirus case counts deter people from traveling. Three major casinos — the Rio, The Palms and Virgin Hotels (formerly the Hard Rock) — have yet to reopen, and several other major resorts are closing their doors midweek because business is slow.

But slot play has remained a bright spot that led to tax revenues that overperformed forecasters’ expectations. Slot tax revenue in some parts of the state has returned to pre-pandemic levels as local Nevada residents continue playing even while tourists remain scarce.

Guindon said he’s keeping an eye on whether the stronger-than-expected gambling revenue is a reflection of “cabin fever” and people seeking out casinos in the absence of the full spectrum of entertainment options. Analysts are also monitoring whether gambling will dwindle as the effect of federal stimulus money — including unemployment — wears off.

“I’ve been told by several operators, ‘yes, stimulus is helping.’ And they also feel that it’s wearing off,” said Michael Lawton of the Gaming Control Board.

Sales tax

Nevada’s 2 percent sales and use tax makes up the largest portion of collected state tax revenues, with forum members projecting that it will raise a total of $2.489 billion over the two years of the budget cycle. That’s a drop from the $2.6 billion projection forecasters made two years ago for the current biennium.

But forum members and state fiscal analysts said that any projections regarding future performance of the sales tax would be greatly affected by whether the federal government is able to pass another substantial COVID-19 related stimulus package in the near future, and how large it might be.

Members of the forum had asked staff to prepare two sets of data regarding the sales tax — one scenario estimating a $1.5 trillion stimulus package and one without. Sans a stimulus package, state analysts estimated that performance of the sales tax would not return to pre-pandemic levels until 2023 at the earliest, with the state’s leisure and hospitality sector suffering the most.

Nevada’s statewide sales tax is 4.6 percent — 2 percent going to the state’s general budget fund, and another 2.6 percent going to K-12 education through the Local School Support Tax. But the actual sales tax is higher given that counties and other local governments have added other sales tax add-ons, meaning the state’s average sales tax is closer to 8.32 percent.

Ultimately, members of the forum opted to adopt a projection averaging out the “baseline” scenario including the $1.5 trillion stimulus and the no-stimulus scenario, saying it was the best way to hedge against future uncertainties and because the most recent news on federal stimulus negotiations indicate that the size of the package will be around $908 billion, or about 60 percent of the stimulus scenario.

“So the numbers are big, the variances are big, it's important that we try to get this right with imperfect information,” forum member Linda Rosenthal said. “But given what we know, like I said, I think there will be a stimulus. The question is how much.”

Modified Business Tax

The modified business tax (MBT) is projected to bring in $1.45 billion in the next biennium, or slightly more than the $1.37 billion the forum predicted two years ago.

The majority of the revenue comes from the “general business” category, which has a tax rate of 1.475 percent on wages, excluding the first $50,000 and health-care deductions. Financial institutions and mining businesses have different rates. 

The general business category is suffering the effects of widespread unemployment and shrinking payrolls, although it is on the mend.

The remaining two categories, however, have been robust even during the pandemic. The financial institutions category is seeing brisk business as banks have been active in administering federal Paycheck Protection Program loans and playing a part in the mortgage refinancing boom.

Mining payrolls have also grown because mining is countercyclical and generally booms while the larger economy struggles.

The MBT accounts for about 16 percent of Nevada’s general fund revenues.

Live entertainment tax

Nevada’s live entertainment industry suffered a crushing blow as the state enacted gathering limits to prevent the spread of COVID. Even today, the state bans events of more than 50 people or more than 25 percent capacity in a venue, which precludes the large-scale spectaculars that dazzle tourists and employ thousands of artists and production staff.

Revenues from the tax, which applies to tickets, have effectively zeroed out, but the forum is predicting the tax will yield $183 million in the coming biennium. That’s well below the $258 million that forecasters predicted two years ago for the current biennium.

Forecasters don’t expect revenue to return to pre-pandemic levels until mid-2022. Another variable is how long it might take for shows and events that have been dark for months to regroup, and how many will never return.

But a vaccine is expected to make a major difference. Lawton said he believes recovery will be “swifter and stronger than originally anticipated” once capacity caps lift.

The tax is a 9 percent admission charge on a live entertainment venue that seats more than 200 people, although exceptions include tickets to a professional sporting event in which a Nevada-based team is playing — such as a Raiders or Golden Knights home game. The tax accounts for about 3 percent of Nevada’s general fund revenue.

Other taxes

The Commerce Tax, which is assessed on businesses with gross revenues of more than $4 million a year, is expected to yield about $418 million in revenue in the coming biennium. That’s a drop from the $445 million the forum had predicted for the current biennium when it met two years ago.

That’s expected to be reduced by about $89 million when eligible businesses claim tax credits against their MBT obligations.

The insurance premium tax is expected to bring in a little more than $1 billion over the biennium, which is a bump from the $950 million the state expected from the tax when it made projections two years ago.

Other tax credits, including those for K-12 educational scholarships, companies that shoot films in Nevada and businesses that relocate or expand in Nevada, are expected to shave another $84 million from overall general fund revenue.

Economic Forum Projections - December 2020 by Michelle Rindels on Scribd

Updated at 5:31 p.m. to include a statement from Gov. Steve Sisolak.

Planning through a pandemic: Economic Forum begins difficult task of projecting state’s tax revenue amid many unanswered questions

When will a COVID-19 vaccine be developed and used widely? When will it be safe to travel again? And will the federal government issue another round of stimulus checks or other financial aid?

Those are just some of the questions that people in Nevada and across the country are grappling with as the coronavirus pandemic continues into its eighth month. 

They’re also questions being assessed by a different group of people: the five private-sector taxation and finance experts on Nevada’s Economic Forum, who have been given the difficult task of trying to project the state’s tax revenue over the next two years with a host of major, unanswered questions about the pandemic and associated economic factors.

During its Thursday meeting — the first since mid-June — Forum members sat through more than six hours of presentations and analysis on a wide variety of economic factors. Those included wage and income data, region-specific employment numbers, housing information, tourism trends and more.

But presenters and nonpartisan legislative fiscal analysts agreed that members of the Forum were facing a difficult road ahead in trying to accurately guess tax numbers in the midst of a global health crisis.

“I would have never thought in my career as an economist, that you'd show me an employment chart and it looks like a bird flying into a window,” Legislative Counsel Bureau Fiscal Analyst Russell Guindon said during the meeting. “To see that kind of pronounced fall, it’s just crazy.”

The five members of the Forum, who are appointed by the governor and Legislature, are tasked with projecting revenues from the state’s major and minor tax sources. Members of the Forum typically approve projections by selecting one of three forecasts offered by analysts with the Governor’s Finance office, the Legislature and with Moody’s Analytics.

By law, the Forum must submit tax revenue projections to the governor’s office by Dec. 3 during odd-numbered years, which are then used to build state budget recommendations. They meet again in May of even-numbered years to issue a final projection, which is then used by the Legislature to craft the state’s two-year budget.

Though most of the meeting focused on general and region-specific economic information and indicators, members of the Forum were also briefed on the status of past tax projections.

Actual tax collections to date have slightly exceeded a revised “consensus estimate” from legislative and gubernatorial budget staff made in late June. Tax revenue is up 2.2 percent, or $88 million, from the revised June estimate, but still 9.1 percent, or $369 million, below the original Economic Forum forecast that was used to build the state’s budget.

Tourism

Heading into the 2021 Legislature — which will begin in February — many of the analysts who testified on Thursday said the Forum should take a cautious outlook on the future of the state’s tax revenue sources.

Jeremy Aguero, a principal analyst with Applied Analysis, said he was “very concerned” about the state’s economic outlook heading into 2021 and 2022, as many economic models projecting a quick recovery generally relied on a COVID vaccine being developed early next year and quickly distributed over the subsequent 12 months.

While the business shutdown earlier in 2020 was economically harmful, Aguero said he is much more concerned that if a vaccine is not readily available, the main economic engine of the state — the Strip and tourism economy — will continue to lurch forward at a reduced capacity for three or four years owing to reduced domestic and international travel, as well as a greatly reduced convention market.

“So do I think it's going to be the full magnitude of what we faced over the past few months, when our economy was essentially shut down? No, I don't,” he said. “But it is the long arc of the COVID-19 crisis that keeps me up at night … we remain the least diversified economy of our size in the United States today, and the vulnerabilities associated with that are going to be problematic.”

Aguero added that the financial pressures on state and local governments are going to be “dramatic” over the next few years, and urged Forum members to be “conservative in your outlook.”

Las Vegas Visitors and Convention Authority Chair Steve Hill also had a mixed bag of news for members of the Forum. He said that driving traffic from Southern California has essentially recovered to pre-pandemic totals, but air travel numbers, room occupancy rates and overall gross gaming revenue remain significantly reduced from where they were before the pandemic. 

Hill said one of his biggest concerns rests in the possibility that normal convention or meeting business will stay dormant. He said that Las Vegas in 2019 had more than 24,000 “meeting and convention” events (defined as any event with more than 50 people in attendance) that brought in more than 6.6 million people, and that failing to restore those types of events would have a major negative impact on the state’s financial outlook.

“And if we don't see improvement, a clearer path toward having those meetings, we have customers who are looking to potentially cancel or looking to actually move to a different location that does offer them the opportunity to have that meeting,” Hill said. “So that’s the situation we find ourselves in now. The decisions that we're making now are starting to affect that industry, that portion of our visitation.”

That aspect may be helped by Gov. Steve Sisolak’s decision two weeks ago to raise the state’s in-person gathering limit up from 50 to 250, with specific rules for conventions including a 1,000-person capacity limit.

Economic Forum Chair Craig Billings, who also is the chief financial officer of Wynn Resorts, agreed and said that the restoration of the convention and meeting business will play a critical role in how the state’s economy recovered.

“The dearth of both group and convention business — I think the impact on the city really cannot be understated,” he said. “It is what drives pricing power midweek. It is what drives a tremendous amount of operating leverage through the town. And employment will be unusually dependent on its return, actually.”

Overall, Nevada has recovered about 52 percent of the jobs lost during the initial partial business shutdown ordered by Sisolak in mid-March, according to economic development officials.

Housing outlook

In a stark divide between the haves and have nots, home sales in Nevada are hot even as the state grapples with how to avoid an impending wave of evictions that is projected to affect more than a third of renters by the end of the year.

“We're seeing a residential market that is really moving counter intuitively to the broader economy,” said Brian Gordon of the economics firm Applied Analysis.

Gordon highlighted record-setting median resale home prices in Las Vegas that reached north of $337,250 in September, a stunning gain from their Great Recession trough of $118,000 in 2012 and up nearly 9 percent year over year. With just one and a half months of inventory, Las Vegas is “woefully undersupplied” with homes, he said.

Low interest rates are giving people more buying power, and many are leaving more expensive coastal areas to get more bang for their buck in Nevada. With people increasingly working remotely, they are more free to leave big cities and pursue a more desirable physical house, Gordon said.

“Everybody is now doing everything from home,” he said. “They're really not going on vacations and so people are just generally spending a lot more time in their personal residence.”

Gordon said Nevada’s mortgage default rate is about 9 percent, slightly more than the national rate of about 8 percent. Nearly 45,000 Nevada mortgages were past due in the second quarter, which is about one-third the number in default in the depths of the last recession.

If economic weakness continues another year or two, the home market could start to respond more, but Gordon said the state is better positioned now than before the Great Recession. Less than 3 percent of Nevada mortgages are underwater, compared with more than 70 percent in 2010.

“People have equity in their homes today more so than they did leaning into the last cycle, so I think that provides some level of stability as well if we start to see pricing give way,” he said.

With more equity, Nevada homeowners generally have more “skin in the game” and are less likely to walk away from their homes than a decade ago when the state experienced a foreclosure crisis. Still, the bleaker factors of the economy could catch up with the housing market in the long term.

“Do I believe that we can continue to see home prices escalate, you know, by another 9 percent on top of 9 percent over the next year or two consecutively? It seems pretty unlikely,” Gordon said. “I would imagine there'll be some sort of resetting, but that feels to me like it's even beyond the six month timeframe that I was just sort of referring to.”

Senate approves measure starting process of dramatically changing mining’s tax structure in Constitution

State Senator Pete Goicoechea inside the Senate chambers on Friday, July 31, 2020 during the first day of the 32nd Special Session of the Legislature in Carson City.

State lawmakers have taken the first steps to amend a cap on mining taxes in the state Constitution, a process that could raise hundreds of millions of dollars in new revenue but was staunchly opposed by Republicans and the mining industry representatives who warned it would be a “death knell” for rural Nevada.

On the second day of the state’s 32nd special session, members of the state Senate met first to vote out SJR1 on a party-line 13-8 vote. Members of the Assembly are likely to take up that proposal and a similar measure, AJR1, at some point this afternoon in spite of concerns that lawmakers were taking up a dramatic change during an emergency special session.

“I have a very high level of comfort that there will be more than enough opportunity to have this fully vetted,” said Democratic Sen. Julia Ratti. “I also believe we’ve been talking about mining’s special place in the Constitution for decades. For one reason or another we never get there.”

Democratic lawmakers introduced both resolutions on Friday to amend the state Constitution to remove the 5 percent cap on net proceeds of minerals tax and increase it to a more flexible 7.75 percent rate, kickstarting a process that will require approval of the 2021 Legislature and approval by voters during the 2022 election.

The proposals were met with howls of protest by Republican lawmakers, mining interests and business groups, who said the proposal would destroy the mining industry and communities that depend on it. They argued that a tax on the gross proceeds would not pencil out for companies operating on thin margins, and would drive a major economic sector of rural Nevada out of business.

“Consider how you're going to affect the real lives of people living in these areas that will be essentially obliterated,” said Republican Sen. Keith Pickard. “Their dreams, their futures ... they'll have to leave or they'll have to submit to a life of poverty."

Democratic lawmakers said higher taxes on the industry would help fill expected major budget gaps caused by the ongoing COVID-19 pandemic and ensure the industry pay its fair share to the state. Democratic Sen. Chris Brooks said Nevada taxes some industries on gross proceeds, and other jurisdictions tax mines on their gross revenue rather than the net.

“This is an economic crisis that is unprecedented in modern times across this planet,” said Democratic Sen. Chris Brooks. “If we don’t start that conversation right this very minute, we are already behind.”

Both the Senate and Assembly proposals share a similar structure, but allocate expected future tax dollars to different sources.

Both would remove the 5 percent cap on net proceeds of minerals taxes, and replace it with an annual 7.75 percent tax on the gross proceeds of minerals. The amendment would also empower the Legislature to raise the tax rate by a simple majority vote, while requiring a two-thirds majority to lower rates or add deductions; a reversal of the existing two-thirds requirement in the state Constitution.

The Assembly proposal would require a quarter of proceeds be put in a segregated budget account that would have to be exclusively used for “educational purposes,” “health care of the residents of this State,” or to “provide economic assistance” to state residents.

But the Senate-side resolution would require the state to put aside half of the funds raised through the new tax rate to a separate, legislatively established program required to make payments to “eligible persons domiciled in this State.” It would operate similar to the Alaska Permanent Fund, a sovereign wealth fund that backed by a percentage of oil sales, but bill backers in Nevada say it would likely be more targeted to tribal communities or those most affected by mining.

Progressive groups who have long sought tax hikes on the state’s mining industry appeared to favor the Assembly proposal. The Progressive Leadership Alliance of Nevada said in a release it was neutral on the Senate proposal and in favor of the Assembly proposal, and the Center for Biological Diversity said it would prefer earmarking the funds for social programs, saying that the Alaska fund created perverse and environmentally unfriendly incentives for the state.

Legislative Fiscal Analyst Russell Guidon said on Friday that based on 2019 mining revenue and taxation numbers reported to the state, the change in law would have generated an estimated $607 million tax revenue for the state. Assuming that lawmakers continued to backfill the mining tax proceeds to local school districts and counties, the state would see about $541 million from mining taxes, which would be split between the general budget fund and the new, constitutionally-mandated program for direct payments.

But many Republican lawmakers balked at the idea of the higher taxes for the state’s mining industry, pointing out that it could substantially disrupt smaller or newer mines. Many pointed to a net proceeds tax report submitted to the state in 2019 that showed of 104 mines, around 40 reported more deductible expenses than income.

“There could be situations where this tax could put the viability of a business in play,” Guindon said. “But that could be said for possibly any tax that could be imposed on a business.”

As with any other constitutional change, SJR1 and AJR1 would need to pass out of the special session, the 2021 Legislature and be approved by a majority of voters in the 2022 election to become part of the state Constitution. Lawmakers told the Las Vegas Review-Journal on Friday that they planned to pass both proposals during the special session and make a decision on which one to proceed with in the next session.

A similar proposal to take out the mining tax cap out of the state Constitution fell short on the 2014 ballot by about 4,000 votes out of more than half a million passed. An effort to reduce mining tax deductions was floated but ultimately defeated during the last special session in July.

In eight hours, bill to draw millions more in taxes from mining is born, dies at Legislature

A proposal to bring the state more money from mining by removing some of the tax deductions companies can take emerged and died at the Legislature in a matter of hours in a symbolic but ultimately ill-fated attempt to alleviate a $1.2 billion budget shortfall. 

Democratic lawmakers trumpeted that the legislation would bring equity to a tax structure in a state that has long favored mining, while Republicans lamented the breakneck speed at which the bill progressed and worried about the unintended consequences the legislation might have on the industry. 

The bill passed the Assembly 29-13, on party lines, before faltering again along party lines in a late-night hearing in the Senate. With a 13-8 Senate vote, the bill failed to garner the two-thirds majority needed to pass it.

During the late night proceedings, lawmakers quizzed legislative fiscal and legal staff on the finer points of the net proceeds of minerals tax on mining and potential fiscal impacts of the proposed bill. By limiting companies to just 60 percent of the deductions they would normally take, and along with a bill requiring a double payment of taxes in the current year, it would have yielded another $102 million for lawmakers to apply to the shortfall.

But the bill’s fast rise through the Legislature was slapped down by Senate Republicans, many of whom signaled early on in the day that they would oppose the proposal. They criticized the late introduction of the measure and the lack of mining industry input, and they said that it was putting the burden too squarely on a single industry.

“In the West, if you are wearing a mask at night demanding money, it just doesn’t look right,” said Republican Sen. Joe Hardy.

Sen. Pete Goicoechea, who characterized himself as probably the only current lawmaker who has worked in a mine, said that the proposal would boost local government revenue but at the expense of some of the smaller mining projects. He urged lawmakers to postpone the discussion on the legislation until the next full legislative session.

“It’s just not fair. It’s not right. Here we are at two o’clock in the morning on a bill that started some 10 hours ago,” Goicoechea said. “I commit to you, bring this back to the regular session where it belongs, an open session where we can have input.”

Sen. Keith Pickard said he would have been a definite yes if the money had been earmarked for education, but saw nothing restricting the funds to that purpose.

Democratic Senate Majority Leader Nicole Cannizzaro, charged with trying to get politically dicey tax measures past the tricky two-thirds threshold, said Republican lawmakers were making excuses, especially on the education point. She pointed out their lack of support for a payroll tax extension bill last session tied to teacher raises.

“At some point there has to be a compelling reason for all of us to vote for Nevadans, the people we represent,” she said. “We’re in an empty chamber without members of the public sitting in the rows above us and without folks standing out in the hallway and separated by our colleagues with plexiglass and masks. I don’t know what else is going to shine a light broadly on this.”

In spite of the bill’s failure, lawmakers made progress towards wrapping up a special session that has stretched into its tenth day. Democrats and Republicans introduced separate outlines of expenditures they want to restore that were on the chopping block in Gov. Steve Sisolak’s original $1.2 billion reduction plan. 

But with the Assembly and Senate not scheduled to meet until Saturday, resolution on the state’s budget shortfall will have to wait until at least the weekend.

Nevada State Senate Minority Leader James Settelmeyer on the eighth day of the 31st Special Session of the Legislature in Carson City on Wednesday, July 15, 2020. (David Calvert/The Nevada Independent)

Mechanics of the bill

As originally drafted, AB4 would have done little to address the state’s current budget shortfall.

That’s because the bill initially repealed a section of another bill, SB3, passed during the special session requiring mines to make advance payments on their taxes. Combined, the bills would have netted an additional $200,000, a fraction of the state’s shortfall. 

“If you pass AB4, which takes away SB3, you're no worse off than you are now, and you're slightly better off,” Legislative Fiscal Analyst Russell Guindon told lawmakers on Thursday.

But Assembly Democrats introduced an amendment removing that provision, meaning mining companies would double up payments and give an immediate fiscal boost to the state this year of $102 million.

Several environmental advocates, speaking during two lengthy public comment periods on the bill, said that the legislation would ensure that the mining industry pays its “fair share.”

“Nevada's landscape is littered by abandoned and decommissioned mines and mining shouldn't receive excessive deductions to clean up the messes they made on our land,” said Christi Cabrera, advocacy director for the Nevada Conservation League.

Union leaders and rank-and-file teachers, meanwhile, praised the move to generate even a small amount of additional revenue. But Jim Frazee, vice president of the Clark County Education Association, said the proposal didn’t go far enough.

“For over 150 years, the mining industry in Nevada has received a special status that very few industries in the history of capitalism have achieved,” Frazee said. “It is time that the children of Nevada achieve the same status that some politicians have given to rocks. It is time that we make the untouchable budget items education and health care and not mining.”

No representatives of the mining industry testified on the bill during a hearing in the Assembly, though Tyre Gray, president of the Nevada Mining Association, testified against the bill in the Senate. Gray said he didn’t get a call about the bill until 3:15 p.m., about two hours before details of the bill were first announced.

“I honestly still don’t know how this will impact all of my members,” Gray said. “Mining is happy to be part of the solution, but it can’t be the solution.”

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.

Lawmakers declare fiscal emergency, accept federal coronavirus aid for child care, mental health and arts

Lawmakers on the state’s Interim Finance Committee unanimously voted Wednesday to declare a fiscal emergency — a step that will allow the panel to access roughly $400 million in the state’s “rainy day” reserve fund and blunt the sharp revenue drops expected from pandemic-related business shutdowns.

Democratic Assemblywoman Maggie Carlton, chair of the committee, said the move was a first for the panel under a new process created last legislative session. It comes after Gov. Steve Sisolak declared a fiscal emergency on Monday on the basis that the state could face a shortfall of between $741 million to $911 million, or about a fifth of the state’s budget for the fiscal year ending June 30. 

The declaration came as lawmakers voted to accept a handful of federal coronavirus relief grants and heard updates on an even larger $836 million federal grant the state will receive to support state and local government agencies. State agencies were asked to submit proposed budget cuts to the governor’s office a few weeks ago to absorb the impact of revenue drops, and Republican Sen. Ben Kieckhefer said he wanted an update for a more complete picture of what funds are coming in and what are going out. 

“We are working through all of the proposals that were provided by the state agencies to comply with that memo that went out last month,” said Susan Brown, head of the governor’s budget office. “We are still working through those, and there are still some decisions to be made on that.”

Sisolak’s office has so far declined to release the proposals agencies have submitted on where they think they could cut.

Fiscal analyst Russell Guindon of the Legislative Counsel Bureau also said that further detail about the state’s revenue picture is not yet clear. The state is certain that gaming tax revenue — the second largest source for the general fund and one that has been zeroed out since mid-March because of a total shutdown — will fall about $160 million short of projections for the fiscal year.

Information on what other tax revenue sources will come in is less clear and “speculative” right now, Guindon said. Sales tax is the largest source of revenue for Nevada’s general fund.

Lawmakers raised questions about what specifically the large CARES Act grant will support, asking whether it could pay for Chromebooks that support distance learning while schools are out or whether it will promote an expansion of COVID-19 testing and contact tracing. Legislative leaders promised there will be opportunities for feedback and detailed reporting on where the grants go, just as there was with stimulus funds from the Great Recession.

"I want to assure everyone that we are communicating with the governor about how to be inclusive and transparent and allow folks to see exactly where this money is going,” said Assembly Speaker Jason Frierson.

Brown noted that Nevada was getting about $1.25 billion from the CARES Act, including $119 million for the City of Las Vegas, $295 million for Clark County and $117 million for school districts and the Nevada Department of Education.

The remaining $836 million can be used broadly for state and local agencies that are not receiving direct allocations but whose employees are participating in the response to COVID-19.

Other allocations

Members of the IFC also voted to approve a variety of federal grants for coronavirus relief. Among them:

  • An additional $442,000 from the CARES Act to support arts organizations struggling amid widespread cancellation of events. Grants of $2,500 to $10,000 will support groups such as theaters and orchestras who need assistance paying rent and paying salaries and operational costs. Republican Assembly members Robin Titus and Glen Leavitt were the only votes against the allocation, and Democratic Assemblywoman Heidi Swank abstained, saying her employer previously received a grant from the Nevada Arts Council.
  • About $33 million to the child care subsidy program. More than $24 million will go to help child care providers — many who have been unable to secure assistance from federal loan programs — to weather the financial crisis and loss of clients so they are available when demand picks up. Another $8 million will go to continue child care subsidy payments to families. Republican Assemblywoman Robin Titus was the only vote against the allocation.
  • More than $7 million for public safety agencies. The grant money can be used for expenditures such as overtime, personal protective equipment and health care for incarcerated people. Republican Assemblywoman Robin Titus was the only vote against the allocation.
  • Nearly $2 million to support mental health initiatives, including creating a “warm line” to provide mental health services to health care professionals who are dealing with increased stress during the COVID-19 pandemic. Funds will also expand capacity for mobile units that respond to families and children in crisis, in hopes of keeping them out of emergency rooms. The vote was unanimous.

Economic Forum: Sisolak, lawmakers will have $8.8 billion to craft state budget

Governor-elect Steve Sisolak and Nevada lawmakers will have a little more than $8.8 billion in projected tax revenues to work with as they craft a budget for the state’s next two years, an increase of $591 million over Nevada’s current budget.

The $8,834,900,000 revenue figure comes courtesy of the state’s Economic Forum, which projected on Monday a 7.2 percent increase in state tax revenue over the next two years and also assumed an economic slowdown — but not a full-blown recession — sometime before 2021. The forum consists of a five-member panel of economists appointed by the governor and legislative leaders charged with forecasting revenue for the state’s two-year budget cycles.

The group met to weigh and approve initial projections of billions of dollars in tax revenues for the state, ranging from payroll taxes to gaming percentage fees, by using projections submitted by the state fiscal analysts, the governor's budget office and Moody’s Analytics.

Though a final tax revenue projection will be approved in May, the forum’s decision Monday gives the first clear picture of how much leeway the Democrat-controlled Legislature and Sisolak will have to pursue their priorities and campaign-trail promises. Outgoing Gov. Brian Sandoval’s proposed two-year budget outlined last week came in at $8.8 billion, with more spending allocated to school safety, Medicaid and K-12 education.

“I am encouraged by how the state is performing," Sisolak said in a statement. "I look forward to reviewing the final forecast released by the Economic Forum and creating a roadmap to implement the priorities that matter to Nevadans. I am committed to building a bright future for our state and that starts with building a budget that funds the initiatives that will get us there.”

As they did in their November meeting, much of the forum members’ discussion centered around how to best prepare for a likely economic slowdown or recession predicted to strike at some point in the next two years.

State fiscal analyst Russell Guindon said he and other state economists disagreed with a forecast by Moody’s Analytics predicting that Nevada would suffer worse than the national average in an economic downturn, saying various economic indicators including construction employment appears more “normal” than it did during the state’s boom prior to the 2008 recession.

“People say we haven't recovered the construction that we lost. I, as an economist, would start to get concerned if we were back to where we were in construction employment — now we are setting ourselves up for that fall,” he said. “It just seems like things are maybe a little more normal now in Nevada as we’ve come out of this recovery, then what we saw prior to the Great Recession.”

Nevada’s recent economic development efforts have focused on diversifying the economy beyond gaming and hospitality, which is dependent on discretionary income and thus vulnerable to national economic swings. Economists suggested the state has made meaningful progress on that goal, and that Nevada isn’t necessarily falling into the unsustainable pattern of construction workers building homes to house more construction workers.

“I think our economy is a little different now than it was before the Great Recession because of our mix,” Guindon said.

Despite the gains in other sectors, much of the state’s workforce is still employed in service or retail jobs that could be particularly vulnerable to a recession — leading Moody’s Analytics to predict Nevada unemployment in a future recession to outpace the national average. Susanna Powers, an economist with the Governor’s Finance Office, predicted a slowdown in growth over the next two and a half fiscal years as opposed to a recession per se, though.

“The camp I fall in is we will see continued growth, It will be softer, maybe slower, as we see our current economic expansion to mature,” she said.

Here’s a look at what the major tax sources are expected to bring in over the next two years:

Sales and use tax

The forum is estimating that the state’s sales and use taxes will generate $2.6 billion over the biennium, a 10.8 percent increase over the last budget cycle. Sales tax is the largest single source for Nevada’s general fund, accounting for about one-third of its revenues.

That includes a 5.2 percent increase in the 2020 fiscal year and a more modest 4 percent increase in the 2021 fiscal year meant to account for a projected economic slowdown.

While both taxes are assessed on the sales of goods and services, sales taxes are levied on retailers when selling while use taxes are imposed on items purchased. The goal of use tax is to capture taxes on items and services purchased out of state.

Forum member Marvin Leavitt agreed with forecasters that a series of new projects — including the new Raiders stadium, the expansion of the Las Vegas Convention Center and the new Resorts World casino — will buoy sales and use tax over the next two years, but expressed uncertainty whether that growth would continue into the end of the biennium. He also noted that the forum historically tends to overestimate sales and use tax.

“It looks like to me that we've got enough big construction projects in the works that almost the next two years at least guarantees we'll have a certain level of sales tax,” Leavitt said. “We don't have a guarantee on the construction into that third year, plus the effect of a slowdown in the economy.”

Gaming percentage fee tax

The forum projects the state will collect $1.6 billion from gaming taxes in the upcoming biennium, a 3.2 percent increase over the prior two-year cycle. Gaming taxes account for about 18 percent of general fund revenues.

The total percentage fee collections include taxable gaming revenues — calculated from the total gaming win and adjusted for credit issued and collected — and an estimated fee adjustment, a monthly tax liability reconciliation.

Leavitt, one of the forum members, expressed uncertainty that gaming revenue would significantly increase until the new Resorts World casino opens in early 2021. But he agreed with fiscal staff that the casino’s opening may not immediately translate to an increase in taxes collected because the casino may see a significant amount of credit play when it first opens.

“I'm under the assumption that we're going to see this 1, 2 percent growth for the biennium, other than the last six months,” Leavitt said. “But [fiscal staff] pointed out something that is true, when these large properties open up, you have the credit play and it could take three to four months to collect it. Well, again, you might have the increase in the gaming win but not in the actual percentage fees.”

Guindon, the fiscal analyst, noted that the economic slowdown also could result in a slowdown in visitors toward the end of the biennium, and a corresponding reduction in gaming taxes collected. His projections, which were the most conservative of the four gaming revenue forecasts over the biennium, were ultimately accepted by the forum.

Insurance premium tax

The forum projects Nevada will collect $950 million in taxes on insurance premiums over the next two years — a 10.7 percent increase.

Insurance premium taxes account for about 10 percent of Nevada general fund revenues.

Forum members characterized this tax as largely resilient to economic downturns. Fiscal analyst Michael Nakamoto pointed out that people will still have things to insure — homes, cars, businesses and their own lives — when recessions come.

He also pointed out that health-care costs continue to rise, buoying the tax collections.

Real property transfer tax

The forum expects the state will collect $227 million over the biennium from the real property transfer tax, which is levied based on the value of real estate that’s sold. The tax provides about 2 percent of general fund revenues.

Forum member Leavitt noted that this tax can be difficult to predict. Nevada’s housing market is experiencing a wide range of conflicting factors that can speed or slow homebuying.

Economists suggested that the current rate of home price increases is unsustainable. Wages are failing to keep pace with the rising values of homes in the state, and the two need to come into closer alignment.

“We’re starting to find that normalization,” said Powers, the economist with the Governor’s Finance Office. “What is normal for Nevada?”

There are also the first signs of land shortages in Southern Nevada, and the consideration that people are reluctant to buy homes when they think a recession is approaching.

Commerce Tax

State fiscal analysts said they’re still trying to perfect projections of the state’s Commerce Tax, created in the 2015 Legislature and applied on a business’s gross annual revenue over $4 million, with rates determined by business type.

Forum members approved a projection of $445 million in tax revenues — an 8 percent increase over the last budget cycle — over the two-year budget period, but observed that the forum has been off in past projections of Commerce Tax revenue and had no background into how the tax might perform were the economy to stop growing.

“This one is a tough one,” Leavitt said. “We’ve never been through a recession since this tax has been enacted. So you’re sort of flying a little bit (blind).”

Another influence on the tax is a reduction in another tax — drafters of the Commerce Tax legislation included a provision requiring an automatic reduction in payroll taxes, or “Modified Business Tax,” if the combined amounts of payroll tax, Commerce Tax and an excise tax on banks exceed Economic Forum projections by more than 4 percent.

That scenario happened in 2018, meaning payroll taxes will decrease by about $100 million over the next two-year budget cycle.

The Commerce Tax brings in about 5 percent of Nevada’s general fund revenue, but after factoring in tax credits that businesses can take against their modified business tax payments, it contributes closer to 2.5 percent.

Live entertainment tax

The forum predicts the live entertainment tax will draw nearly $258 million over the biennium, about a 2.2 percent increase over the current biennium.

The tax is a 9 percent admission charge on a live entertainment venue that seats more than 200 people, although there are major exceptions, such as for tickets to a professional sporting event in which a Nevada-based team is playing. It brings in about 3 percent of state general fund revenue.

State analysts say the combination of increasing popularity for sports team — notably the Las Vegas Golden Knights — and stable attendance at Strip residencies and shows means revenue from the tax is likely to stay flat in the next two years.

“The tax is moving sideways,” Gaming Control Board analyst Michael Lawton said last month. “And in the opinion of people I spoke with, there really isn’t anything on the horizon that’s going to materially drive this collection. There’s not a new show that we’re aware of, there’s not a new venue.”

Modified business tax

Forum members voted to accept a projected $1.37 billion from the state’s Modified Business Tax over the two-year budget period, an increase of about 1.5 percent from the last two-year budget cycle.

The tax itself is a 1.475 percent tax on wages, excluding the first $50,000 and health-care deductions, with different rates charged to financial institutions and mining industries.

It brings in about 16 percent of Nevada general fund revenue.