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Economic Forum Results in Slight Revenue Boost, But Budget Blues Remain

While the workers of the world may be uniting to fight for their rights, the movers and shakers of Carson City are uniting for a different reason. Today may be May Day everywhere else, but in Carson City, May 1 is the most important day of every odd-numbered year.

Why’s that? Today is Nevada Economic Forum day, which also means today is the day when the Governor and the Legislature learn how much money they truly have to fund their biennial budget. The good news today is that the Forum isn’t forecasting any severe shortfall. The bad news, however, is that the Forum isn’t forecasting any windfall that will bail them out of their own political shortcomings.

Why are we in this bind?
Photo by Andrew Davey

Three weeks ago, we noted the odd contrast between U.S. Senator and presidential candidate Kamala Harris (D-California) unveiling her teacher pay raise plan in Carson City while the Legislature was beginning to confront the harsh reality behind Governor Steve Sisolak’s (D) own campaign promise to give Nevada educators a raise. This reality has only grown harsher in recent days, as the Clark County Education Association (one of the unions representing CCSD teachers) is threatening a strike if Sisolak and legislators don’t deliver on his promise.

So can’t they just give the teachers a raise, already? Theoretically, sure. However, as the old saying goes, it’s always easier said than done.

Photo by Andrew Davey

Remember: In his State of the State, Sisolak proposed an $8.8 billion biennial budget that’s mostly what former Governor Brian Sandoval (R) and his staff handed over to Sisolak and his staff. While Sisolak kept in place all the tax increases Sandoval advocated, including the ones that are scheduled to “sunset” this year absent legislative action, he then proclaimed, “If it ain’t broke, don’t fix it. […] This balanced budget does not contain any new taxes.”

The state may not be broke, but the system still very much appears to be broken. And yet, Democratic leaders still show no appetite for any kind of major revenue-raising tax reform, certainly not for the $3 billion (per biennium) that the Legislature’s own 2018 study says is needed for “adequate school funding”, and possibly not even for the roughly $107 million that may be needed to fulfill Sisolak’s promise of a 3% pay raise without cutting the budget elsewhere.

Why is there no “Deus ex-machina”?
Photo by Andrew Davey

Moody’s Analytics economist Dan White opened the day’s festivities (or at least, it’s festive for us fiscal policy wonks) with a bit more good news: “The current condition of the economy is very good.” Indeed, the national unemployment rate remains at 3.8% and national gross domestic product grew 3.2% last year. And in even better news, White added, “We’re seeing exceptional job growth here in Nevada. In fact, Nevada is the fastest growing economy in the country.”

However White then said, “Signs of a downturn are becoming clearer.” He explained how a potential “growth recession” hitting the nation and Nevada late next year, where GDP may continue to grow, but not enough to keep up with inflation. We may already beginning to see this now with consumer spending slipping, and this may be a sign of what’s to come considering the uneven distribution of recent economic growth.

Photo by Andrew Davey

Moody’s Analytics economist Dan White later proceeded to walk Economic Forum members through his tax revenue forecasts. Sales tax revenue remains stable, while gaming revenue most certainly is not. Nevada Department of Employment, Training, and Rehabilitation (DETR) economist David Schmidt then walked the Forum through the state of the state’s labor market. Nevada’s unemployment rate now stands at 4.2%, just slightly above the national rate.

Schmidt pointed out how our overall unemployment rate has dropped significantly over the last decade, though he also noted our ongoing structural challenges of a workforce that has yet to fully recover from the last recession. In describing these challenges, Schmidt noted, “These aren’t workers who are unemployed. These are workers who are underemployed.”

OK, maybe there is a “Deus ex-machina” in the works… But why won’t it be enough?
Photo by Andrew Davey

Thus far, there’s been plenty of “concern” among the “very serious people” in the “Democratic Party establishment” that presidential candidates like U.S. Senators Elizabeth Warren (D-Massachusetts), Kamala Harris, and Bernie Sanders (I-Vermont) have engaged in too much “crazy talk” with their calls for “political revolution”, “people power”, and “big, structural change”. Yet on days like today, this “crazy talk” feels less “crazy” and more necessary.

Getting back to the Economic Forum, the official forecast includes an extra $42.8 million in tax revenues thanks to an expected $31.4 million in extra tax revenues collected this year and an $11.4 million boost in the forecast for the next two years. At first glance our fiscal outlook seems very stable, but this veneer of stability hides the inconvenient truth that our schools and the rest of our public infrastructure are affected by things like Celine Dion ending her Caesars Palace residency, the Golden Knights being exempted from the state’s live entertainment tax, and companies like Tesla and the Raiders being exempted from a variety of taxes. And even with this small boost, it’s still not enough to cover the roughly $107 million that’s needed for Sisolak’s proposed 3% teacher pay raise.

Photo by Andrew Davey

In what may be the most absurd act of kabuki theater seen in Carson City since “The (Not So) Great Revenue-neutral Debate of 2013”, Senate Minority Leader James Settelmeyer (R-Minden) launched a campaign to “protect the rainy day fund” that’s now overflowing thanks to the last-minute 2017 budget deal that sent marijuana excise tax revenue there instead of the general fund or the K-12 public school fund, and that last-minute budget deal had to come together after then Senate Minority Leader Michael Roberson (R-Henderson) threatened to blow up the entire state budget in a last-minute gambit to fund ESA school vouchers.

Between the Economic Forum’s slight revenue boost and the potential of using the rainy day fund to provide educators and students some kind of shelter from the ongoing storm they’ve been enduring, perhaps Nevada will get some kind of “Deus ex-machina” after all, even if Republican legislators follow through on their threat not to extend the payroll tax hike that’s set to “sunset” this year otherwise. Yet even if this quick fix ultimately materializes, it’s still just a fiscal band-aid when the state is need of more serious urgent care.

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