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Inside Our Budget Blues: A Nevada Legislature Special Report

While the Nevada Legislature is deliberating on Governor Steve Sisolak’s (D) proposed budget cuts to resolve the state’s nearly $1.2 billion deficit, Congress remains stuck in its usual partisan gridlock. Why is it important that they act? And if they don’t act, how should the state act?

We spoke with a budget and tax expert on the many intricacies of federal COVID-19 relief funds, and what else the federal government can and should do to help Nevada and other states survive the fiscal side effects of this pandemic.

Here’s why it’s a huge problem that the federal government is not leading COVID-19 response and relief efforts.
Photo by Andrew Davey

As we’ve been saying for the last four months, and as Governor Steve Sisolak (D) and legislators in both parties have been pleading, the federal government can step in and help the State of Nevada solve its budget crunch. It’s now up to Congress to decide whether they do.

Since the House passed the HEROES Act two months ago, all five of Nevada’s Congressional Democrats have called for Senate Republican leaders to let the full Senate vote on the HEROES Act. Yet even as America is running short on PPE, COVID-19 testing, and adequate contact tracing, and even as states like ours are running out of money as millions of Americans will soon run out of $600 weekly unemployment income absent Congressional action, the Senate remains stuck in stalemate while the White House indulges in (even more) delusions of grandeur.

As Nevada has already had to roll back some “Phase Two” reopenings due to our worsening COVID-19 stats, as California and Oregon are moving back towards full lockdown, and as new COVID-19 infections, hospitalizations, and deaths continue to surge across America, we’re all having to learn the hard way that we can’t simply “wish”, “hope”, “pray”, or “message” the SARS-CoV-2 coronavirus away. 

Nevada is really a poignant case of what we’re seeing nationwide, which is collapsing tax revenues as a result of the pandemic.” 
– Wesley Tharpe, CBPP
Photo by Andrew Davey

Earlier today, I spoke with the Center on Budget and Policy Priorities’ (CBPP) Deputy Director for State Policy Research Wesley Tharpe on this terrible dilemma we’re facing in Nevada and nationwide. Or as Tharpe summarized it, “Nevada is really a poignant case of what we’re seeing nationwide, which is collapsing tax revenues as a result of the pandemic.”

Overall CBPP now estimates state governments will face $615 billion worth of budget deficits for the next three years, and that doesn’t even factor in the states’ share of COVID-19 response and relief efforts. And as Sisolak’s office explained in a report released yesterday, Nevada and other states are restricted from using the vast majority of their CARES Act funds to fill their respective deficits.

According to Tharpe, the CARES Act and the Families First Act only provided about $100 billion in flexible aid to state and municipal governments. Tharpe also noted, “There’s a series of rules and guidelines from the Treasury that have been confusing on how state and local governments can use CARES Act funds. The rules prevent states from using those funds to fill revenue shortfalls and prevent harmful cuts.”

“Budget cuts are the most harmful ways that state governments [address budget deficits]. […] These are generally low and moderate income people who would otherwise be spending locally.”
– Wesley Tharpe, CBPP
health care
Photo by Andrew Davey

In recent days, we’ve seen growing bipartisan calls here in Nevada for the federal government to extend the Families First Act’s temporary FMAP expansion that determines federal Medicaid funds for states. As several legislators noted during last week’s hearings on Sisolak’s proposed health care cuts, and as Tharpe explained today, “If there’s not a robust enough FMAP increase, states will have to look elsewhere,” to either cover their health care needs or not cover those needs at all (as in, budget cuts).

Beyond the Families First Act’s FMAP expansion, the CARES Act provided about $150 billion total in state and local health care grants, including about $1 billion for Nevada. But again, this money is being used for direct COVID-19 response and relief efforts, and it can not be used to maintain other health care programs.

Nevada Legislature
Photo by Andrew Davey

Unless and until the federal government acts, Tharpe advised states to consider tax increases rather than service and staffing cuts to balance their respective budgets. As Tharpe explained, “Budget cuts are the most harmful ways that state governments [address budget deficits]. People are accessing services for basic needs. These are generally low and moderate income people who would otherwise be spending locally.”

Tharpe then recommended tax increases that target wealthy individuals and businesses. But as we’ve been seeing here in Nevada, such options are limited due to the Nevada Constitution’s ban on personal and income tax, along with its 5% tax cap on net mining proceeds. For Tharpe, “The current situation shows how harmful these restrictions on raising revenue can be. States and local governments really need the flexibility to deal with emergencies.” And he noted, “[State tax restrictions] often sound nice at first, but they do tie the hands of policy makers in ways that can be harmful to families and the economy.”

“There is no doubt that these cases are concerning. We are still very much in the middle of the pandemic. This virus is not going away any time soon.”
– Caleb Cage, Nevada Health Response
Nevada Legislature
Photo by Andrew Davey

And speaking of the economy, why can’t we just “Liberate!” and “Reopen!”, as President Donald Trump and his allies continue to insist? Tharpe retorted, “The evidence is increasingly clear that the only real way to get back to growing the economy is to solve the public health crisis. By opening too early, business activity and tax revenues might tick up slightly in the beginning. But as virus infections then rebound, we’re required to close again.”

And just minutes later, Nevada Health Response held a press call to discuss the state’s continuing spike in COVID-19 infections, hospitalizations, and deaths. According to Caleb Cage, “We believe many of these new cases are coming from the Fourth of July weekend.” He then warned, “There is no doubt that these cases are concerning. We are still very much in the middle of the pandemic. This virus is not going away any time soon.”

As of 1:30 PM today, Nevada has identified 29,620 positively tested COVID-19 cases this year and 620 COVID-19 related deaths (according to Nevada Health Response and The Nevada Independent). We had 16 additional deaths just yesterday. And as of today, Nevada’s cumulative test positivity rate rose further to 8.24% as the seven-day average hovers at 13.4%, well above the WHO’s recommended 5% test positivity benchmark for reopening.

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