The Nevada Legislature is set to begin its 31st Special Session tomorrow. Unlike recent special sessions, where the Legislature passed corporate tax subsidy packages for the sake of “economic development”, this special session will almost certainly result in gruesome budget cuts due to the COVID-19 induced economic collapse.
So what’s in store for this special session, and what should we realistically expect from the Nevada Legislature and the Governor this week?
5:45 PM UPDATE: The Nevada Legislature goes into special session beginning 9:00 AM tomorrow.
As expected, Governor Steve Sisolak (D) called the Legislature for a special session. And while this proclamation makes clear this special session will focus on the budget crisis, Sisolak’s announcement at least leaves the door wide open for another special session to address the racial injustices that Black Lives Matter activists have been protesting and the election issues that voting rights activists want the state to address following this year’s first ever (mostly) vote-by-mail (down-ballot) primary.
Stay tuned here at Nevada Today for updates on this upcoming special session.
Why is this happening?
As we’ve been documenting since March, COVID-19’s spread across Nevada quickly became a dual public health crisis and economic crisis. Even before Governor Steve Sisolak ordered the closing of casinos across the state on March 17, hotel room rates were dropping as conventions were getting canceled. As reports began to surface on possible SARS-CoV-2 (the coronavirus that causes COVID-19) transmission at Las Vegas area events, it made sense that a lot of people did not want to risk their own lives and the lives of their loved ones just to attend a convention or blow some money at the baccarat table.
Then as casinos and other non-essential businesses were ordered closed, everyday life changed for nearly everyone overnight. And especially for those who were working in gaming and tourism, along with those working in tourism-dependent businesses, it’s been especially hard. From May 2019 to May 2020, the “leisure and hospitality” sector experienced the most job losses by far, according to the Governor’s Office’s new fiscal report. And other than construction and “mining and logging” (more on them later), all other sectors have experienced net job losses.
As a result, the state now faces an estimated $1.2 billion deficit for the new fiscal year. While that’s slightly less bad than earlier estimates of a $1.27 billion shortfall, it’s nonetheless becoming clearer that casino reopenings and other large-scale “Phase Two” reopenings are not resulting in any huge windfalls in taxable revenue. After all, even though many of Nevada’s casino resorts and other tourist attractions have reopened, ongoing domestic and international travel restrictions are playing major roles in limiting who actually frequents these reopened businesses.
How does Sisolak want to fix this?
As we reported last week, the 31st Special Session of Nevada Legislature is expected to begin tomorrow. And as the Governor’s Office’s fiscal report lays out, Sisolak now proposes a mix of reversing one-time appropriations approved last year (about $24 million), clawing back interim contingency reserve funds (about $26 million), and transfers from other state funds (roughly $84 million), along with a request for mining companies to pay their net proceed taxes in advance (estimated $54 million), a tax amnesty program to entice those owing back taxes to pay up (estimated $10 million), the shifting of state legal settlement funds into the General Fund (about $11 million), and a diversion of some Highway Fund revenue into the General Fund (roughly $24 million). Add all this together, and this only fills about $233 million of the state’s $1.2 billion hole.
So in addressing the rest of the budget deficit, Sisolak proposes a lot of deep cuts. He proposes cutting $549 million from state departments and agencies, including a 12-day-per-year furlough for all state workers (including those in NSHE colleges and universities), a freeze in merit pay raises for all state workers, and leaving some 700 vacant positions unfilled. Sisolak also proposes $166 million in general fund K-12 public education cuts, along with just over $190 million in NSHE higher education cuts.
What makes these cuts even more severe is that the state never fully recovered from the 2009-11 budget cuts that ravaged Nevada’s social safety net and public infrastructure during the “Great Recession”, including in K-12 public education and in mental health care. And considering Nevada’s ongoing difficulties in building a sufficient contact tracing program and sorting out DETR’s struggle to clear out its backlog in CARES Act pandemic unemployment (PUA) claims, prospects aren’t looking high on the state having enough funding to fully fix these problems any time soon.
Why can’t we try this (or that) instead?
To no one’s surprise, hardly anyone really likes Sisolak’s proposed suite of budget cuts, temporary transfers, and revenue grabs. However, we also shouldn’t be surprised that (so far) no viable alternative has emerged.
While Sisolak hasn’t signaled outright opposition to raising taxes this year, his budget proposal signals that he sees Republican buy-in for any tax increase as unlikely, despite some recent noise from State Senator Ben Kieckhefer (R-Reno) suggesting otherwise. And when it comes to taxes that can (at least theoretically) be raised during this special session, the commerce tax, gaming and hotel taxes, and smaller revenue pools (like the marijuana and cigarette taxes) are probably the only taxes available immediately. Because the Nevada Constitution enshrines the present mining tax rate while forbidding personal and corporate income taxes, any action taken this session (if any such action is actually taken) will have to be followed up by a round of revotes in the Nevada Legislature and a final vote of the people (with 2022 as the earliest plausible election date) before those constitutional amendments can be enacted.
So what’s left? Despite some renewed calls for a state lottery, we already have a saturated gaming market, and states that have lotteries have already learned the hard way that they don’t produce all that much revenue to use on the safety net. Despite renewed calls to target “waste, fraud, and abuse” for cuts, there just isn’t enough “fat to trim” to avoid going after the meat of essential programs. And despite continued calls to “Liberate!” and “Reopen!” everything en masse immediately, the recent resurgence of COVID-19 in Nevada and across the nation remind us that any economic recovery can not be sustained without sufficient public health recovery.
And finally, there’s the federal government. With several CARES Act programs (such as enhanced unemployment insurance/PUA) set to expire at the end of this month, America’s one major economic lifeline is about to be severed. The Democratic-run House already passed the HEROES Act in May, and that HEROES Act includes over $915 billion in aid for state and local governments. But as long as the Republican-run Senate and the Trump administration object, we’re left in a stalemate that’s leaving the Nevada Legislature in this ugly dilemma. Unless and until federal policymakers provide a way out of this dilemma, our state’s policymakers are left to deal with it themselves.