Confronting Nevada's Post-Coronavirus Budget
So far, Nevada's response to COVID-19 seems to be working. Governor Steve Sisolak issued his emergency order to close nonessential businesses back in March. He says it helped slow the pandemic down.
But it also brought the economy to a grinding halt. Experts and elected officials predict the state is facing a massive budget shortfall as a result of stores, casinos and restaurants being closed.
Republican State Senator Ben Kieckhefer from Reno says it’s time to call a special session of the legislature to confront this new recession.
"My belief is that budgeting is a collaborative process between the legislative and the executive branches of government and that we all need to get together and figure out a comprehensive solution to close both this year and next year," he said.
Kieckhefer said the Legislature could go without a special session for this fiscal year, which ends June 30, but addressing issues for next year will need legislative action.
There are two ways a special session can be called in Nevada either through a petition signed by two-thirds of legislators or the governor can call one.
Kieckhefer doesn't believe there will be a need for a petition from lawmakers.
"I think Gov. Sisolak will ultimately choose to collaborate on this," he said, "He shouldn't and shouldn't want to wear the full burden of some of the decisions that are going to have to be made because they're not going to be fun."
The state senator said it makes more sense to get the budget makers, legislative leadership, the governor and his staff in a room to come up with a comprehensive solution to the budget problem.
Before the coronavirus, the state of Nevada was doing well, Kieckhefer said, from both a revenue and a cash flow perspective. But since March, the state has seen a shutdown of taxes gathered from tourism and gaming that accounts for 40 percent of its revenue flow.
"The current fiscal year was humming along quite well until this virus hit," he said, "Our economic collapse due to this virus incomparable to anything we've experienced."
And it is not just the state's general fund that suffered, a portion of the sales tax went directly to funding schools. Kieckhefer said the drop in sales tax revenue will impact education in the state.
The state has moved about $400 million from the Rainy Day Fund to the general fund but that won't come close to filling the shortfall that estimated to be between $741 million and $911 million.
So what CAN lawmakers do to make up that deficit?
Jayce Farmer is an assistant professor at UNLV's Department of Public Policy and Leadership.
He said the state absolutely needs to have a special session to talk about the budget problems.
"It is my understanding that we're going to be looking at a $1 to $2 billion revenue shortfall for 2021," he said, "So, we need to have a special session to talk about these looming problems and how to address these problems going forward."
He said other states rely more heavily on property taxes, which are a more stable tax base than sales taxes; however, raising property taxes can hurt property owners.
During the boom years in Nevada, the state put in place a property tax cap, which limits the amount taxes can go up every year because housing prices were skyrocketing and property taxes along with them, pushing some people close to losing their homes.
Keickhefer said he supports the property tax cap but he said there are ways to tweak the property tax system in the state without pushing people out of their homes.
Besides changes to the way property is taxed in the state, Farmer said the state must do more to diversify.
"One of the issues, I believe, that could help us in the long run, this isn't an easy solution or an easy fix," he said, "We need to continue to try to diversify our economy."
He said the main reason we're in this problem in the first place is because of the state's heavy reliance on taxes from the tourism and gaming sectors.
"If we could find other industries to rely on in the future so when we do have these types of problems, we won't be hit so bad if the gaming has to shut down or if there is again a dip in tourism," he said.
The state has long been trying to bring in different kinds of industries and that effort stepped up in the aftermath of the Great Recession. It has worked in Reno with large high-tech companies setting up shop there.
Kieckhefer wants to see more efforts to diversify Southern Nevada's economy. In fact, he hopes someone from the governor's office is on the phone with Elon Musk, the founder of Tesla, right now to bring the company to Nevada.
"He's suggested that he's interested in moving all of his operations either to Nevada or Texas and if we're not in that discussion and on the phone on an on-going basis, seeing what it would take to make that happen, then I think we're doing our jobs properly at this point," he said.
It is likely that the state will need more than new revenue streams to improve its financial health, which means departments will need to make cuts. Farmer noted that when the state talks about cuts it is really talking about people.
"Many organizations their expenses go heavily toward personnel expenses," he said, "When you start talking budgets, you're actually talking about cutting people and the services they provide."
Farmer said the state should be prepared to make across the board personnel cuts.
While decisions about job cuts are likely in the state's future, Kieckhefer believes that even if the economy reopens right now no one should expect the fiscal problems to be solved quickly.
"We're not going to make up for revenue that we've lost," he said, "So, we're going to have to deal with the very real shortfalls that we're facing now. I just think it is unrealistic, and would be fairly Pollyanna of us, to expect Las Vegas to come roaring back to the place it was before the shutdown."
He said the economic fallout of the shutdown, which he supported, will be a long-lasting problem for the state.
Ben Kieckhefer, State Senator (R.), Reno; Jayce Farmer, Assistant Professor, UNLV Department of Public Policy and Leadership