Despite fears of a potential recession, Nevada’s coffers are expected to be stuffed full of tax revenue for the next several years as the state’s economy continues to hum.
The Nevada Economic Forum Monday approved a projected budget of $11.4 billion for fiscal years 2024 and 2025, more than $2 billion higher than the current budget approved by the Legislature last year. The projection approved by the forum will act as the framework for the governor’s executive two-year budget that that lawmakers will work off of in the legislative session that begins in February.
“Today’s economic forum shows Nevada’s economy is continuing our steadfast path toward recovery,” outgoing Gov. Steve Sisolak said in a statement. “We are where we are today because of the actions we’ve taken over the last two years in the State to weather and recover from the COVID-19 pandemic, diversify our economy, get people back to work, and invest in education and affordable housing.”
Sisolak and his staff will prepare an executive budget ahead of the 2023 Legislature that will be handed off to Republican Gov.-elect Joe Lombardo, who narrowly defeated Sisolak in last month’s midterm elections.
Big budget bump
The approved projection, which will cover the two-year fiscal period that runs from July 1, 2023 to June 30, 2025, is a substantial increase from the $9.2 billion budget approved last year by Sisolak and the Legislature for fiscal years 2021 and 2022, which runs from July 1, 2021 to June 30, 2023.
But Nevada’s economy has been on immense climb since then, with significant increases in wages, approximately 22,000 more non-farm jobs than it had at its pre-pandemic peak and rising revenue collections from sales, gaming and entertainment taxes that continue to soar to levels never seen before.
Michael Lawton, senior economic analyst for the Nevada Gaming Control Board, noted that October marked the 20th consecutive month of casinos in the state recording gaming win revenues in excess of $1 billion. The state collects casino taxes on gambling wins that top out at 6.75 percent.
Other revenues are expected to continue to grow substantially over the next two years as well, another sign of the state’s robust economy. And the constant stream of big events coming to Las Vegas in the next two years is expected to drive up revenues from the live entertainment tax on ticket sales, with fiscal year 2024 being especially strong when Las Vegas hosts its first Formula 1 race and the Super Bowl.
Drops in 2025?
There was some disagreement between the analysts about how far those revenues would drop in fiscal year 2025 without those two major events, but Christain Thauer, deputy fiscal analyst from the Legislature’s fiscal division, was bullish that Las Vegas would find a way to fill those gaps, at least somewhat.
“We believe that the entertainment industry in Las Vegas, the stadium, the concert organizers, the music and art festivals, will be able to repeat this very strong performance concerning earnings and taxes in the fiscal years to come,” Thauer said.
But with inflation still high, there are still concerns about an economic slowdown, said Moody’s Analytics economist Emily Mandel.
Mandel told the forum that Moody’s baseline forecast “is recession free,” but the outlook still contains significant amounts of risk.
She said that the economy likely won’t retract year over year like it would in a recession, but rather it is projected to shift form the current phase of strong growth to one that is slower and flatter overall, but with some economic sectors shrinking while others are growing.
With more job openings than job seekers, Nevada’s labor market is following most national trends in showing significant strength, which is tied to the strong growth in incomes. That strength, she said, will help the state’s economy “coast over some of these stresses in the economy.”
Still, most of those trends are expected to slow in the coming years, which she said will feel somewhat like a recession compared to the robust growth coming out of the pandemic. That’s why there is plenty of uncertainty about the strength of the economy moving forward, Mandel said.
“The main question here, and the thing I think we’re all thinking about, is how we’re going to navigate the next couple of years and how much of a toll this is going take on the state’s economy in the process,” she said.
Lombardo hinted that at least some of the money should be saved in a statement released after the forum’s meeting.
“I’m grateful for the Economic Forum’s hard work and diligence in making these forecasts,” he said in a statement. “These numbers demonstrate there is no need for a tax increase of any sort, and I look forward to making my administration’s budget priorities fit within these projections while still acting fiscally responsible and saving money for a rainy day.”