Economic Forum notes shortfall in state budget

Wednesday, Nov. 3, 2004 | 9:25 a.m.

CARSON CITY -- Nevada's state government will have an estimated $5.65 billion to spend in the coming two fiscal years, the Economic Forum announced Tuesday. Requests for spending are already $600 million more than that, however.

So, the good news is that the Economic Forum, whose five members come from various facets of the private sector, predicts tax revenue for the state will grow 5.8 percent in each of the two coming fiscal years, an indication that the forum members have concluded that the state's economy will continue to grow.

The bad news is that the leaders of state agencies have already said they need $5.8 billion for their budgets plus $440 million in "special consideration" items bringing the total to $6.2 billion. And that doesn't take into account any salary increases for state workers or university officials, nor does it include the pet projects that will be sought by Nevada legislators when they convene next February.

The forum will meet again on Dec. 1 to make its final estimates. And Gov. Kenny Guinn must build his upcoming budget on those estimates, unless he wants to raise taxes.

The Economic Forum, whose chairman is Michael Small of Las Vegas, took a bullish position on gaming predicting tax revenue from the casinos will increase by 5.3 percent next fiscal year and 5 percent in the following year, which should bring in $1.6 billion over the next two fiscal years.

Gaming tax revenue accounts for nearly 30 percent of the state's collections.

Frank Streshley, senior research analyst for the state Gaming Control Board, told the forum that he expects the casino industry to add 2,500 new slot machines and 4,600 hotel rooms this fiscal year, based largely on the opening of Steve Wynn's hotel and casino, Wynn Las Vegas, on the Las Vegas Strip.

Next year, Streshley said he expects 5,100 more slot machines and 2,100 rooms with the advent of the South Coast Casino and the Red Rock Station, both in Southern Nevada. In fiscal 2007, Streshley said there will be an estimated 1,900 new slot machines and 3,000 rooms with the opening of the Palazzo near the Sands on the Strip.

Russell Guindon, economist for the Legislative Counsel Bureau, said he expected strong growth in slot machine revenue. The casinos are replacing their old machines with the "ticket in, ticket out" models and those are very lucrative.

Bill Anderson, the economist for the state Budget Division, isn't that optimistic. He said he doesn't think the opening of the new casinos will draw that much action. He also noted that during the big expansion era on the Strip in the 1990s, revenue shot up 14-15 percent. He predicted a "modest growth rate" in tax revenue from gaming at 4.1 percent next year and 4 percent in 2007.

Forum member William Martin said, however, that he expects tourists will fill other hotels when they come to town to see Wynn's new property.

The forum was more optimistic than its consultant, James Diffley, director of the U.S. Regional Service Group of Global Insight. He forecast that gaming revenue would increase by only 3.6 percent next year and 2.7 percent the following year.

Diffley said there was a "major risk in the long term" with tribal gaming in California. "One has to be wary of tribal casinos in California," he told the forum.

Guindon said however the tribal casinos have not had a major impact on the Las Vegas area so far, though they may have pushed the Reno gaming clubs down by about 2 percent.

The Economic Forum adopted member Cary Fischer's call for a "middle of the road" approach on its prediction for sales tax revenue. Sales tax revenue makes up about 32 percent of the total collections by the state.

The forum estimates that sales tax revenue will rise 5.7 percent next year to $885.8 million and then will increase 5.4 percent to $933.6 million in fiscal 2007.

Diffley, however, predicted a slowing of sales tax collections to 5.3 percent next year and 5.2 percent the following year.

The forum members said they took a bullish outlook on the casino entertainment tax, forecasting a revenue jump of 20 percent next fiscal year to $113.6 million and another 9.5 percent in 2007 to $124.4 million.

Collections from the insurance premium tax are expected to increase 9.9 percent to $233.9 million next year and 9.8 percent to $256.9 million in 2007. The modified business tax is expected to generate $232.6 million next year for a 6.7 percent increase and $247.6 million for a 6.5 percent gain.

With smoking on the decline, the tax revenue from tobacco products is expected to remain stable at $117.6 million in each of the next two fiscal years. Revenue from the real estate property transfer tax is expected to rise 3.9 percent next year to $121.2 million and than 10 percent in 2007 to $133.4 million.

Robert Murdock, chief of research for the state Department of Employment, Training and Rehabilitation, said there will be a slight increase in unemployment in the next two years. He forecast that the current 4.5 percent rate would increase to 4.8 percent in 2006 and then to 5 percent in 2007. But, he noted, that would still be below the projected national average.

Job growth would continue strong in Nevada, said Murdock. He predicted a 3.7 percent rise in employment next year and a 4 percent increase in 2007.