Shutdown’s effect on state budget too early to forecast

Gaming taxes responsible for nearly $1 of every $5 in general fund

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Steve Marcus

A sign at the pedestrian walkway entrance to MGM Grand casino announces its closure during the covid-19 pandemic outbreak Monday, March 17, 2020.

Wed, Mar 25, 2020 (2 a.m.)

Casinos and hotels on the world famous Las Vegas Strip, along downtown’s Fremont Street and in Reno, normally bustling with tourists spending their hard-earned cash, now sit empty — shuttered by the state in an effort to lessen the spread of the coronavirus.

With those closings, the gaming industry has gone dormant, and its stream of tax revenue to Carson City has come to a temporary standstill.

For each day that this delay continues, the state budget gets hammered more and more. Lawmakers and analysts, though, say it’s too soon to truly tell what the effect is going to be.

The state’s Economic Forum, a panel of five economic and taxation experts from the private sector tasked with estimating the state’s revenue streams, estimated the total revenue from gaming to be $805.2 million for 2020. On average that would mean about $2.2 million per day making its way from slot machines and table games throughout Nevada to the state treasury — and March is traditionally the busiest month on the Strip.

Nevada collects tax revenue from each slot machine or table game operating in the state, and then on an increasing percentage level depending on the total revenue the machines bring in. Monthly gross revenue on the games, before taxes and deductions, is taxed in tiers: 3.5% of the first $50,000, 4.5% of the next $84,000 and 6.75% over $134,000. In addition to the taxes, the state also collects fees on slot machines ($20 per machine, quarterly) and table games (an annual increasing rate that starts at $100 for one game and ends at $16,000 for 16 games in a casino, with every game over 16 adding another $200).

The resort industry also generates millions in licensing fees, sales tax receipts and live entertainment tax receipts for Nevada’s public coffers. In short, there’s a lot of state funding caught up in gaming and tourism.

According to the Guinn Center, a nonprofit think tank, gaming taxes are expected to make up 17.4% of the state’s general fund in the 2020-2021 biennium. The state’s general fund, which was projected in the governor’s proposed budget to be a little over $9 billion this biennium, pays for a plethora of services, including Nevada’s K-12 public schools and higher education institutions, much of the state Department of Corrections and conservation and natural resources offices and efforts.

With a 30-day shutdown of casinos — at minimum — now in effect, that’s a hit of around $66 million to the state budget. Even when the shutdown is lifted, it will take a few weeks or months to get business back to booming levels.

Jeremy Aguero, an economist and principal analyst at the Las Vegas-based firm Applied Analysis and a longtime adviser to state officials on fiscal policy, said the economic impact of the pandemic would be clearer as the full length of the crisis was revealed.

“To be honest with you, we don’t have the models completed yet to be able to give you anything definitive,” Aguero said. “It’s very much a function of how long the health care crisis lasts.”

State Sen. Joyce Woodhouse, D-Henderson, the vice chair for the Interim Finance Committee, said the governor and lawmakers would have a lot of work to do once normalcy returns because the “state relies so heavily on the resort sector for funding.”

“I think they are doing the right thing for the health of the people who work in the hotels as well as their guests and our community, but it does make us all have to take a look at this and see when this finally comes to an end (what) we can do what we can do to bring Nevada back,” Woodhouse said.

Eventually, the state will bounce back economically, Aguero said.

“Most people, if not almost everyone, believe that we are going to recover, that we are going to get past this as a community and as a county and then there will be an extended period of recovery,” he said. “I don’t think we can turn a blind eye to the fact that this particular crisis that the United States is dealing with strikes at the very heart at the state of Nevada’s economy — it’s tourism-based economy.”

Woodhouse said that, contrary to the state’s financial status during the recession in the late 2010s, “we have a healthy rainy day fund, which we have not had in more than a decade.”

There’s around $400 million in the state’s rainy day fund that could be used to cover budget shortfalls, Aguero said, though the Interim Finance Committee — a group of state lawmakers who administers a contingency fund set up to provide provisional funds for state agencies when the Legislature is not in session — would have to approve drawing from the fund. The final economic downturn, Aguero said, will determine whether the rainy day fund will be sufficient to meet the state’s needs.

There is another option to fix any sort of budget shortfall: a special legislative session, which could give lawmakers the ability to identify different funding streams for services like schools that may take a financial hit during the pandemic.

As of now, though, there appears to be no appetite to do so.

Gov. Steve Sisolak, who ordered the 30-day shutdown along with closings of non-essential businesses in the state, said there were no talks to call a special session but that the option was not off of the table. In recent news conferences as the pandemic has worsened in Nevada, the governor has gotten visibly frustrated at questions about the economic impact of the business shutdowns, stressing that it was necessary to protect Nevadans’ lives.

Democratic legislative leadership, when contacted, said that it was too early, and there were no current plans to call a special legislative session. Either the governor or two-thirds of the members of the Legislature can call a special session.

“In situations involving emergency preparedness, it is critical to carefully and continually evaluate all options on the table should the need arise to pursue those options,” Senate Majority Leader Nicole Cannizzaro,and Assembly Speaker Jason Frierson, both D-Las Vegas, said in a statement. “At this time, we have no plans to go into a special session. We are working together closely with the governor and his team to do all we can to ensure we are meeting the needs of every Nevadan and addressing this crisis head-on.”

For now, lawmakers are watching and waiting. After all, it’s only been a few days since the Strip went dark.

“We’ve just got to be good stewards of the funds that we have and that will be coming in, albeit some of it’s going to be much lower than anticipated,” Woodhouse said.

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