Glimmer Of Hope For Tax Revenues, Looming Challenges In Next Budget Cycle

CARSON CITY – The major funding gaps Nevada and other states have been forced to address in their current budgets will continue in the next cycle even as tax revenues finally begin to show signs of life, a national report released today says.
Signs of “delicate” revenue improvement will be offset by the loss of federal stimulus funds, posing ongoing challenges to lawmakers in 2011 and beyond, says the report from the National Conference of State Legislatures’ (NCSL).
“State Budget Update: July 2010 (Preliminary Report)â€� presents the organization’s latest look at the state fiscal situation. Based on data collected from legislative fiscal directors in late June and early July, the report provides complete or partial information on 49 states, including Nevada.
States faced a collective budget gap of at least $83.9 billion during enactment of their Fiscal Year 2011 budgets, according to the report. The aggregate figure is slightly less than the original forecast made in NCSL March State Budget Update, which was $89 billion. More gaps are expected in the next two years.
Nevada had the largest percentage gap of any state for fiscal year 2011 that began July 1 of $1.8 billion, or 45 percent of its general fund budget, according to the report.
The Nevada Legislature filled the gap with program cuts and $780 million in new taxes, most of which will sunset after this budget cycle unless extended by lawmakers next year.
In Nevada, the Legislature also had to meet in special session in February to cut the previously approved two-year budget to reflect even lower revenues than projected just nine months previously. A total of $800 million in cuts and targeted fee increases were approved to balance the spending plan, which had already seen significant reductions imposed during the regular 2009 legislative session.
“State lawmakers are going to need extra stamina to push through this next round of budget challenges,� says William Pound, executive director of NCSL. “It will be a long march before state revenues return to their pre-recession levels, not to mention other hurdles lawmakers have to clear.�
The report’s conclusions come as no surprise to Nevada officials.
Nevada Assemblyman Tom Grady, R-Yerington, a member of the Ways and Means Committee, said the challenges facing the state next session are enormous. Lyon County, which Grady represents, is seeing unemployment of more than 18 percent, he said.
“I think it is going to be extremely painful,� Grady said. “We’ve got some real tough decisions that we’re going to have to make in the 2011 Legislature.�
The entire budget will have to be reviewed line by line, Grady said.
One bit of good news for Nevada is that the overall rate of decline in the two major general fund sources, gaming and sales taxes, appears to have slowed. It is expected that actual collections for the fourth quarter for a majority of the general fund revenue sources will be at or above the forecasted amount, according to the report.
Nevada state Budget Director Andrew Clinger reported earlier this month that state revenues are now projected to come in at about $100 million more than estimated by the end of the 2011 fiscal year on June 30, 2011.
This additional revenue will help Nevada deal with the loss of $88.5 million in federal revenues that had been counted on by the Legislature from an extension of enhanced Medicaid funding. The report shows that at least 25 states assumed an extension of this enhanced FMAP funding for their 2011 budgets. It now appears the extension will not be approved by Congress.
“For the first time in a long time we’re seeing some slight improvement in the state revenue situation,� said Corina Eckl, NCSL’s fiscal program director. “But glimmers of improvement are tarnished by looming problems.�
Those problems include the loss of federal stimulus funds, which total nearly $2.2 billion in the current Nevada budget but which will not continue in the new spending plan.
“States are in a tenuous fiscal position, teetering between delicate revenue improvement and the end of the federal stimulus funds,� Eckl says.
The upcoming two year budget, which the Nevada Legislature will begin to address in February, remains a challenge, according to the report. Nevada did not provide a forecast for a budget gap in the next two fiscal years, but the report shows the state is already in fiscal trouble.
Gov. Jim Gibbons requested that agencies reduce their already reduced 2011 appropriations by 10 percent when calculating their budget requests for 2012 and 2013.
“Even with those reductions, total general fund agency requests would total approximately $5.95 billion for the 2011-2013 biennium,� the report says.
But revenues expected for the two years are expected to total only about $5 billion, or nearly $1 billion less, than the initial budget instructions would require in spending.
Without a forecast, the precise size of the budget gap facing Nevada for the next two years remains uncertain, but it will be significant. Gibbons estimated in early June the difference between spending requirements and revenues will be $3.4 billion.
Nevada’s actual spending and revenue collections for Fiscal Year 2010, which ended June 30, won’t be known for several months. Revenues for the year are not yet complete, and agencies have 60 days after the close of the year to finalize spending totals.
Nevada’s revenue estimates for the coming two years will be forecasted by the Economic Forum, a panel of appointed private sector fiscal experts, late in 2010.
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audio clips:
Assemblyman Tom Grady on budget challenge in 2011 session:
072610Grady1 :27 the 2011 Legislature.”
Grady says balancing the budget won’t be easy:
072610Grady2 :8 and Means meeting.”

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— Nevada News Bureau