The Fiscal Crystal Ball

Yesterday I attended the annual Nevada Taxpayers Association luncheon in Las Vegas.  The keynote speaker was renowned economic forecaster Dr. John Silva of Wells Fargo.  Other panelists included Jeremy Aguerro from Applied Analysis, Bill Anderson from the Nevada Department of Employment, Training and Rehabilitation, Kevin McCarthy of the Arizona Taxpayers Association, David Kline of the California Taxpayers Association and Dale Craymer of the Texas Taxpayers and Research Association.

Dr. Silva pained a fairly optimistic economic picture for Nevada, opining that while Nevada remains in a recession and will likely be in one for at least another year, signs of recovery are present and Nevada could come out of the recession in a good position “as long as it doesn’t do something stupid.”  Dr. Silva noted that both California and Oregon have become increasingly unfriendly to businesses, leading many of those businesses to look more for more friendly tax climates.  Nevada, with no personal or business income taxes, is primed to capture many of those fleeing businesses.

Mr. Aguero noted that Nevada’s heavy reliance on sales and gaming taxes is increasingly difficult for budget planning purposes as per capita revenues from each tax continue to decline year after year.  Mr. Aguero also noted, however, that there is “great danger” in changing a tax structure at the bottom of an economic recession.  Mr. Aguero also discussed how uncertainty over water rights applications in Nevada (as the result of a recent court decision) can have detrimental economic impacts as investors worry about the existence and availability of water for Las Vegas in the future.

Mr. Anderson noted the looming problem of repaying federal loans taken in Nevada (and many other states) in order to pay unanticipated and expensive unemployment insurance claims.  Nevada had a healthy reserve fund for such claims, but once unemployment reached 13% the level of claims outgrew the reserve.

And to show that Nevada is not alone in the current recession, representatives from California, Arizona and Texas all spoke to the budget challenges facing those states.  California’s representative noted California is 6 billion (with a b) short on its budget just since June of 2009.  Arizona’s general fund revenues have declined a staggering 35% since 2007.  And Texas faces similar problems and budget gimmickry to make ends meet.  A common theme emerged from all representatives – their government has continued to put off difficult decisions in hopes that the recession will end soon and the economic climate will improve, while using stimulus funds as a crutch to minimize impacts to operational expenses.

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