State And Local Leaders Take First Steps To Address Nevada's Looming Budget Crisis

May 21, 2020

Nevada is facing a budget crisis. According to estimates, sales and gaming taxes fell drastically during the state’s COVID-19 related shutdown in March and April, leaving a gaping budget hole for the current fiscal year ending June 30. So, how are lawmakers and others addressing the issue?

When Governor Steve Sisolak declared a fiscal emergency last week, it was the first time many in the state got a sense of just how severe the economic fallout related to COVID-19 will be.

The governor’s office is projecting a deficit between $741 million and $911 million. To put that in perspective, it’s roughly a fifth of the state’s $4.5 billion general fund budget for the 2020 fiscal year.

That’s why lawmakers on the legislature’s interim finance committee, this week, approved a motion to transfer the entirety of the state’s $401 million rainy day reserves into the general fund even though it’ll only cover a portion of the shortfall.

For Democrats such as Speaker of the Assembly Jason Frierson, the move is a first step in addressing the shortfall.

“We, for the first time, put money in the Rainy Day Fund in 2017 for this exact purpose," Frierson said, "and thank God that we did. We have this money in a rainy day fund. I don’t think you stop paying your power bill because you don’t know what’s gonna happen next month.”

But Republicans on the committee disagreed with that plan, saying they wanted more details on how the money will be allocated.

GOP Senator Ben Kieckhefer argued lawmakers should have taken a more conservative approach and held on to some of that money because the economic effects of COVID-19 will be felt long after the initial lockdown in March and April.

“It would make more sense to transfer half of it now and see how we’re doing from a cash-flow perspective another month from now,” he said. 

Of course, it’s not just the state feeling the pinch.

In Nevada, municipalities rely on what’s called Consolidated Tax Distribition, or C-Tax. It’s a formula the state uses to distribute tax money collected on behalf of local governments back to those governments. However, there’s typically a delay, and revenue estimates for March won’t be made available until next week. That means many cities are still unsure of their financial situation.

Case in point… the city of Reno.

Under state law, all public bodies must submit an annual operating budget to the state by the end of the month. So, in accordance with the law, the city council essentially adopted a flat budget yesterday, even though Reno may be facing a $30 million shortfall itself.

According to Debbi Lauchner, the city’s finance director, passing a status quo budget gives the city more wiggle room with the state.

“By passing this budget it gives us the maximum flexibility in order to make adjustments," said Lauchner. "This also will give us a baseline to measure the total impact of the COVID-19 pandemic. That will let us know where the cuts have come and we’ll be able to better track it as well.”

Fortunately for Reno, property taxes, the city’s second-largest source of revenue, seem unfazed by the pandemic and that may help soften the blow.

Public schools, on the other hand, are more reliant on the state.

In Washoe County, nearly a third of the school district’s budget comes from the state’s Distributive School Account, or DSA. That account, by the way, is the single largest expenditure out of the state’s general fund. It’s fair to say, lawmakers will likely do everything they can to avoid cuts to public education, but they may not have a choice.

That can amount to a three to five percent cut in state funding per-pupil even though Nevada spends less on public education than most states.

“We think for these reasons it is prudent for us to prepare," said Washoe County School District Chief Financial Officer Mark Mathers. "There are only so many places the state can go in cutting its programs, and K-12, higher education and health and human services are the three big items.”

Again, that’s just an estimate.

No one knows for sure what the final numbers will look like for another few months. In the meantime, Governor Sisolak has asked all state agencies to submit plans examining cuts at four, six and fourteen percent -- the highest amount he can cut without legislative approval. If more cuts are needed he’ll have to call a special session. As for what’s being cut, that remains to be seen.