Las Vegas Sun

March 28, 2024

Nevada’s budget woes to persist even after rainy day fund is drained

Legislative Building

John Sadler

The Legislative Building in Carson City is the seat of Nevada state government.

Nevada lawmakers have begun to shuffle money around to help cover the state’s budgetary shortfalls, and while some have raised concerns that spending reserves could hurt the state in the long run, all agree that it is not enough to dig Nevada out of its financial hole.

The Interim Finance Committee voted this week to transfer around $401 million from the state’s rainy day fund to the general fund to help cover a revenue shortage projected for the budget year ending June 30 to be $741 million to $911 million, and larger in the next budget year.

The shutdown of nonessential business in Nevada since mid-March because of the virus has halted the flow of most revenue to state coffers, including an estimated $2 million daily in gaming tax receipts.

“Being at the end of a fiscal year and facing a revenue shortfall that is that substantial, basically (moving) the rainy day fund, means that we are going to be able to pay for health care and education and those things here in the state that we have said we will pay for and that we are now obligated to do so,” Senate Majority Leader Nicole Cannizzaro, D-Las Vegas, said.

Obligations such as teacher salaries don’t go away just because of the shortfall, she said.

“That’s exactly what a rainy day fund is for, right? We are saving money for a rainy day, we’re saving money in the case that we are in a fiscal shortfall,” she said.

The transfer of money — the entire rainy day fund — will not cover the shortfall, which will require further legislative action, she said.

Over at least the next few biennial legislative sessions and “probably” beyond, she said, the Legislature will be discussing how best to save money and refill the fund.

Could the state’s bond rating be hurt in the future?

Republican leadership in Carson City, including Assembly Minority Leader Robin Titus, R-Wellington, and Senate Minority Leader James Settelmeyer, R-Minden, said the Democratic majority moved too fast on the transfer and stressed that it could financially hurt the state by negatively affecting its bond rating in the future.

Nevada currently has an Aa2 bond rating from Moody’s Analytics and an AA rating from S&P Global Ratings, both close to the best ratings given by the bonding services.

A lowering of the rating would mean the state would pay more in interest on bonded indebtedness in the future.

Nevada had no budgetary reserves during the early 2000s. When the 2008 recession hit and caused tax receipts to suffer, the state’s credit score dropped, according to an analysis from Pew Charitable Trust.

While the Great Recession stemmed from the collapse of the housing market, the situation caused by the pandemic was government-ordered. Some lawmakers are hoping the prevailing circumstances across the country will cushion the state against any large hits to its credit rating.

“There’s an entire nation that is looking at the results of a pandemic that is having serious fiscal impacts on every state budget, right? That is why you’ve seen so many states say to the federal government, you know, we’re asking for you to consider money to come to the states to shore up revenue shortfalls,” Cannizzaro said.

Wheeler says a Nevada statute not allowing deficit spending puts the state in a better financial position than many other states trying to manage through the pandemic.

“I honestly don’t know. This is all new, we’ve never been through a pandemic where we’ve shut the entire economy down before,” he said.

Titus said a hit to the bond rating could cost the state more money in the long run. She was not against moving money from the fund, but she did say that it was not immediately necessary to do so. She would have liked to have seen what the impact to state accounts were before moving the money.

“None of us were reticent to put that money back in the general fund; that’s what it’s for,” Wheeler said. “We wanted to see where it’s going to be used and what cuts we’re going to make to offset it.”

The rainy day fund’s millions won’t be enough

Gov. Steve Sisolak, when declaring the state of fiscal emergency required to tap the rainy day fund, noted the dire financial straits the state faces in both the short and long terms.

While lawmakers have not decided whether there will be a special legislative session before the end of the year to address the finances, both Titus and Wheeler said one was likely. Cannizzaro said lawmakers were discussing it, and Sisolak, in a past comment, said that he was looking at the timing of any “potential” special session.

“We have a lot of work to do, of course, in order to find money to make up that difference and then of course look into the next fiscal year and what needs to be done moving forward,” Cannizzaro said.

Titus said that the budget has to be tightened and that lawmakers needed to step back and see what expenses could have been curtailed before they should have moved money.

“If you plan a trip to Europe and all of a sudden you’re out of a job, then maybe you shouldn’t plan that trip to Europe,” she said.