Las Vegas Sun

October 16, 2019

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A job you don’t want: Projecting the state’s revenue now

Economic Forum looks ahead two years, sees more signs of trouble

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Despite the dull and dry drone, discussions Friday among the state’s official fiscal forecasters, collectively called the Economic Forum, occasionally seemed surreal.

Frank Streshley, for instance, chief of the Gaming Board’s Tax and License Division, offered a bit of hope amid all the doom and gloom: “We have a strong events calendar this month,” he said, pointing to tonight’s boxing match between Ricky Hatton and Manny Pacquiao. He then offered up concerts by Dave Matthews, Jimmy Buffett and Fleetwood Mac.

“All should be nice draws for high-end rollers,” he said.

Fleetwood Mac might help us, not just because its concert will bring in high rollers, but also because Nevadans could use a dose of its anthem, the one about thinking about tomorrow.

The all-day session of the Economic Forum, which was formed during the 1993 legislative session to eliminate the uncertainty of the two-year budgeting process, illustrated two things: First, we’re broke. Second, we’re not even really sure how broke.

First, the broke part. The forum said state government will have $445 million less than what the governor included in his budget in January.

State Budget Director Andrew Clinger delivered more bad news after the forum: The state will have to find hundreds of millions of dollars for school districts because of lower-than-expected sales and property tax revenue.

In total, that amounts to $900 million less than what was included in Gov. Jim Gibbons’ January budget proposal. Clinger said the federal stimulus will offset that number by $350 million.

Still, legislators will have to enact a significant tax increase just to get back to Gibbons’ budget, which included a 6 percent pay cut for teachers and state workers and a 36 percent cut in higher education and was widely derided in the Legislature as “dead on arrival.”

At Friday’s meeting, the five members of the Economic Forum, financial whizzes in the private sector, pored over pages of data showing economic models and projections. They questioned staff from the Taxation Department, the Legislative Counsel Bureau and Administration Department.

Each department had mapped out projections of what will happen to the economy.

No one was optimistic. The economy wouldn’t rebound until fiscal year 2011, they said.

Most of their questions dealt with the appropriate level of pessimism they should express in their forecasts — really pessimistic, or sky-is-falling pessimistic.

In the front of their minds, no doubt, were their December projections, which turned out to be overly optimistic.

They expressed their quandary in the language of numbers-oriented folks. “Econometric model” was a favorite term. “Optionality” was a new word for everyone to learn.

So how broke are we? That was the second thing to be gleaned from the Friday meeting — any attempt to predict the economic future, especially in the current environment, is next to impossible.

Even in good times, it’s hard to predict what the economy will look like in two summers.

“Right now, it’s extremely difficult to make projections over two years,” said Marvin Leavitt, a consultant who has been working on Nevada financial issues since the 1970s. “I might not go so far as to say it’s a guess, but it’s close.”

Economic Forum Vice Chairman John Restrepo, who owns an economics consulting firm, said the five members use economic models and empirical evidence from their day jobs in the Nevada economy to come up with the best numbers they can.

“At the end of the day, these are educated” — Restrepo paused — “estimates of the future.”

“Realistically, the visibility into the future is extremely challenging,” said Cathy Santoro, chairwoman of the Economic Forum and treasurer of MGM Mirage.

Many of the numbers were objective, coming from a private consultant hired by the state or from employment data plugged into models.

“Some of this is art, some of this is science,” said Russell Guindon, a legislative fiscal analyst.

Later, Santoro said, “In some of this volatility with economic models, it’s absolutely become an art.”

Indeed, at certain points, they had to delve into guesswork.

Looking at cigarette sales, Guindon said he expects visitor volume to pick up in fiscal 2011, and he mused about how many of the tourists smoke and how much they would smoke when they arrived.

“Some percentage of visitors have got to be smokers,” he said.

Michael Alastuey, a member of the forum and an analyst with the firm Applied Analysis, worried that people would quit smoking for health reasons.

“People are reassessing smoking habits,” he said. “We are continuing to tax a product of declining demand.”

Restrepo also tried his hand at the unknowable: consumer psychology.

When talking about the gaming tax, he wondered whether the economic crisis had fundamentally altered American attitudes and what effect that could have on spending in Las Vegas: “We still have to face the possibility that people’s spending has changed,” he said. “I’m concerned that the period of unfettered spending, conspicuous consumption is over ... We have to face the possibility that there’s a change in psychology.”

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