New economic reality: Pessimism

By David McGrath Schwartz

Saturday, Jan. 23, 2010 | 2 a.m.

In this economy, it’s easy to be a pessimist. The latest to join their ranks Friday was a panel of five business leaders, who predicted a painful next 18 months for Nevada’s economy, setting the stage for deep cuts in state government’s current budget during a looming special session of the Legislature.

At the onset of the recession, no one predicted just how steep the drop in Nevada’s tax revenue would be, least of all the Economic Forum. Every time the savvy business leaders thought they were being pessimistic enough about the state’s near-term future, reality showed they weren’t.

“The Economic Forum had five bites at the apple of the 2009 budget, and were too optimistic each time,” said Russell Guindon, the Legislature’s financial analyst.

When the Economic Forum is too optimistic, the Legislature spends more than the state receives in taxes.

Take this from May, when the Economic Forum last met. The Las Vegas Sun observed: “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.”

On Friday, they seemed to take the “sky-is-falling” approach to things. Major tax revenue would come in $580 million below what they had predicted in the spring. Add to that money the state guarantees to schools and additional Medicaid costs, and legislators will face a deficit of more than $800 million, according to the best estimates available Friday.

Indeed, it was a harsh take on Nevada’s short-term future.

The Silver State has lost 120,000 jobs since December 2007, when the recession began, said Bill Anderson, chief economist of the Employment, Training and Rehabilitation Department.

“This is an unprecedented time in Nevada’s history,” he said. “Recovery, when it does unfold, is going to be relatively slow and choppy.”

It’s accepted that the old reliable crutch of growth is gone. State Demographer Jeff Hardcastle said the state lost 1 percent of its population last year.

Depending on the growth model, Nevada could lose 100,000 people between now and 2015, or, on the optimistic end, gain 100,000.

Gaming will sink, the business leaders predicted, weighed down by a weak locals casino market, which makes up 20 percent of gaming in the state. Retail sales will also remain weak, and slide back.

Employment, insurance premiums, live entertainment, cigarette and business filings taxes — down, down, down, down and down.

Of the sales tax, Matt Maddox, chief financial officer of Wynn Resorts and a member of the Economic Forum, said: “This, to me, is (the tax source) most at risk” in this economy.

Speaking about the insurance premium tax, another Economic Forum member, Reno certified public accountant Bill Hartman, said his clients were looking at their mothballed heavy equipment and wondering what they could cancel insurance policies on. “This one, once again, is highly at risk.”

This is what passes as good news these days: November sales tax figures dropped 12 percent compared with numbers from a year ago.

“It’s not an 18 to 19 percent drop,” said Dino DiCianno, the Taxation Department director. “I’m not going to say that’s a rosy picture. But that’s positive.”

Legislators had for weeks dismissed the need to come back to Carson City for a special session, arguing that the state could shift money around and make cuts through interim committees.

After Friday, only the biggest optimists would bet they can avoid the trip.