As a public health crisis rages, a fiscal dilemma looms for Southern Nevada cities

By Miranda Willson

Sunday, April 26, 2020 | 2 a.m.

Scott Adams, the city manager for Las Vegas, remembers the city’s budgetary challenges in the years after the Great Recession of 2008-’09. The city reduced its spending by 20% over several years.

Now, the city faces an unprecedented situation: Figuring out how to cut its approximately $650 million budget by 25% for the fiscal year beginning July 1.

Even with an estimated $119 million in federal aid coming to Las Vegas through the federal coronavirus relief bill, deep and immediate cuts will be inevitable, Adams said. Considering that Las Vegas was already in “tightened budget mode” before coronavirus hit, all options are on the table to trim $150 million.

“What we’re doing is looking at everything from using cash to cuts in services to cuts in personnel, and our cuts in personnel would include layoffs,” he said.

The COVID-19 pandemic is creating a fiscal crisis for local governments across the country, including Las Vegas, Clark County, Henderson and North Las Vegas.

With casinos and most businesses closed, visitation has stopped, significantly reducing sales tax revenue — one of the largest funding sources for the region’s cities and Clark County. Locals are inevitably spending less, too, and revenue from fees tacked onto business licensing and permitting has stalled.

On top of that, the municipalities face unanticipated expenses due to the pandemic, ranging from personal protective equipment for essential employees to new services to help constituents during the crisis. City of Las Vegas employees have completely shifted their focus to addressing the pandemic, leading to many unbudgeted expenses, Adams said.

“Every minute of our breath is related to COVID-19 stuff,” he said.

Demand for county services is likely increasing because of the pandemic, said Dagny Stapleton, executive director of the Nevada Association of Counties. Clark County provides money for child protective services, senior services, the justice system and medical services through the county-owned University Medical Center.

“What people sometimes don’t realize is all of the critical services that counties provide — not only roads, parks, emergency response and our local justice system, but also the social safety net,” Stapleton wrote in an email.

As was the case during the recession, the Las Vegas region is poised to be one of the hardest hit in the country due to coronavirus, according to some estimates. The state’s tax structure — which relies significantly on tourism rather than property taxes, personal income taxes or corporate taxes — is one reason why, said Robert Lang, professor of urban affairs and director of UNLV’s Brookings Mountain West.

“The Strip is set up to run the state, basically. It’s the largest driver of the economy,” Lang said. “MGM (Resorts International) may be the single biggest payer of taxes as a share of state budget of any business in any state.”

Another issue is the region’s narrowly focused economy as compared to that of most other U.S. cities. While Henderson and North Las Vegas had some success diversifying their commercial tax bases particularly after the recession, the region is still extremely dependent on tourism, which has no chance of functioning virtually, Lang said.

“If Las Vegas isn’t crowded, it isn’t working,” he said.

By state statute, Nevada governing bodies must adopt their budget for the next fiscal year by June 1. That means government employees are currently working to revise any pre-coronavirus budget proposals, in addition to serving constituents during the crisis.

On Tuesday, Clark County officials presented a tentative budget for the fiscal year beginning July 1, recommending cuts to make up for an anticipated $315.2 million budget shortfall. It is likely that the county will need to reduce services and personnel and cut back on contributions to Metro Police, UMC and the Clark County Detention Center, in addition to other cuts, officials said.

The cuts won’t be easy. Clark County staffing levels had not yet fully recovered from the effects of the recession, county spokesperson Erik Pappa wrote in an email.

“Our staffing was growing an average of 1.5% annually and we were on track to reach pre-recession staffing levels by 2025,” Pappa wrote.

Property tax revenue also hadn’t returned to where it was before the recession due in part to a Nevada law capping how quickly those taxes can increase. In Clark County, property taxes brought in $383.1 million in revenue in fiscal year 2009 before dropping consistently for five years. While revenue steadily increased since FY15, it was still only $319.5 million fiscal year 2019, according to the county.

Property tax revenue will probably not drop during the pandemic as much as it did during the recession, said Jeremy Aguero, principal analyst at the Nevada-based economics firm Applied Analysis. However, it could be affected by nonresidential property owners lobbying to reduce their property valuation, as was common during the recession, Aguero said.

“There’s a substantial risk, I think, that a number of nonresidential properties are going to challenge the value of their assessment by coming in and essentially indicating that, with revenues dropping dramatically, the value of the underlying asset has to be reconsidered,” he said.

Although cities in the region are bracing for cuts, there are still many unknowns. Revenue from Nevada’s consolidated tax — which primarily consists of sales tax — is released every two months, so cities won’t know how much it went down in March and April until May.

Another unknown is how badly the pandemic will hit Southern Nevada and how soon the virus will stop spreading, Aguero said. Gov. Steve Sisolak has indicated that businesses would remain closed until the state experiences a 14-day downward trajectory of new virus cases.

“Until we have a sense of the public health crisis, it’s very difficult for us to evaluate the economic crisis or the fiscal crisis,” Aguero said.

While no final budgetary decisions have been approved yet, Las Vegas has identified some funding priorities, namely public safety and parks, Adams said. City officials hope to reduce the parks and recreation budget without compromising constituents’ ability to enjoy outdoor spaces, perhaps by limiting parks’ hours of operations or temporarily closing the least-used parks, he said.

As Southern Nevada’s cities and Clark County evaluate consequential budgetary cuts, the public will unfortunately have little opportunities to weigh in, Adams said. Right now, Las Vegas is mostly relying on recent surveys to gauge public opinion, he said.

“In the Great Recession, we spent hours in public meetings to talk about services and priorities and what was fundamental in the eyes of citizens,” Adams said. “Because of the way we’re all locked down and the inability to have big public meetings because of clustering, that gives us probably the biggest challenge now.”