Forum projects $1.2 billion less revenue than current budget

The governor and lawmakers are facing revenues for the coming two-year budget cycle that are $1.2 billion below what they approved for the current biennium.

And that's before inflation and "roll-ups," unavoidable increases like rent hikes, utility costs, insurance and salary increases are added in. Roll-up costs totaled nearly $1 billion in the current biennial budget.

The Economic Forum made the projections during a day-long meeting Monday, setting total projected General Fund revenue for the coming biennium at $2.78 billion in Fiscal 2010 and $2.87 billion in 2011.

The total, $5.65 billion, is $1.2 billion less than the $6.8 billion in General Fund spending authorized this biennium.

Sen. Randolph Townsend, R-Reno, said that billion-dollar gap between revenue and projected expenditures is the harsh task lawmakers will have to deal with when the 2009 Legislature convenes in February.

The forum consists of five outside financial professionals appointed by the governor, senate majority leader and assembly speaker. They are charged with developing and setting the revenue projections the state must use in building its budget.

The harshest reductions were made in the largest sources of state revenue " the sales and use taxes, and gaming taxes and fees, which together generate about two-thirds of General Fund revenue.

Forum members went with the lowest of several staff scenarios for both those tax sources. The FY2009 base year for sales taxes they set at $883.1 million " some $80 million less than actual collections in Fiscal 2008. Then they predicted it would grow just a half-percent in 2010 and 3 percent in 2011.

The gaming percentage fees they set at $677.4 million for 2009, 12.5 percent less than the $770.9 million those fees brought in in Fiscal 2008. But they agreed that source would grow 3.2 percent next year and 5 percent the following year.

For the most part, forum members decided that, while revenues will be down for the rest of this fiscal year, they would flatten out and begin rising again in FY2010 then grow more in FY2011.

Forum Chairman Cathy Santoro, an executive with MGM Mirage, said for this fiscal year gaming is seeing a 10 percent decline in tourist visitation.

"And I don't think anyone expects that to alleviate in the next year," she said.

"Obviously gaming right now requires disposable income," she said, adding that people don't have the confidence in their own financial situation to gamble like they did several years ago.

But she said there is hope in the next biennium with City Center and several other new or expanded properties opening as well.

The revenue source members expressed the most concern about was the Real Estate Transfer Tax which has been more than 25 percent below the last forum's projections for the past couple of years. They projected it will be down another 22 percent by the end of this year and pretty much flat for the following two years.

Member John Restrepo said most of that is the residential housing market. He said the other shoe -- the commercial construction market " is yet to come.

If projections are correct, RETT will bring in about $70 million each year of the next biennium.

They were nearly as conservative in estimating the Modified Business Tax saying this year rising unemployment and no salary increases for most will continue to restrict revenues there. Staff advised them, however, that it takes a $794 million drop in payroll statewide to cause a $5 million reduction in that revenue source. MBT generates about $250 million in revenue each year.

Members also predicted the Insurance Premium tax would be basically flat. That tax went down in revenue this past year for the first time in 20 years. It also generates just over $250 million a year.

The forum numbers will be used to build the executive budget but the panel will meet again in May to refine and, if necessary, change their projections before the Legislature adjourns.

Contact reporter Geoff Dornan at gdornan@nevadaappeal.com or 687-8750.