The Economic Forum was told Friday that even though state revenues are more than $60 million ahead of forecasts year-to-date, most of that excess will disappear by the time the new budget is built.
Legislative economist Michael Nakamoto told forum members General Fund revenues so far are at $3.02 billion for Fiscal Year 2018. That’s just shy of $61.1 million more than projected by the forum a year ago.
But, Tesla has taken more than double the Economic Development tax credits the company expected and was forecast to claim this fiscal year. The projection used to build the budget predicted the company would claim $31.1 million but Tesla has taken $73.8 million so far this fiscal year.
The difference, $42.7 million, will come off that $61.1 million.
“That’s going to end up chewing up the overage we’ve seen year-to-date,” said forum member Craig Billings.
“When all is said and done, we’re not going to be anywhere near the $61 million ahead of forecast,” Nakamoto said.
LCB Chief Economist Russell Guindon told the five forum members projecting how many credits would be taken and when is a difficult process because the state has no control over when Tesla claims those credits and when those who buy them use them. But he said thus far, those buyers, almost exclusively casinos, are collecting on the purchased credits “almost instantaneously.”
Nakamoto and Guindon made it clear the issue impacts only the upcoming budget cycle. Tesla is entitled to a total of $195 million in tax credits under the contract spelling out how much the company must invest and how many workers it must hire. Nakamoto said Tesla is rapidly approaching the $3.5 billion it agreed to invest in the Gigafactory east of Reno and, at that point, has earned the right to claim the rest of the $195 million in tax credits.
Thus far, revenue collections are strong in the state’s “major General Fund Revenues.” While sales tax collections are a percent or $8.7 million below projections, gaming tax collections are $7.9 million ahead, the Insurance Premium Tax 2.6 percent or $7.6 million ahead and the Real Property Transfer Tax 18.9 percent or $11.8 million more than projected.
When added to the Modified Business Tax, which is raising almost exactly what it was projected to, those revenue streams make up nearly three-quarters of the General Fund.
Forum member Marv Leavitt expressed some concern about the sales tax shortfall even though it’s just 1 percent low. He said several major projects are currently contributing to the sales tax.
“When those end, if we don’t have something else replacing them, we’re going to see a drop off in sales tax,” he said.
David Schmidt, chief economist for the Department of Employment, Training and Rehabilitation, told the forum overall, “things are going very well in the state right now.” He said Nevada has added 263,000 jobs since the bottom of the recession and has a record number of employers — more than 70,600.
He said wages too are growing.
Schmidt said advanced manufacturing including Tesla and construction are the main drivers.
Leavitt asked whether the booming construction industry could be headed for a bust like what occurred when the recession hit. But Schmidt said construction, especially residential, is being driven by pent up demand.
“Construction to relieve the backlog could be sustainable,” he said.
The forum is a five-member panel of financial experts created to project General Fund revenues for the state.
The June meeting of the forum is intended as an update for members. They made no projections Friday. There will be additional meetings in October and November before the forum makes projections in December.
Those projections must be used by the governor and legislature to build the biennial state budget.