Nevada budget expected to be $162 million short by July

The combination of slumping gaming and mining revenues and unexpected increases in K-12 enrollment will nearly drain the state’s coffers unless Gov. Brian Sandoval and lawmakers act.

What is supposed to be a $170 million Ending Fund Balance on June 30, 2015, would end up at just $8 million under current projections. That’s $162.5 million under the 5 percent of General Fund that statute requires the treasury to have.

In a nutshell, the problem with the ending Fund Balance is cashflow — the danger that the state wouldn’t have enough cash to pay its bills at a given point in time. It’s not just the normal checks to pay bills owed contractors and others. It’s the large monthly or quarterly draws by the school districts, university system and local governments that, each time, are millions of dollars.

Sandoval’s Chief of Staff Mike Willden said he and the budget office staff have developed a series of actions that should raise that $8 million to about $108 million by the time the fiscal year comes to an end. But that number is still some $62 million below the 5 percent.

That means that $28 million in the Rainy Day Fund and an estimated $36 million in state agency reserves will be swept to fatten the pot along with a laundry list of other pots of money in an attempt to keep the state in the black.

Among the other ideas on the list are giving the state two monthly holidays for employee health benefit premiums — worth about $17 million — and a holiday for the state’s unemployment insurance premiums.

Willden said the state also can save about $10 million by improving state Medicare/Medicaid payments for patients in the state’s mental health hospitals.

While an Ending Fund Balance of $8 million would be impossible to deal with, he emphasized that, “the world doesn’t end if there is a shortfall below 5 percent.” But he said it could damage the state’s AA bond rating

“The 600 pound gorilla in the room” is the amount the state owes school districts to cover the cost of rising enrollments, Willden said.

State enrollments are again on the increase after being either flat or down through the recession and, by law, the state is on the hook for the added per pupil cost of those students. That and the “Hold Harmless” statute that requires the state cover any year-over-year decreases in enrollment cost the state $27 million in fiscal 2014. But in 2015, that total cost will hit the state for an estimated $70.5 million that isn’t in the current budget — a total of $97.5 million just to finish out this budget cycle and cover the costs of more than 12,000 added students.

But gaming and mining are also very costly.

For 2014 and 2015, gaming revenues are estimated $50.5 million below forecasts used to build the budget.

Net Proceeds of Mines taxes fell $69 million short in fiscal 2014 and are expected to be another $72 million below this fiscal year.

Altogether, that comes to $141 million less revenue than the state built into the budget.

The combined deficit is a whopping $289 million in this budget cycle.

The committee, however, kept the legislative promise to let the university system keep any increase over budget in student fees and tuition since that money was dedicated to covering costs of serving additional students under the new formula funding plan. The various campuses will retain control of more than $20 million to cover the needs of growing enrollments.

Willden promised to work with lawmakers, who he said will have the final say one most of the revenue shifts and other moves to fix the problem.

But he said that isn’t the end of it. As the governor and lawmakers begin to develop the 2016-2017 budget, they first have to make up any shortfall in the Ending Fund Balance.

“You start in the hole $62 million,” said Willden.

Director of Administration Julia Teska pointed out that, when the 2015 Legislature convenes, state law requires that the first revenues that come in go to fix that shortfall — before lawmakers and the governor start spending on ’16 and ’17 programs.