Tesla tax credits to expire; Nevada OKs 7 percent rise in general fund revenue
The state of Nevada’s Economic Forum is a panel of five financial experts from the private sector appointed to project General Fund revenues. The governor and Legislature must use those projections to build the state budget unless they agree to raise or create new taxes and fees to cover what they want to spend. Go to budget.nv.gov/Economic-Forum to learn more.
CARSON CITY, Nev. — The Nevada governor and legislature will have roughly $8.84 billion in General Fund cash to spend in the upcoming two-year budget, a small portion of which comes from the fact credits now going primarily to Tesla will expire.
The state’s Economic Forum approved the $8,843,915,028 total after a four-hour hearing on Dec. 3. It represents an increase of $590.7 million over the current budget.
Regarding Tesla, last week Legislative Counsel Bureau Economist Russell Guindon told the Technical Advisory Committee (TAC) to the Economic Forum that the company will have almost completely used up the tax credits the state previously granted in trade for locating its Gigafactory at the Tahoe Reno Industrial Center east of Reno by June 2019.
With those and other reductions, the total projected tax credits that take away from the General Fund will fall from $201.7 million this biennium to just $63.6 million in the coming budget cycle.
On Dec. 3, the forum took a relatively cautious approach in projecting some of the major revenue streams, expressing concern the state’s burgeoning economic growth may flatten in the second year of the next biennium.
Member Marv Leavitt expressed some concern, saying the forum, “historically tends to over-estimate sales tax.” The sales and use tax is the largest revenue stream feeding the General Fund, projected to bring in $2.72 billion of that total.
He said several huge construction projects, especially in Southern Nevada, should support the tax numbers for the remaining seven months of this fiscal year and fiscal 2020.
“The third year is the question in my mind,” he said. “How much the slow down is going to effect sales taxes.”
Forum Chairman Linda Rosenthal agreed with Leavitt, saying she, too, recognizes the potential for a slowdown in fiscal 2021. But she said there will still be growth, not falling revenues.
The sales tax projection estimates revenues will increase by about 5.2 percent in 2020 and 4 percent in 2021.
Executive Branch economist Susanna Powers agreed she sees a “slowdown coming,” but she said it’s not a recession.
“We will see continued growth,” she told the forum. “It will be softer, may be slower as we see the current economic expansion mature.”
Legislative Economist Russell Guindon said he too doesn’t think it will be a recession but more of a slow down and he doesn’t think it will hit Nevada anywhere near as hard as in the Great Recession.
“Nevada is now one of the fastest growing states,” he said. “I think our economy is a little different now than it was before the great recession.”
In addition to the sales tax, the forum projected the gaming percentage fee, Nevada’s second largest contributor to the general fund, will generate $1.57 billion over the biennium.
The other major revenue streams are also predicted to grow as well. The Insurance Premium Tax is projected to raise $943.5 million, Live Entertainment Tax $200 million, Modified Business Tax $1.22 billion, Real Property Transfer Tax $227 million and the Commerce Tax $444.9 million.
In addition, the so-called minor revenue streams will add about $1.4 billion to the General Fund, bringing the total to $8.73 billion for the biennium.
But to that, Guindon said the panel must add $106.5 million in administrative fees the Taxation Department is expected to receive for collecting and disbursing the various parts of the total sales and use tax that go to the school districts and local governments.
That brings the total to the $8.84 billion number, a 7.2 percent overall increase in revenue.
That’s still well below the $9.4 billion in General Fund money state agencies have requested.
The General Fund, however, is just part of the total state biennial budget. The largest single piece is federal funding which exceeds $10 billion. When all the pieces are added up, the budget will exceed $26 billion for the 2020-2021 cycle.
The unanimous approvals Wednesday came despite state leaders promising to tighten up requirements for Nevada’s tax abatements and incentives for future companies.