4 minute read
Don’t Let a Budget Surplus Turn into a Budget Deficit
By Bryan Wachter
When the Nevada Economic Forum met in early December, they projected an additional $2 billion a year for Nevada’s upcoming budget, more than a 20 percent increase over the previous state budget; however, there was not consensus among the forum members whether this additional revenue will be available past 2025. State leaders must exercise an abundance of caution going into the 82nd Legislature to prevent this current budget surplus from becoming a future budget deficit by expanding permanent programming with potentially temporary revenues. Instead of expanding programming, state leaders should use this money to help secure the state going into future economic uncertainty.
The first and obvious action should be to grow Nevada’s Rainy-Day Fund. The state’s emergency fund was zeroed in 2020 to backstop the state’s economy during the pandemic (Nevada was one of only two states to take such a drastic step to completely empty the account) and has since been refilled as a result of a relatively rapid recovery of state gaming revenues and overperformance of sales tax revenue coupled with the Supreme Court ruling on taxing internet purchases, but recovery hasn’t always come this quickly. In fact, following the Great Recession and Nevada’s long recovery, it took nearly a decade to refill the account. If these two major “once-in-a-lifetime” financial events are any indication, we need to make an investment to grow the state’s Rainy-Day Fund to ensure the state has the resources to keep the doors open should revenues face a sudden decline.
The next obvious use of the surplus would be to return it to the taxpayers. Governor Guinn tried something similar in 2005 with a $300 million surplus by rebating vehicle registration fees. Rather than a direct rebate, Legislators could begin the process to create a state sales tax holiday where all Nevadans can feel some relief from the rising prices as a result of inflation. This would be in addition to the sales tax holiday for National Guard members approved in 2021. At last count, 19 other states have some form of sales tax holiday, with many falling during the back-to-school season for products including clothing and school/office supplies.
Finally, this surplus could be invested by providing the revenue to bridge a reform and modernization of some of the state’s taxes. This large surplus creates a unique opportunity for state leaders to create a soft transition while setting the state up for future success. One example of a tax that is not keeping up with modern times is the state’s property tax cap which doesn’t reset the tax rate upon the sale of properties. This means that as the cost to maintain the infrastructure in older and aging neighborhoods increases due to inflation, the state and local governments are having to use other revenue sources to support this maintenance. Another area of concern is the items that have historically been subject to sales tax that are now being sold in a digital format, like music, movies and e-books. By ensuring our sales taxes are representative of the times, the state can continue to keep other taxes low.
Spending a surplus may not be quite as hard as navigating a deficit, but arguably more time and energy will need to go into this upcoming state budget to hold program growth to sustainable levels. It will be unfortunate to have to return to Carson City in a few years with red pens because this budget surplus was allowed to grow programs without the consistent and reliable revenue to support them into the future. n
Bryan Wachter
