STATE OF NEVADA ECONOMIC FORUM Forum/REPORT... · PDF filestate of nevada economic forum forecast of future state revenues december 3, 2014

STATE OF NEVADA

ECONOMIC FORUM

FORECAST OF FUTURE

STATE REVENUES

December 3, 2014

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REPORT TO THE GOVERNOR AND THE LEGISLATURE ON FUTURE STATE REVENUES December 3, 2014

Senate Bill 23 (1993) provided for the creation of an Economic Forum to forecast future

State General Fund revenues. The Forum, a panel of five representatives from the

private sector with backgrounds in economics, business, and taxation, is required to

adopt an official forecast of unrestricted General Fund revenues for the biennial budget

cycle. All agencies of the state, including the Governor and the Legislature, must use

the Forum's forecast. A seven-member Technical Advisory Committee made up of

Executive and Legislative Branch staff members as well as a representative of local

government was also created in S.B. 23 to provide assistance and resources to the

Forum.

The Forum must submit its forecast to the Governor and the Legislature by

December 3, 2014, and any required revisions by May 1, 2015. This report includes the

December 3, 2014, forecast of unrestricted General Fund revenues for Fiscal Years

2015, 2016, and 2017.

Methodology and Procedures Based on the provisions of Assembly Bill 332 (2011), the Forum is required to hold

two additional informational meetings during each biennium to consider current

economic indicators and update the status of actual General Fund revenues compared

to the most recent revenue estimates made by the Forum. These two informational

meetings of the Forum were held on December 6, 2013, and June 3, 2014. These

interim meetings allowed the Forum to receive regular updates on current economic

conditions and the outlook for the state’s economy while also tracking the actual

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FY 2014 and FY 2015 revenues against the Forum’s May 2013 forecast. During these

meetings, the Forum reviewed various economic indicators and received a series of

presentations from Legislative Counsel Bureau staff and several Executive Branch

agencies, including the Department of Taxation; the Department of Employment,

Training and Rehabilitation; the Department of Business and Industry; the Department

of Health and Human Services; and the Governor’s Office of Economic Development.

Governor Sandoval appointed the five members of the Economic Forum in 2014 for a

two-year term. These appointments include two members nominated by the leadership

of the Senate and Assembly. The Forum has since held public meetings three times on

October 17, 2014, November 7, 2014, and December 3, 2014, to complete its assigned

responsibilities and duties regarding the approval of forecasts of unrestricted

General Fund revenues for Fiscal Years 2015, 2016, and 2017.

The first meeting of the Forum on October 17, 2014, was devoted to organizing and

reviewing the assigned tasks; reviewing the accuracy of forecasts prepared in

December 2012 and May 2013; and determining a course of action for future meetings.

The Forum also reviewed historical taxable sales and gaming market statistics and

received presentations on a variety of subjects related to the Nevada economy, such as

commercial, industrial, and residential real estate trends; mining industry trends;

economic development programs available through the Governor’s Office of Economic

Development; state Medicaid enrollment and health insurance trends related to the

Affordable Care Act; the Nevada New Markets Jobs Act; and the Nevada medical

marijuana program.

During the November 7, 2014, meeting, the Forum received presentations on the

outlook for the national, state, and local economies. Daniel White and Gregory Bird,

Economists, Moody’s Analytics (an economic consulting firm under contract with the

state), provided a national, regional and Nevada economic outlook; Bill Anderson,

Chief Economist, Nevada Department of Employment, Training and Rehabilitation,

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provided an update to Nevada’s employment and unemployment outlook; and

Jeff Hardcastle, State Demographer, provided an outlook for Nevada’s population.

At the meeting of the Forum on November 7, 2014, the Budget Division of the

Department of Administration and the Fiscal Analysis Division of the Legislative Counsel

Bureau provided projections and economic analysis for six major General Fund

revenues. The Department of Taxation and the Gaming Control Board also provided

projections and analysis concerning the major revenues for which they are responsible

to collect. In addition to the state agency information, the Forum received forecasts of

gaming percentage fees and sales taxes from Moody’s Analytics. The Forum also

received forecasts of all non-major General Fund revenues developed by the

Technical Advisory Committee for the Forum’s review and consideration.

The Economic Forum reviewed the forecast information and requested that any updated

forecasts and information be provided at the meeting on December 3, 2014. At that

time, the Forum directed the Technical Advisory Committee to prepare forecasts for

non-major revenues based on projections by individual state agencies, the

Budget Division, and the Fiscal Analysis Division.

At the December 3, 2014, meeting, the Forum received revised forecasts and economic

analysis from the Budget Division, Fiscal Analysis Division, Department of Taxation,

Gaming Control Board and the Technical Advisory Committee, which were used to

produce the binding forecast of all unrestricted General Fund revenue. A copy of the

Economic Forum’s official December 3, 2014, forecast is provided in the attached table.

A final meeting of the Forum will be scheduled during the 78th Legislative Session, on or

before May 1, 2015, to make any necessary revisions to the December 3, 2014,

forecast.

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Economic Review In spite of the end of the Great Recession in June 2009, according to the National

Bureau of Economic Research, the road to recovery has been long for the national and

state economies. The last of the 50 states to leave the recession behind – Nevada –

did not do so until late 2011, according to Moody’s Analytics, and by September 2012,

only three states – Alaska, North Dakota, and Texas – had reached economic

expansion. As of September 2014, the list of states with economic expansion had

grown to fourteen, adding Colorado, Iowa, Louisiana, Massachusetts, Minnesota,

Montana, Nebraska, New York, Oklahoma, South Dakota, and Utah. Though a handful

of metropolitan areas nationwide are still in recession or at risk of recession, Moody’s

notes that the remaining 37 states have left the recession behind, but are still recovering

from the effects of the Great Recession more than five years after its end.

TABLE 1. ANNUAL GROWTH IN ECONOMIC INDICATORS CALENDAR YEARS 2008 - 2013

2008 2009 2010 2011 2012 2013 U.S.

Real GDP -0.3% -2.8% 2.5% 1.6% 2.3% 2.2% Employment (Total Nonfarm) -0.6% -4.3% -0.7% 1.2% 1.7% 1.7% Wage Growth 2.1% -4.3% 2.0% 4.0% 4.5% 2.8% Personal Income 3.6% -2.8% 2.8% 6.2% 5.2% 2.0% Consumer Price Inflation 3.8% -0.3% 1.6% 3.1% 2.1% 1.5% Fuels & Utilities 9.6% -4.1% 1.7% 2.9% -0.6% 2.8% Housing Starts -33.4% -36.0% 6.1% 5.1% 27.8% 19.2% Oil ($ per barrel) $100 $62 $79 $95 $94 $98

Nevada

Gross State Product -1.6% -7.6% 0.4% 2.3% 4.5% 2.4% Employment (Total Nonfarm) -2.2% -9.1% -2.6% 0.7% 1.7% 2.7% Personal Income -0.3% -6.6% 0.2% 2.7% 6.2% 1.3% Wage Growth 0.2% -9.5% -2.9% 2.3% 2.9% 3.4% Housing Starts -36.4% -52.3% -4.9% 2.5% 44.5% 23.5% Las Vegas Visitors -4.4% -3.0% 2.7% 4.3% 2.1% -0.1%

Sources: Bureau of Economic Analysis, Bureau of Labor Statistics, Census Bureau, Nevada Department of Employment, Training and Rehabilitation, Las Vegas Convention and Visitors Authority

The improving economic conditions that began nationally in late 2009 and early 2010

occurred in part due to unprecedented monetary and fiscal stimulus programs, such as

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the American Recovery and Reinvestment Act, Cash for Clunkers, and the extension of

Bush-era tax cuts. Real GDP increased by 2.5 percent in 2010, but the rate of growth

slowed in 2011 to 1.6 percent as the absence of these programs created a drag on

growth. Early in the recovery U.S. employers were reluctant to hire workers and

job growth remained weak through the first quarter of 2011.

When the Economic Forum met in December 2012, the nationwide economy was

recovering, but uncertainty lingered regarding the speed at which the U.S. would

recover from the recession. At the time, unemployment continued to decline, but

concerns regarding the labor force participation rate impacted the outlook regarding

long-term job growth. Similarly, concerns were raised about the risks of higher inflation

after several rounds of quantitative easing by the Federal Reserve caused significant

increases in the money supply between late 2008 and 2012. Going into 2014, these

concerns have no