Sales drop 5.7 percent

CARSON CITY -- Nevada's budget woes worsened significantly Wednesday when the state Tax Department reported another down month for taxable sales in August, off by 5.7 percent compared with the same month in the prior year.

It was the largest drop in Nevada since September 2001 when taxable sales fell by 9.1 percent following the terrorist attacks of Sept. 11.

With just two months of data for the new fiscal year that began July 1, the state's share of sales taxes used to fund the two-year $6.8 billion budget is already off by $20 million from projections used by lawmakers to balance the spending plan.

Gaming taxes are also off, by $15 million in the first two months of the fiscal year. Gaming and sales taxes are the two biggest sources of revenue to fund state government operations. Sales tax revenues alone account for 32 percent of state general fund spending.

Gov. Jim Gibbons has called on state agencies and others receiving state funds, including the university system, to prepare a list of possible budget cuts for implementation if revenues do not improve.

Taxable sales are down 4.2 percent for the first two months of the fiscal year compared with the same period of 2006.

Clark County and Nevada System of Higher Education officials have balked at the governor's request to submit potential cuts.

But Gibbons said the new data makes the request even more urgent.

"This is the first time since we suffered through the aftermath of 9/11 that our sales tax year-over-year growth rate has been negative," he said in remarks accompanying the report. "Although our tourism business is still booming and we enjoy strong room occupancy rates, this has not been enough to offset the drop in consumer and business spending caused, in large part, by challenges in the housing market.

"To make up for the loss in revenue we have already seen, our sales tax growth rate would need to reach 8.4 percent for the rest of the fiscal year, and current trends do not support that scenario," Gibbons said. " It is obvious, looking at these numbers, that we must plan for a slowdown in government spending."

Agency proposals on how to reduce spending for this fiscal year and the next by 5 percent per year are due Monday. Some major agencies and programs, including public education and corrections, are exempt from the proposed cuts.

Gibbons wants $184 million in potential cuts over the next two years if revenues do not bounce back.

The monthly economic report shows that consumers spent $3.9 billion on taxable goods and services in August over August 2006, a 5.7 percent drop. Clark County taxable sales were down 5.2 percent in August over August 2006.

A number of major categories of purchases that drive taxable sales, especially those that are housing and construction related, were down in August.

The construction industry classification was off 19.2 percent compared with August 2006. The category of merchant wholesalers/durable goods, was off 10.7 percent. Home furniture and furnishings were off 23 percent.

Also down were motor vehicle and parts dealers, by 10.2 percent, general merchandise stores, 3.9 percent and bars and restaurants, 2.2 percent.

Some major categories showed growth over the prior year, including clothing and accessory stores, up 10.1 percent, and food and beverage stores, up 1.9 percent.

Other increases were seen in hotels and motels, up 20.5 percent, and electronic and appliance stores, up 4.6 percent.

But all Nevada counties except Humboldt, Lander and Mineral, recorded a decrease in taxable sales for August 2007 compared to August 2006.

In announcing the need for cut proposals last week, Gibbons' representatives asked the university system to propose cuts of $64 million and Health and Human Services to consider reductions of $96 million over the next two years.

Health and Human Services Director Mike Willden in turned asked the county to submit potential budget reductions from the Department of Family Services and the Department of Juvenile Justice Services.

Clark County Commission Chairman Rory Reid on Monday expressed frustration that Gibbons recommended cutting from two programs designed to help children without first discussing other potential budget reductions with county representatives.

University system Chancellor Jim Rogers has also opposed the cuts, and instead on Monday urged Gibbons to tap into the state's $300 million "rainy day fund" to cover projected budget shortfalls. Rogers said the fund could cover the $184 million the governor wants to cut from higher education and the Department of Health and Human Services.

But Gibbons spokeswoman Melissa Subbotin shot down the idea, saying "modest budget cuts and hiring freezes" would better make up for the revenue shortfall.

"Right now we are too early into the biennium to even consider accessing rainy day funds," she said.

Lorne Malkiewich, administrator of the Legislative Counsel Bureau, said last week the administration at this point cannot use rainy day funds to cover the tax revenue decline. Under state law, revenue must fall at least 5 percent below projections, or the governor or Legislature declare an economic emergency, to use those funds.

Review-Journal Capital Bureau chief Ed Vogel contributed to this report. Contact reporter Sean Whaley at swhaley@review journal.com or (775) 687-3900.