Moody’s: Nevada budget shortfall a “credit negative”

CARSON CITY - The credit rating firm Moody’s on Monday called Nevada’s looming $162 million budget shortfall a “credit negative.”

Moody’s said its declaration of “credit positive” or “credit negative” does not connote a rating or outlook change. It is indicative of the impact of a distinct event or development as one of many credit factors affecting the issuer.

In its new Credit Outlook, the company said the shortfall announced by state officials last week for the current fiscal year is “credit negative” because the state will likely use reserves to fund the shortfall, “a backward step at a time when most states are rebuilding their reserves.”

Nevada’s current bond rating is Aa2/stable outlook.

Nevada currently expects to end fiscal 2015 with an available fund balance of $8 million, which is $162 million below the statutorily required minimum of 5 percent of the $3.3 billion budget and $170 million below what the state had previously expected. The state revised revenues downward by $87 million because of weakness in mining and gaming revenues.

The state revised spending upward by $81 million mostly because of unexpectedly strong growth in school enrollments.

The shortfall was outlined by Gov. Brian Sandoval’s administration last week.

Moody’s said Nevada has been slowly rebuilding reserves over the past few years, although the state’s reserves remain well below their pre-recession peaks.

Nevada was able to get its available fund balance into positive territory in fiscal 2013, but the new shortfall will erase those gains as the state uses the reserves it built up over the past couple of years to plug the deficit, Moody’s said.

The decrease in reserves will cause it to lose ground against peers that are expanding their financial cushions, the company said.

Despite the lower gaming revenues, Moody’s said it expects the city of Las Vegas (Aa2/stable outlook) to outperform other struggling regional gaming markets because lower gas prices and increasing payrolls will fuel growth from U.S. tourists, and Las Vegas will retain its unique position as a destination for overseas visitors.

Contact Sean Whaley at swhaley@reviewjournal.com or 775-687-3900. Find him on Twitter: @seanw801.