CARSON CITY — Nevada’s economy has declined more than that of any other state since January 2007 and could get even worse as the national economic downturn becomes more severe, a report released Tuesday indicates.
The damage is just beginning for state government budgets, with further tax and payroll declines expected in coming months, according to the report by the Rockefeller Institute of Government.
“The last fiscal crisis for the states, which occurred in the midst of a mild recession, was dubbed the perfect storm. This one could be more perfect,” co-author Donald Boyd said in the report, referring to the aftermath of the Sept. 11, 2001, terrorist attacks.
As if Nevadans intuitively did not already know, the Rockefeller Institute, a policy research organization at the State University of New York in Albany, found Nevada has been hit harder by the downturn than any other state.
According to the Federal Reserve Bank of Philadelphia, Nevada’s economic activity index in August was 95.8, based on a January 2007 benchmark of 100, making it the worst in the nation.
Nevada’s index also dropped further than any other state’s between May and August, with its economic activity falling 2.1 percent.
Economic activity is a measurement that includes tax revenue changes as well as the unemployment rate, real wage and salary distributions, average weekly hours worked, labor market and payroll information.
Under that measurement, Texas is the best-off state with a 106.1 economic activity measurement, while West Virginia has performed best since May, gaining 2.2 percent.
California, which may need a $7 billion federal bailout to balance its budget, ranked 21st in economic activity with a 101.4 measurement.
Since May, 39 states have shown declines in economic activity, led by the 2.2 percent drop in Nevada.
Nevada’s unemployment rate climbed to 7.1 percent in August, far above the national 6.1 percent average. It also is the highest unemployment rate in 23 years.
Last week, Nevada economists predicted unemployment would increase even more, to an 8.6 percent average rate in 2009 and 2010.
Gov. Jim Gibbons and the state Legislature have cut state spending by $1.2 billion because of declining tax revenues.
Gibbons warned legislators they might have to cut another 14 percent when they go into session in February.
The governor’s communications director, Ben Kieckhefer, said Tuesday the study bears out what is becoming very apparent in Nevada.
“The inability of businesses and individuals to access capital has taken a serious toll on economic activity,” he said. “People can’t get loans to buy homes, and businesses cannot expand their businesses. This credit crunch is having a very serious effect on Nevada.”
Assembly Speaker Barbara Buckley, D-Las Vegas, said Monday that because of further tax revenue declines, the state’s budget cuts may approach 20 percent.
Buckley is holding a series of town hall meetings asking people for suggestions on what to do.
She also favors re-examining the tax abatements and exemptions that the state has granted some businesses over the years and setting priorities next year on where funds should be spent.
During a meeting Monday in Reno, several Nevadans said the Legislature should increase taxes on gold as a way to prevent further state cuts. Gold sold for $883 an ounce Tuesday, up $20 from Monday.
More than two-thirds of the gold in the United States is mined in Nevada. Gibbons, a former mining geologist, vowed in the spring to veto any bill that calls for increased mining taxes.
The Rockefeller Institute study shows the economy will be worse.
Boyd said “three more shoes have yet to drop.”
He explained that states are yet to feel the full effect of the financial sector meltdown, the stock market decline and further losses in employment because of the credit crunch.
The report indicates that Nevada, Florida, Arizona and Michigan have suffered steep declines in housing prices and that Michigan also suffers from long-term economic weakness.
“Nevada looks very much like Arizona and Florida. It benefited from the same sort of real estate run-up, and suffered a very similar sharp decline in state tax revenue. Michigan by contrast has suffered a long-term economic malaise,” the study said.
The situation in the states only will get worse in 2009, according to the study.
“The final quarter of the fiscal year — the April through June quarter — is likely to be very, very bad, reflecting declines in investment income and compensation to high-income individuals,” it predicts.
Contact reporter Ed Vogel at email@example.com or 775-687-3901.ON THE WEB
The Rockefeller Institute of Government