Study urges Nevada and nine other states to take care in handling economy

CARSON CITY — A national think tank warned Nevada legislators today against making decisions that could prolong rather than shorten the recession.

The Pew Center on the States issued a report that identified Nevada as one of 10 states that, like California, face daunting state government budget problems because of the recession.

The analysis, “Beyond California: States in Fiscal Peril,” noted that these states account for more than one-third of the nation’s population and economic output, and how they handle their crises will affect how fast the nation recovers.

In reviewing why some states are suffering more than others, the Pew analysis found that the 10 states tend to rely heavily on one type of industry, have a history of persistent budget shortfalls or face legal constraints making it difficult to implement major changes, such as tax increases.

Many require a supermajority vote for passing tax increases or budget bills.

Also, several state legislatures were unable to enact long-term fixes. Instead, they asked voters or governors to make the call, or used accounting gimmicks to put off the hard choices until later.

“Decisions these states make as they try to navigate the recession will play a role in how quickly the entire nation recovers,” said Susan Urahn, managing director of the nonprofit Washington, D.C-based think tank.

But during a telephone news conference, Urahn said she was not offering state governments solutions on what they should do to provide essential services.

“The national economy may turn the corner, but states face tough times in the next three years,” Urahn said. “Lawmakers need to make decisions that do not impede that recovery. The states need to figure out how to raise revenue and make cuts and that is a political challenge in many states.”

It might be five years before the economies in states like Nevada recover, Urahn said.

She said Nevada legislators thought for too long that gaming was recession-proof and that as a result “Nevada is going to suffer longer than any other state.”

There was nothing in the Pew study itself to back up that assertion.

The report’s conclusions that recovery will take years, however, reflect what Nevada economists have been saying for several months.

The problem is that Nevada’s economy hinges on discretionary spending and housing growth, they said. The national recession curbed visits to the state, and slumping tourism has meant double-digit declines in taxable sales for much of the last year.

Also, with new-home sales dropping from well over 3,000 units a month at their 2005 peak to fewer than 500 homes a month now, construction employment across Nevada has plummeted from to 84,400 from 125,000.

Overall, joblessness has soared to 13.9 percent in Las Vegas and 13.3 percent statewide. That’s the nation’s second-highest unemployment rate, after Michigan’s 15.3 percent.

Economist Keith Schwer, director of the Center for Business and Economic Research at the University of Nevada, Las Vegas, said in October that improvement in the state’s economy will lag national recovery, because consumers must begin traveling and spending en masse again before Las Vegas revives.

In August, Schwer suggested that the national slump in discretionary spending could be permanent, as consumers abandon expensive habits and hew to their newfound thrift.

Applied Analysis, a local research firm, reported in August that its conservative estimates show double-digit unemployment lingering across Nevada into the third quarter of 2011.

Assembly Minority Leader Heidi Gansert, R-Reno, disagreed that state government’s financial problems are due mainly to the decline in gaming.

“It is not just gaming,” she said. “It is construction and the decline in the (population) growth rate. We had the highest growth rates in the country for years. It will make it a bit slower for Nevada to recover.”

Pew’s report said Nevada’s economy has not been this bad since 1931, when cowboy legislator Phil Tobin introduced the bill to legalize gaming.

“Today the state that set up an industry to dig out of one economic disaster is in a new crisis, and this time gambling is largely the cause,” the report said. “Travelers nervous about the economy have put off trips to Nevada; those who do come are spending less.”

Urahn noted that five commissions over the years have recommended that the Nevada Legislature implement a broad-based business tax, but such a tax never has been implemented.

The Legislature’s Interim Finance Committee is about to fund another tax study, which will make recommendations for consideration by the Legislature when it next meets in 2011. Critics already have predicted that tax increases will be among the recommendations.

The Pew report predicts Nevada will face a $3 billion state government budget deficit by 2011.

Senate Minority Leader Bill Raggio, R-Reno, earlier predicted a $2.4 billion shortfall.

Gansert said the shortfall could be $3 billion, which she noted is about 40 percent of the two-year $6.9 billion budget approved in June.

“Last session we tried to contain the size of government,” she said. “I know we will do the same in 2011. We have to keep education intact, but you can’t have everything. We are going to look at significant reductions.”

 

Review-Journal writer Jennifer Robison and The Associated Press contributed to this report. Contact Capital Bureau Chief Ed Vogel at evogel@reviewjournal.com or 775-687-3901.

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