EDITORIAL: Ford should approach state budget with caution

It doesn’t matter how sturdy a house looks from the outside. If it isn’t built on a firm foundation, there’s reason to be concerned. State lawmakers should remember that principle when crafting Nevada’s next budget, particularly given Tuesday’s election results.

Last month, the Economic Forum met to review and discuss preliminary forecasts for Nevada tax collections over the next two-year budget cycle. At this meeting, state agencies, the Legislature’s Fiscal Division and the Governor’s Finance Office provided their revenue projections. Later this month, the forum — a five-member panel of private-sector appointees created more than 30 years ago to shield lawmakers from difficult decisions — will offer its official projections. Those are the numbers Gov.-elect Aaron Ford, a Democrat, will use to craft his proposed spending blueprint.

The good news is that each group sees a modest increase in tax collections. But if you look beyond the top-line number, a more concerning picture emerges.

A growing economy increases tax revenue. As people spend more, sales taxes collections increase. Growing businesses hire more employees, increasing revenue from the modified business tax. The gaming tax and live entertainment tax remain tied to the tourism industry.

But inflation can also boost tax collections. As goods and insurance cost more, the sales tax take increases. A slowdown in tourism can be offset by increased visits from wealthier guests. These might produce similar revenue numbers, but the former is a healthy economy. The latter is on an unsteady footing. Unfortunately, Nevada’s economy looks much more like the second.

“Higher prices for taxable goods can lift nominal receipts even when purchase volumes grow more slowly,” a presentation from the Governor’s Finance Office noted.

A slide from Moody’s Analytics noted that, nationally, the top 20 percent of income earners account for an ever-increasing share of consumer spending. That trend is reflected in who is coming to Las Vegas. In 2021, fewer than 15 percent of visitors had household incomes of $150,000 or more. Last year, it was more than 45 percent. Higher-income tourists have more money to spend, but there are also fewer of them.

Another tax source set to increase is the insurance premium tax. While that might help Carson City politicians, higher insurance premiums strain households throughout the state.

A decline in tax revenue looks unlikely, and that’s better than the alternative. But the foundation underneath Nevada’s tax revenue increases looks far from firm.

These numbers and details should give Mr. Ford and legislative Democrats pause as they consider their future spending plans absent any significant GOP opposition. Nevada can’t afford a blowout budget that builds higher baseline costs into future spending blueprints. Doing so would set taxpayers up for future tax increases, the worst outcome of all.