The good news is Reno isn’t flat broke.
The bad news, according to a recent staff report prepared for the city’s Financial Advisory Board, is the city’s budget is starting to show serious signs of strain. It’s already on track to spend $7.9 million more than the city will collect in tax revenue for the year. Doing so will almost completely exhaust the $8 million in reserves the city built up during the previous fiscal year.
Local commentary about the report understandably focused on the increases in salaries and benefits the City of Reno expects to pay out during the next couple of years. A combination of staff increases and higher than originally budgeted salary adjustments have already increased Reno’s labor costs by 9 percent — more than double the originally budgeted 4.2 percent increase for the year. A recently announced increase in the contribution rates to the state’s Public Employees’ Retirement System, along with prenegotiated cost of living increases, is expected to push labor costs for the city even higher in July.
Focusing solely on Reno’s self-inflicted labor costs, however, misses the forest for the trees.
Even if the City of Reno’s labor costs came in where they were originally budgeted to, the city’s budget would still be straining. Local economic growth, plus a steady increase in consumer spending, was supposed to drive an increase in the city’s tax revenue. That, however, isn’t happening. Instead of growing at 5 percent, the city’s consolidated tax — a combination of sales, cigarette, liquor and real property transfer taxes — has only increased 1.2 percent. Room tax receipts in September, meanwhile, declined by 25 percent.
The cause? People aren’t spending as much as they used to on discretionary purchases — and that’s a problem statewide.
Buried in the rosy projections recently released by the state’s Economic Forum is a potentially concerning warning sign. For fiscal year 2025, the period between last July and the end of next June, the Economic Forum predicted a 0.2 percent decrease in total tax revenue.
The reason? Nevada’s economy — and, by extension, the taxes the state collects from it — is stalling.
Or, perhaps, maybe it’s catching its breath.
Maybe.
Despite several attempts to diversify the state’s economy through the years — such as the federal government’s recent efforts to develop lithium mining, manufacturing and recycling industries in Northern Nevada — much of Nevada’s economy still remains reliant on discretionary spending. Discretionary spending, whether taxed through sales or gaming taxes, is also the biggest source of revenue for the state and its constituent county and municipal governments.
Unfortunately, spending on travel, gambling and leisure, is also always the first thing anyone cuts whenever the economy feels uncomfortable. Consequently, whenever the economy sneezes, Nevada gets pneumonia — and Nevada’s governments frequently find themselves needing life support.
One warning sign of falling discretionary spending is a decline in sales tax revenue. Though monthly taxable sales increased year-over-year in September, they’re still lower overall for this fiscal year than they were last year due to a pair of lackluster months earlier in the year.
Another warning sign is a decline in gaming revenue. Gaming win across the state from July to October declined 2.48 percent compared to where it was last year. Additionally, gaming revenue in the Strip has been lower than it was the previous year for four straight months. Hotel room rates for the second Formula One Las Vegas Grand Prix were also noticeably cheaper than they were last year.
Interestingly, Washoe County — which only saw a 1.20 percent decrease during the same time period — outperformed most of the rest of the state.
There are, in short, signs that people are tightening their belts and closing their wallets a bit sooner than they used to, just as you might expect before an economic downturn.
Even so, there is cause for cautious optimism.
Nevada’s Modified Business Tax, which taxes gross wages minus health care costs, doesn’t fully reflect the direction wages in the state are trending — since nonprofits and government agencies don’t pay the tax, they don’t report their wages. Even so, it provides a useful window into the direction wages are going in the private for-profit sector of Nevada’s economy.
According to the state’s most recently published quarterly statistics report, gross wages have increased 7.7 percent during the past year. Though health care costs increased faster than that, net taxable wages still increased 7.6 percent. That suggests many Nevadans have more money in their pockets now than they had last year.
Additionally, Nevada’s economy has been outperforming expectations since the pandemic ended. In December 2022, the state expected to have $11.4 billion to spend between July 2023 and June 2025. That expectation, in turn, was revised upward the following May by $251 million.
According to the most recent revenue forecast, the state collected more than $6 billion between July 2023 and June 2024 and, even with tax revenues expected to flatten out, is still expected to collect another $6 billion in tax revenue the following year. If that holds, that will place the state government nearly $350 million ahead of where it expected to be — just enough, legislators will likely argue, to renew a $250 million raise for teachers that was passed in 2023.
Or it will be enough to finish funding the pay raises lawmakers approved for higher education faculty and staff — raises which lawmakers only funded two-thirds of the way.
Maybe.
If tourists stop betting on cryptocurrency and start betting on table games again. If Nevadans open their wallets again. If the economy stops its “soft landing” and starts taking off again. If sales and gaming taxes start increasing again.
If, in short, the past six months are a pause, a collective catching of breath — and not the beginnings of a drowning gasp.
David Colborne ran for public office twice. He is now an IT manager, the father of two sons, and a weekly opinion columnist for The Nevada Independent. You can follow him on Mastodon @[email protected], on Bluesky @davidcolborne.bsky.social, on Threads @davidcolbornenv or email him at [email protected].
