Legislators finally filled the $887 million Nevada state budget shortfall today, but this is just a temporary measure to see the state through to 2011. What needs to be addressed before 2011 rolls around is the fact that taxes either need to be raised on gaming on mining, or tax revenue sources are going to have to be diversified.
Given the state of the casino industry, which is in the throes of major financial restructuring, it seems any increases in the sector could be counter-productive. The mining industry is likely to resist pressure to take on a disproportionate burden, and the other major contributor of sales tax will only start picking up once the broader economy does.
In short Nevada needs to broaden its tax base or face a financial crisis. Without changing the tax structure future deficits are likely to exceed $887 million, and further budget cuts could lead to serious social issues. One of the simplest solutions would be the introduction of corporate taxes on all businesses, but this would not go down well with the businesses that located in the state because of its tax-advantaged status.
One way to look at the situation is to say that Nevada does not have a problem, it is the rest of the economy that does. However, until the broader economy picks up, and the tourist dollars start flowing back in, the casinos will struggle, and the state needs to diversify its tax base. How successfully it does this could have a long-term impact on property values. Developments like Lake Las Vegas are already fragile, so the politicians must make changes in the Nevada state budget that boost rather than depress the real estate market.
