The Clouds Are Gathering
by Ralph Heller, NPRI Senior Research Fellow
ew things could underscore the changing nature of Nevadas economic climate more dramatically than a pair of charts recently released by the U.S. Department of Commerce. The first of the two charts, shown below, reveals Nevada enjoying the 12th highest per capita personal income among the states in 1997, but the second chart, shown on the opposite page, shows that when it comes to measuring the annual percentage gain in per capita personal income Nevada has slipped to 48thor 49th if you wish to include Washington, D.C.
The state-by-state rankings are calculated and distributed by the Commerce Department each year, usually in mid-summer, and concerned citizens can look for the updated charts, reflecting figures for the year 1998, next summer. Meanwhile, these rankings for 1997 should be a source of concern for all Nevadans because the states drop in percentage gain for per capita personal income from 1996 to 1997 means that the states actual ranking when it comes to per capita personal income is also destined to drop.
With gaming, once Nevadas monopoly in the U.S., now spread across the country some change in the states comparative economic status was to be expected. Of course, the fact that growth in per capita personal income just barely kept pace with inflation from 1996 to 1997 will come as a surprise to many Nevada residents and to more than a few of its politicians.
Las Vegas has already had to change its marketing strategy to appeal to non-gamblers, so that a report in the August 1998 issue of International Gaming & Wagering Business reveals that the hours a typical tourist spends gambling each day in Las Vegas have dropped from 5 to 3.9 just since 1991. And Reno, having tried everything from an automobile museum to a bowling stadium to attract more tourists, is only now coming to grips with the fact that its most persuasive attraction for tourists may not be Reno at all, but Lake Tahoe.
In other words, with more tourists shopping and sightseeing and fewer of them gambling Nevada can expect tax revenue from its gaming taxlong overstated as a percentage of total state tax revenueto produce a smaller and smaller percentage of dollars needed by government. Indeed, the economic outlook for neither the state of Nevada nor the nation is quite as rosy as the press would have had us believe only a few months ago.
Editorial writer after editorial writer repeatedly raved over the health of the "Clinton economy" in recent years when in fact Federal Reserve Chairman Alan Greenspan wasnt far from the truth when he cautioned the nation about "irrational exuberance," and only now is the press noting that during the year ending June 30, 1998 bankruptcy filings topped 1.42 million, an increase of 9.2 percent over the previous year and up from 845,000 filings per year just four years ago.
Economic growth as measured by Gross Domestic Product (GDP) averaged 2.6 percent per year between 1993 and 1997, the first five years of the Clinton Administrationimpressive but hardly precedent-shattering. By way of comparison, note that during the Reagan years GDP increased an average of 3.9 percent a year.
Meanwhile, right up to August of this year government was proceeding as though nothing were remotely amiss and nothing could ever go wrong with the U.S. economy, especially in Nevada.
A few weeks ago the Board of Regents, which managed to get a 30 percent increase in educational expenditures out of the last legislative session, was preparing to ask for another increase in the upcoming legislative sessionthis time an increase of 45 percentand all this, mind you, to finance an enrollment increase of 6 percent a year.
Just last month, commenting on a report from the Cato Institute, a libertarian think tank, Governor Bob Miller was quoted by the Associated Press as boasting, "Were the third-lowest taxed state in the country and weve met our growth needs at the same time without increasing taxes." This is nonsense, obviously, and according to the U.S. Census Bureau which calculates such rankings Nevadans now have the 12th-highest per capita tax burden among the 50 states.
In just the last two decades Nevada has passed multiple increases in its gasoline tax, its sales tax, its insurance premium tax, its cigarette tax, its property taxes plus a long list of fee increases including automobile registration fees and the drivers license fee. Interestingly, the North Koreans have a delightful word to describe the ideological myopia one finds in Carson Cityyuilsasang, defined as "ideological monochromaticity," the ability to stick to an ideological political agenda without regard to the everyday realities of life.
Nevadas precipitous drop in percentage gain in per capita personal income has two principal causes: (1) the rapid spread of gaming around the country while state government wasnt taking the challenge of economic diversification seriously enough, and (2) to a lesser extent Nevadas uniquely regressive tax structure which inevitably compromises the financial well being of lower- and middle-income workers and families. The first of these two causes has hit the state very hard in a very short period of time; just a decade ago all U.S. casino games were in Nevada and Atlantic City, but already in 1997 fully 48 percent of the nations total "gaming win" was generated outside those two markets.
Moreover, there are those who predict that if Californias Proposition 5 is approved Nevada could suffer a one-third reduction in annual visitors from California within a very few years. The picture isnt pretty, and while clouds have been gathering on Nevadas economic horizon state government has proceeded almost as if nothing were amiss. Meanwhile the states high taxes and regressive tax structure coupled with the growth of gaming elsewhere undermine Nevadas economic future. Interestingly, many of the politically liberal states of the Northeast discovered the role of high taxes in compromising economic well-being several years ago and began slashing taxes rather than raising them. Indeed, the rankings of such states as Connecticut and Massachusetts on these two charts speak for themselves.
Meanwhile, with their annual growth in per capita personal income reduced to 49th among the states, Nevadans can only hope that somebody in Carson City is listening.NJ Ralph Heller is senior consulting editor of Nevada Journal.