LOS ANGELES — Nevada's projected budget shortfall is a credit negative, Moody's Investors Service analysts say, because they expect the state to use reserves to bridge the gap, a step backward at a time in which other states are rebuilding reserves.
Nevada's Interim Finance Committee projected a budget shortfall of $162 million for the fiscal year ending June 30, 2015, according to a Moody's credit outlook released Dec. 15.
The shortfall has been attributed to weak gambling and mining revenues and higher-than-expected school enrollment, which pressures state spending upward.
The state expects to end fiscal 2015 with an available fund balance of $8 million, which is $162 million below the statutorily required minimum of 5% of the $3.3 billion budget and $170 million below what the state had previously expected, Moody's analyst Julius Vizner said in the report. The total comes from a combination of $87 million in reduced revenues and $81 million in anticipated increased spending due to growth in school enrollments.
Although Nevada has been slowly rebuilding reserves over the past several years, Vizner said the funds remain below a pre-recession peak of 16% in 2006.
Nevada exited the recession in 2011, the last of the 50 states to do so. It had made gains toward building up its available fund balance and rainy day fund, bringing them into positive territory in 2013, but progress appears likely be erased as the money is used to cover the deficit, according to Moody's. It also will cause the state to lose ground when rated against its peers.
Even though the state revised gambling revenues down by $41.5 million, Moody's expects Las Vegas to outperform struggling regional gambling markets. The city also is anticipated to benefit from lower gas prices and consumer confidence retaining its position as a destination for international visitors.
Moody's also expects the state to enact revenue-enhancing measures similar to the temporary taxes adopted in 2007-09 that have been modified, but remain in place, to bolster its position heading into the 2015-17 biennium.