MINUTES OF THE MEETING OF

THE STATE OF NEVADA ECONOMIC FORUM

May 1, 2001 – 1:00 P.M.

Legislative Building

401 South Carson Street, Room 4100

Carson City, Nevada

 

A meeting of the State of Nevada Economic Forum (created as a result of Senate Bill 23, 1993) was held at 1:00 p.m., Tuesday, May 1, 2001, in Carson City, at the Legislative Building, Room 4100, with videoconference to the Grant Sawyer State Office Building, 555 East Washington Street, Room 4401, Las Vegas, Nevada.

 

ECONOMIC FORUM MEMBERS PRESENT:

 

Leo V. Seevers, Chairman

Cary Fisher, Vice-Chairman                    

Steve Greathouse

David J. Morgan                                    

Ronald Zideck

 

ATTENDING IN CARSON CITY:

 

            Steve Hixon, Gaming Control Board

            Frank Streshley, Gaming Control Board

Bill Anderson, Economist, State Budget Division

            Bob Murdock, Department of Employment, Training and Rehabilitation

            Darragn Huggins, Department of Employment, Training and Rehabilitation

            Jim Shabi, Department of Employment, Training and Rehabilitation

            Peter Janson, Department of Employment, Training and Rehabilitation

            Lynne Knack, Department of Taxation

            Bob Gagnier, State of Nevada Employees Association

            Al Bellister, Nevada State Education Association

            Pat Zamora, Clark County School District

            Henry Kilmer, Storey County School District

            Anne Loring, Washoe County School District

            Rose McKinney-James, Clark County School District

            Jim Parry, Carson City School District

            Kami Dempsey, Las Vegas Chamber of Commerce

            Dave Howard, Las Vegas Chamber of Commerce

            Steve Barr, Nevada Corrections Association

            Dan Fox, Pershing County School District

            Stephanie Licht, Elko County

            Ronald Levine, Nevada Motor Transport Association

            Robert Hadfield, Nevada Association of Counties

            Steve Williams, Washoe County School District

            Jens Larson, Nevada Taxpayers Association

            Dan Miles, University and Community College System of Nevada

            Brian Krolicki, State Treasurer

            John Adkins, State Treasurer’s Office

            Kathy Naumann, Teamsters

            Gary Wolff, Nevada Highway Patrol Association

            Janelle Kraft, City of Las Vegas

            Renee Lacey, Office of the Secretary of State

Cy Ryan, Las Vegas Sun

            Geoff Dornan, Nevada Appeal

            Sean Whaley, Las Vegas Review Journal

 

STAFF:

 

Ted A. Zuend, Deputy Fiscal Analyst, Fiscal Analysis Division

            Mark Stevens, Fiscal Analyst, Fiscal Analysis Division

            Gary Ghiggeri, Fiscal Analyst, Fiscal Analysis Division

            Russell Guindon, Deputy Fiscal Analyst, Fiscal Analysis Division

            Joi Davis, Secretary, Fiscal Analysis Division

 

ATTENDING IN LAS VEGAS:

 

Rennie Schreirer, Lt. Governor’s Office

Kris Absher, Lt. Governor’s Office

Greg Febbo, Department of Personnel

Lenora Kizer, Department of Personnel

Patrick Smith, City of Las Vegas

Jennifer Knight, Las Vegas Sun

Frank Tussing, Nevada Alliance

 

EXHIBITS:

 

Exhibit A  -                   Meeting Notice and Agenda

Exhibit B  -                  Attendance Roster

Exhibit C  -                  May 1, 2001, Meeting Packet prepared by the Legislative Counsel Bureau.

Exhibit D  -       LCB Fiscal - Table 5 (REVISED 5-1-01), Forecasts of Selected General Fund Revenues:  FY 2001, FY 2002, FY 2003.  Economic Forum Forecasts are December 1, 2000 Estimates.

Exhibit E  -       LCB Fiscal – Table 3 (REVISED 5-1-01), General Fund Revenue Forecasts:  Agency – Fiscal – Budget.

Exhibit F - Comparison of May 2001 Forecast and Economic Forum December 2000 Forecast: Major Revenues by Forecaster (blue sheets REVISED 5‑1‑01).

Exhibit G -        Comparison of May 1, 2001, November 30, 2000 and October 31, 2000 Forecasts: Major Revenues by Forecaster (green sheets REVISED 5-1-01) prepared by the Fiscal Analysis Division, Legislative Counsel Bureau.

Exhibit H -        Revised pages to the Meeting Packet (R-35 and R-38).

Exhibit I -         State of Nevada Gaming Control Board’s Gaming Revenue Forecasts for Fiscal Years 2001-2003.

Exhibit J -         State Budget Division’s General Fund Revenue Forecast – May 2001.

Exhibit K -             Forecast Information on the Major General Fund Revenues, prepared by

the Fiscal Analysis Division, Legislative Counsel Bureau, May 1, 2001.

Exhibit L -        LCB Fiscal Division 2% Sales and Gaming Percentage Fees Fiscal Years 1999, 2000 and 2001

 

DUE TO SIZE, THE EXHIBITS ARE NOT ATTACHED TO THESE MINUTES, HOWEVER EXHIBITS MAY BE REVIEWED AT THE FISCAL ANALYSIS DIVISION OR RESEARCH DIVISION LIBRARY OF THE LEGISLATIVE COUNSEL BUREAU, CARSON CITY, NEVADA, UPON REQUEST.

 

 

ROLL CALL

 

Chairman Seevers called the meeting of the State of Nevada Economic Forum to order at 1:00 p.m., noting all members present.

 

APPROVAL OF THE MINUTES FROM THE NOVEMBER 30, 2000, MEETING OF THE ECONOMIC FORUM

 

The Chairman asked if the members of the Forum had reviewed the minutes from the November 30, 2000, meeting, included in the Meeting Packet (Exhibit C) behind Tab II.

 

         MR. GREATHOUSE MOVED TO APPROVE THE NOVEMBER 30, 2000, MEETING MINUTES. 

 

         MR. MORGAN SECONDED THE MOTION, WHICH CARRIED UNANIMOUSLY BY THOSE PRESENT.

 

APPROVAL OF MAY 1, 2001 FORECASTS OF MAJOR GENERAL

FUND REVENUES FOR FY 2001, FY 2002 AND FY 2003

 

Russell Guindon, Deputy Fiscal Analyst, Fiscal Analysis Division, explained that he would be discussing the forecasts of the six major revenues sources made on December 1, 2000.  However, some revisions to the information included in the handouts have been made which he identified as follows:

 

a)      Revised Table 5 – (Exhibit D)

b)     Revised Table 3 – (Exhibit E)

c)      Revised Blue Sheet – (Exhibit F). Mr. Guindon explained that the blue sheet contained a comparison of the current forecasts compared to the December 1, 2000, forecast of the six major revenues, along with the total General Fund revenue forecast which also includes the revised minor forecasts that will be discussed under Agenda Item No. 4. 

d)     Revised Green Sheet – (Exhibit G).  Mr. Guindon explained that the green sheets contained a comparison of each of the six major revenues for the May 1, 2001 forecast for each forecaster and provides a profile on how that forecast compares to the prior forecast for each revenue for each year of the forecast period under consideration.

e)      Revised Pages for the meeting packet identified as R-35 and R-38 – (Exhibit H), prepared by the Budget Office for the two revenue sources revised – Percentage Fee Collections and Casino Entertainment Tax Collections.

 

Mr. Guindon explained that the Forum would now hear from the Gaming Control Board regarding the first major revenue source.

 

Percentage Fee Collections

 

Frank Streshley, Gaming Control Board

 

Mr. Streshley, Senior Research Analyst, Nevada Gaming Control Board, stated he would be addressing what has occurred in the area of gaming win and percentage fee collections since the November 2000 meeting.  In addition, he would be discussing the March 2001 gaming win since the figures are in and he now would feel comfortable discussing those numbers.  He noted that those numbers should not materially change unless errors are found during desk audits prior to official release of the numbers.  Based upon the March numbers, the Gaming Control Board has revised its numbers (Exhibit I).

 

In preparing the forecasts for the Economic Forum’s October and November meetings, the Gaming Control Board anticipated a slow-down in the economy and that was factored out eventually to 2002.  In the November 2000 forecast, the Gaming Control Board had percentage fees grow at 5.8% in FY 2001, 5.1% in FY 2002 and 3.8% in FY 2003, and this was after increasing 12.9% over the past fiscal year.  Mr. Streshley recollected for the Forum that the Gaming Control Board had revised their October forecast down slightly due to the national economy starting to slow down.  However, they did not anticipate the rapid decline that has occurred since then.

 

Mr. Streshley pointed out that the factors currently affecting the Nevada gaming markets are continuing high gas prices, and California’s economy which has been hurt by the energy crisis and a downturn in some of their major industries.  Small declines have been seen in the room rates and occupancy rates in the Las Vegas market.  For the first two months of calendar year 2001, occupancy rates were down approximately 3.1%; however, about 3,500 rooms have been added to the Las Vegas market which should be taken into consideration.  Car traffic counts for Las Vegas have started to decline from last year’s record numbers, with fuel costs and the California energy crisis affecting those numbers further.  Mr. Streshley confirmed that auto traffic to Las Vegas was down about 4.3% for the first two months of calendar year 2001.  Additionally, the Gaming Control Board does not expect that figure to improve in the near future as gas prices are expected to be higher in the summer months and California residents historically pay higher utilities bills during the summer months.

 

On the positive side, Mr. Streshley pointed out that airline passenger counts remain strong with 5.1% for the first two months of the calendar year.  Convention business is running on a record pace of 16.4% for the first two months of 2001.  The month of February was up 27.9% and based upon discussions with the Las Vegas Convention and Visitor Authority, convention business is expected to remain strong throughout this year while advanced bookings for the next several years are good.  In addition, the March gaming win was stronger than originally forecast.  Initial results show that collections should be up between four to six percent for the month of March which will surpass last years all-time record month for collections.  This follows February when collections were up 10.3 percent.  Initial numbers show that the Gaming Control Board will collect between $14 million and $15 million in April 2001 from the estimated fee adjustment alone.  Going into April, the estimated fee adjustment was -$13.9 million fiscal year-to-date, compared to last year at the same time when it was up $1.9 million.  Mr. Streshley indicated this was one of the factors that brought down their forecast for the percentage fees collections.  However, March gaming win should come in between 2-3% above last year with increases in win from both slots and table games.

 

Turning to the first chart in the handout from the Gaming Control Board (Exhibit I), Mr. Streshley noted that year-to-date, the drop-off from last year’s levels were well below what had been forecast in November.  Also, he pointed out that fiscal year-to-date gaming win was up 2.5% with ten months reported.  In November 2000, with four months reported, gaming win fiscal year-to-date was up 5.6%.  Fiscal year-to-date taxable revenue was up 2.6% while in November with four months reported it was up 6.4%.  Mr. Streshley advised the Forum that not shown on the chart was the ratio of taxable win to gaming win which was currently at 95.5% which was the same as last year.  However, prior to March’s numbers, that figure was approximately 2.5% below last year. 

 

Mr. Streshley said that with the March 2001 numbers, total collections are down approximately .19%; in November with four months of collections, percentage fees were up 5.3%.  Year‑to-date, percentage fees collections from taxable revenue are up 3.1%.  Year-to-date, the estimated fee adjustment (EFA) with March numbers is down 95.4%.  Year-to-date, the Gaming Control Board has collected approximately $700,000 in EFA.  Last year at this time, that figure was $15.8 million. 

 

Looking at some of the individual markets outlined in the next three charts of the handout (Exhibit I), Mr. Streshley noted that strong growth can be seen for last year and for the first four months of this year.  About that time, the economy started to turn and the state was up against some strong comparisons.  That “drop-off” started in approximately September 2000 in the Strip market.  September’s decline ended 20 months of positive growth on the Strip.  For fiscal year-to-date, the gaming win on the Strip is up only 2% and in fiscal year 2000 the Strip ended up at 15.7%.  The Strip market now accounts for 50% of the total gaming win for the state. 

 

Mr. Streshley informed the Forum that the most common comment the Gaming Control Board receives from licensees on the Strip and some of the other markets is that visitation remains strong but that the visitors are not increasing the spending at the same levels they have in the past couple of years, especially in the games and tables segment.  Last year, games and tables on the Strip was up 18.3%.  Through February 2001, game and tables win on the Strip is down .9%. 

 

Mr. Streshley indicated that the Las Vegas Downtown market has held its own and was running close to last year’s level.  Fiscal year-to-date gaming win for Las Vegas Downtown market is up .5%.  Fiscal year-to-date gaming win for Laughlin is up 2%.  The decline seen during October ends 25 months of positive growth for that market. 

 

The next chart reflects the Boulder Strip, North Las Vegas and the Balance of County gaming win and growth rate (Exhibit I, page 3).  Mr. Streshley reported that gaming win for the locals market is up approximately 4.9% which is well below the double-digit growth that was forecast in November 2000.  The same comments are being heard for the local market as for the rest of the state—that customer spending has leveled off but visitation has remained strong.

 

Mr. Streshley concluded that for all of Clark County fiscal year-to-date, gaming win is up 2.5% with Clark County now making up 80% of the gaming win for the entire state.  Last year Clark County increased by 12.8%.  Looking at the northern part of the state in the next chart (Exhibit I, page 4), Mr. Streshley pointed out that gaming win for Washoe County fiscal year-to-date was up 1.7% and for the same period Elko was up only .4%.  Mr. Streshley indicated that both Washoe and Elko counties have been down for the past five months.  He stressed that these markets have been hurt by the high gas prices; the majority of visitors that come to those markets arrive by car.  Elko County also continues to be affected by the downturn in the mining industry. 

 

Mr. Streshley stated that one of the bright spots in the state was South Shore Lake Tahoe, which was up 8.8% fiscal year-to-date.  It appears that this reporting benefited from some of the marketing performed at the lake by the individual properties.

 

Turning to the next chart (Exhibit I, page 5), Growth in total win, slot win and game and table win, Mr. Streshley said this chart showed how slot win has been more stable than game and table win which historically has been the case.  Slot win is up 4.1% year-to-date.  In November 2000, slot win was up 6.1% with four months reported; slot win has declined but only by two percentage points since that time.  Slot win now accounts for approximately 64.5% of the total win reported each year.  Coin-in is up 2.4% fiscal year‑to‑date and the slot win percentage is up slightly at 5.27%, showing a slight increase from last year’s 5.24% rate.  Continuing, Mr. Streshley stated that game & table win year‑to-date is flat with no growth.  In November, game & table win was up 4.8% with four months reported, resulting in a decline of almost five percentage points.  The drop for game and table win is down 1.4%.

 

The next chart depicted individual slot denominations.  Mr. Streshley stated that nickel slot win was up 26.4% fiscal year-to-date and nickels continue to drive the slot market.  However, the last four months has shown a slight trend downward for the nickel slots.  Growth in quarters and dollars are both declining and part of that is due to the change in machine denominations to the new, popular multi-hand, multi-line nickel machines.  Quarter win is down 4.7% year-to‑date and Dollar win is down 2.5% year-to-date.

 

Mr. Streshley said the next chart (Exhibit I, page 7) outlines the major areas within the games and tables market.  As noted, total game and table win year-to-date has been flat.  Fiscal year-to-date in Baccarat is down 18.6%.  Excluding Baccarat from the year-to-date total, win would be up approximately 4.2% demonstrating the effect one game has on the market.  Twenty-one is up 1.3% while Craps win is down 3.5%.  Discussions held with the licensees reflect that the biggest decreases in spending have been on the high-end games such as Baccarat.  He stressed that credit is a major component to high-end games.  However, growth in the amount of credit play has slowed from last year’s level.  Total markets year-to-date are up approximately 3% which was well below the 25% increase of a year ago.  Collections year-to-date are running about 95.5% of win, which is about the same level as last year.

 

The final chart for the Gaming Control Board outlined their May 2001 forecast.  Mr. Streshley acknowledged that the percentage fees were revised down from the November 2000 meeting.

 

·  In FY 2000, the growth rate for percentage fee collections was adjusted down from 5.9% to -.1% with $559.7 million in total collections.  The Gaming Control Board’s forecast for gaming win has that increasing 2.1% this year with slot win growing at 3.3% and game win down .3%. 

 

·  For FY 2002, the growth rate for percentage fees was adjusted down from 5.1% to 3.7% with $580.5 million in total collections. The previous forecast for gaming win next year was at 3.2% with slot win increasing 4.5% and game & table win increasing .9%.

 

·  For FY 2003, the growth rate was adjusted up from 3.8% to 4.7% with $607.8 million in total collections.  The Gaming Control Board had forecast the gaming win to grow about 4.5% in FY 2003 with slot win increasing 4.9% and game & table win increasing 4.9%.

 

Mr. Streshley stated the Gaming Control Board’s forecast for new property assumptions and expansions has changed very little.  There were no more property openings for this year.  In FY 2002 there will be approximately 6,100 new slots and 135 new games coming on line with most of those units on line at the end of the second quarter with the opening of the Palms and the Green Valley Stations casino.  In FY 2003 there will be approximately 3,200 new slots with 58 new games.  Again, Mr. Streshley stressed that these numbers were only slightly increased from what was presented to the Economic Forum in October and November 2000. 

 

As to the adjustments made to the growth rates for the remaining two months of this year and for the first six months of 2002, the Gaming Control Board shows little to no growth in gaming win depending on the market.  Starting in the second quarter of FY 2002, Mr. Streshley forecasts the growth rates gradually increasing out to FY 2003 on the assumption that the economy will rebound at that time.  The second half of 2002 and 2003 will also benefit from the openings of the new properties mentioned. 

 

Mr. Streshley stated that the last area of revision from the November 2000 forecast was to the estimated fee adjustment (EFA).  The EFA for 2001 was adjusted down from $3.3 million to $732,000 in total collections.  The EFA for 2002 was adjusted up from $1.1 million to $2.4 million in total collections.  For 2003 the forecast was adjusted up from $889,000 to $3.4 million in total collections.  To meet the forecast for this year’s collections, growth at the rate of 2.4% would be needed for the next two months.

 

Mr. Streshley concluded his presentation and indicated he would be available to answer questions.

 

Bill Anderson – State Budget Office

 

Bill Anderson, Economist, State Budget Office, provided a handout to the Economic Forum (Exhibit J).  Mr. Anderson stated he would be talking about the six major revenue sources that contribute to the state’s General Fund.  Of those six, the Budget Office has left their sales tax and the cigarette tax forecast the same as the November forecast.  For the business license tax and the casino entertainment tax, the Budget Office has made minimal changes.  However, notable changes were made to the insurance premium tax forecast as well as the percentage fees forecast. 

 

Looking at the percentage fees forecast, the Budget Office, based upon information and trends that have unfolded this year, have “racheted” that forecast down.  Directing the Forum to FY 2001, Mr. Anderson said the Budget Office was forecasting approximately $569.2 million in percentage fees collected off of gross revenue.  This is shown on page 14 of the Budget Office’s handout (Exhibit J).  This translates into 3.8% growth rate relative to FY 2000.  Through the first nine months of this year, this component (fees collected off gross revenue) is up about 2.9%.  So, the Budget Office is looking at 3.8% growth for the entire year and so far 2.9% growth has been realized.  For the most part, trends are expected to continue with a slight “up-tick” in activity through the final three months of the fiscal year.  Mr. Anderson surmised that the “up-tick” would come through outstanding credit.  Expounding further, Mr. Anderson stated that until the most recent gaming report it appeared that there was a good amount of outstanding credit that remained uncollected by the casinos.  Once collected, that revenue will contribute to taxable gaming revenue and “bump-up” the collection rate.  Secondly, for the first nine months of the fiscal year, collections from gross revenue were 2.9% versus a 12% rate of growth during the first nine months of FY 2000.  During the final three months of FY 2000, there was a 9.1% growth rate.  Therefore, the comparable growth base is down slightly.

 

Mr. Anderson stated that another component to the percentage fees collections was the estimated fee adjustment (EFA).  He acknowledged that he has testified before the Economic Forum previously that the Budget Office does not spend much time on the EFA forecast.  Keeping in mind that percentage fees are roughly a $600 million revenue source, Mr. Anderson opined that the EFA over the past eight to nine years has averaged out to about $3 million per year.  In the big picture, he does not believe that the EFA forecast is that significant.  However, at end of the fiscal year, he does take a look at the EFA and makes an educated guess on where it is going.

 

Mr. Anderson acknowledged the Gaming Control Board’s EFA forecast is approximately $13 million year-to-date.  An historical look at the EFA over the final three months of the fiscal year shows improvement by approximately $10 million.  Further, that improvement ranges from $9-$12 million.  There has never been a negative, nor has there ever been $5 million or $15 million improvement.  The Budget Office expects the same amount of improvement for FY 2001 resulting in a -$3.5 million estimated fee adjustment, leading to the total forecast of $565.8 million representing a 1% increase over FY 2000. 

 

For FY 2002, the Budget Office forecasts growth rates for percentage fees collections of 4.7% and 4% in FY 2003.  Mr. Anderson concluded that these forecasts represent the underlying growth rate of the industry in a relatively stable environment.  There will not be the major rounds of expansions as has been occurring in the past few years.  Rather, the market can be termed “status quo” and he believes in that stable environment a 4- 4.5% growth rate is more reasonable.   Directing the Forum to the top of page 14 of his handout (Exhibit J), Mr. Anderson said the average annual growth rate has been about 6.4%.  The 4% to 4.7% range in which the Budget Office is forecasting percentage fees collections should allow the state to weather potential negative developments such as Indian Gaming. 

 

Mr. Anderson said the growth rates presented by the Budget Office were unchanged from those presented to the Economic Forum in November 2000.  However, nothing has happened to change the underlying view of what was happening in the future.  For example, Mr. Anderson related that there was much talk about recession and the slowing down of the economy.  Obviously that would have an impact on the gaming industry.   Mr. Anderson opined that the Budget Office pays attention to what WEFA is saying.  WEFA’s economic forecast today, compared to the economic forecast that was presented last fall, does not show much difference.  In November 2000, WEFA forecasts total economic growth at 3.2%; the new forecast is at 1.8% for total economic growth.  However, there is already a first quarter economic report that shows total economic growth at 2.7%.  So, WEFA will likely be revising their forecast upwards.

 

For calendar year 2002, WEFA was forecasting about 3.5% growth for the entire economy and that forecast has changed to 2.9%.  For 2003, WEFA was a 3.7% and they are now forecasting at 3.5%.  The Budget Office believes that the overall general economic fundamentals now are very similar to what was occurring in November 2000.  Finally, Mr. Anderson said he would conclude by pointing out that the forecast established by the Budget Office was sound in a structural sense.  Turning to page 16 of his handout (Exhibit J), Mr. Anderson reminded the Forum that the Budget Office looks at this forecast on a “per-room” basis and that method has been in place since FY 1998.

 

Russell Guindon – Fiscal Analysis Division

 

Russell Guindon, Deputy Fiscal Analyst, Fiscal Analysis Division, Legislative Counsel Bureau, indicated he would be first showing the changes to the Fiscal Divisions’ forecasts (green sheets) and compare those to the November 2000 forecasts (blue sheets) and then go through some tables in his handout (Exhibit K).

 

The Fiscal Division’s forecast for FY 2001 for percentage fees collections has been revised from 3.9% to –.02% growth which represents a significant decline from the previous forecast.  Looking at FY 2002-03 biennium, Mr. Guindon indicated that not much difference is evident and the forecast actually comes up by .2% from 4.2% to 4.4%.  In FY 2003, the forecast goes from 3.7% to 3.9%.  He stated that this was not an unexpected result based on the equations that were being used and with the additional information received, the estimated co-efficients did not change much.  As was discussed by Mr. Streshley, the underlying assumptions in terms of new property openings and the number of devices being added by those property assumptions has not changed significantly so it was not a significant surprise that the growth rates in the out-years did not change much.

 

Directing the Forum to the blue sheets (Exhibit F), Mr. Guindon stated these charts offered a comparison of all the current forecasts for those forecasting:  Agency, Fiscal, Budget as compared to the Economic Forum’s December 1, 2000 forecast.  The 5.9% forecast in December was dropped to -.02% and lowered revenues by approximately $34.3 million in FY 2001.  Then, using the growth rate assumptions of 4.4% and 3.9%, there is a loss of $37.4 million in FY 2002 and $39.5 million in FY 2003.  Mr. Guindon asserted that the loss of revenue in FY 2002 and FY 2003 was due to the base year adjustment.  He added that determining the base year amount was an important decision that needed to be made by the Economic Forum and secondly, the growth rates for FY 2002 and FY 2003 would also need to be determined.

 

Mr. Guindon said he would next supply the Forum with the Fiscal Division’s forecast for FY 2001.  Turning to page four of his handout (Exhibit K), he showed Table 1 and explained that the first half of the chart shows the dollar amounts of the Fiscal Division’s forecast and the bottom half of the chart shows the percentage changes compared to the same period one year ago.  He pointed out that the total percentage fees collections are forecast at -.02%.  The Fiscal Division breaks down their forecast into the taxable gaming revenue and the portion that comes from the estimated fee adjustment.  In FY 2001, the Fiscal Division expects the revenue from taxable gaming revenue to grow 1.8% and the estimated fee adjustment is estimated at $190,000.

 

Mr. Guindon said that taxable gaming revenue is forecast at 2.1% growth as suggested by the Gaming Control Board, which is approximately a -$1.5 million adjustment in FY 2001 that will be returned to properties due to audit closings.  Prior to the -$1.5 million adjustment, the Fiscal Division had percentage fees from taxable gaming revenue growing at 2.1% and the total percentage fee forecast was at zero percent growth.

 

Mr. Guindon directed the Forum to page 7 of the handout (Exhibit K) and indicated that the top half of the chart showed the growth in percentage fees and the bottom half of the chart showed the cumulative fiscal year-to-date growth.  He explained that in order for the Fiscal Division to reach its projected forecast of zero growth in percentage fees collections, an average 2.8% growth would be needed in percentage fees collections over the last three months of the fiscal year.  Given the growth previously forecast (3.9%), a 3.3% growth per month was needed to meet the forecast.  Mr. Guindon acknowledged that the previous forecast was not met because of two negative months so the Fiscal Division could see that their forecast of 3.9% was not going to happen.

 

Chart 2 (Exhibit K) shows the Fiscal Division’s taxable gaming forecast of 2.1% which can average a decrease of 0.2% per month and still reach the forecast because fiscal year-to-date the figures are up 2.9%.  In addition, Mr. Guindon asserted that the numbers were good for April compared to a year ago.  Additionally, June is a relatively strong month as the chart shows the taxable gaming revenue during that month was over 12%.  Mr. Guindon surmised that the –0.2% growth that will have to be averaged over the next three months is not unreasonable.

 

Mr. Guindon advised the Forum that in order to obtain the forecast of taxable gaming revenue, the Fiscal Division prepares a forecast of total win (Exhibit K, page 9).  Total win is expected to grow at 2.1%.  Fiscal year-to-date as was pointed out by Mr. Streshley, is up 2.6% which is compared to 11.9% for the same period one year ago.  So, in order to reach the Fiscal Division’s forecast of 2.1% in FY 2001, growth will only have to average 0.6% over the remaining three months.  Whereas, over the last three months of FY 2000, total win averaged 10.3%.  Mr. Guindon related that he has not had the opportunity to analyze the numbers provided to him this morning by the Gaming Control Board; however, he pointed out that even though total win was up in the 2‑3% range consideration must be given to the fact that during one month there was an extra Saturday.  Conversely, in April there will not be an extra Saturday and in the last month of this fiscal year there are comparable weekend days.  He opined that the number of Saturdays in a month can play a significant role in the strength and/or weakness of the numbers when comparing it to the same month of one year ago.

 

Mr. Guindon calculated that assuming that total win grows 3% this month and that number is divided by 31 which is the average per day, then that figure was subtracted from the March 2001 estimate and then compared to the March 2000 number is the equation used to determine what one extra Saturday could mean in terms of revenue.  Mr. Guindon conceded that such a calculation was not a perfect exercise; however, simply dividing everything by an average of 31 days may result in underestimating what a Saturday business day is compared to a mid-week day.  Further, he stated that the total win growth in the Fiscal Division’s forecast was not unreasonable considering only 0.6% on average was needed over the remaining three months.  For that reason, the Fiscal Division chose not to revise its forecast based on the information provided.

 

Directing the Forum to Chart 4 (Exhibit K, page 10), Mr. Guindon pointed out that this chart reflects the slot win growth compared to the same months one year ago.  The last three months are what need to be averaged in forecasting for this time period.  The Fiscal Division is forecasting for FY 2001 that slot win will grow 3.4%.  To reach this forecast, an average of 1.7% will be needed over the remaining three months, compared to 8.4% over the last three months of FY 2000.  He pointed out that growth in the December/January period was 1.7% then in February that increased to approximately 3% and then dropped to a negative in March.   However, March represents February’s activity and there was one less day in February compared to the year before due to the leap year.  Also, January 2000 was perhaps stronger because of the Chinese New Year.  So, the average over the last four months is actually about 1.4% for slot win.  He concurred with Mr. Streshley from the Gaming Control Board in that there was a “slowdown” throughout the state in the area of slot win.  In fact, the nickel market has slowed down; albeit the nickel growth is still growing double-digits but instead of growing in the 30% range it is now growing in the 19-20% range.  Surprisingly, there has been considerable weakness in the quarters and dollars slots compared to last year.

 

Mr. Guindon concluded that the slot win growth for April 2001 will likely be, according to the preliminary numbers provided by the Gaming Control Board, less than one percent.  That is surprising considering there is an extra Saturday in that month compared to one year ago which is directly attributed to the slowdown in slot win growth. 

 

Finally, Mr. Guindon pointed out Chart 5, which dealt with game win.  Chart 5 (Exhibit K, page 11) shows game win declining by .04% for FY 2001 as compared to the November 2000 forecast of 5% growth.  However, as pointed out by the Gaming Control Board, as of fiscal year-to-date, the zero percent growth has much to do with the impact of the Baccarat market.  As Mr. Streshley pointed out, if Baccarat was excluded, total game win would be up about 4.2 to 4.4%.  In order to hit the forecast in game win, a decline can occur about 1.7% on average over the last three months to reach that .04% decline.  Mr. Guindon said that the game win for the month to which he has preliminary numbers reveals that the game win could be up as much as 7% which is much stronger than what is needed to hit the forecast.

 

Mr. Guindon said for the above reasons, the Fiscal Division decided not to revise its forecast for the base year. 

 

Turning back to page 4 of Exhibit K, Mr. Guindon said the Fiscal Division’s total win growth assumption for FY 2002 is 4.1% with slot win growing 3% and games win growing 3.9%.  He explained that rebound in games win for FY 2002 was due to the significant hit that Baccarat took in FY 2001.  Further, the pattern has shown that after one year of a downward trend, a rebound usually occurs and games are no longer a drag on the market.  In FY 2003 the forecast drops down to what is believed a reasonable growth assumption given the number of devices coming on line and the win those devices are expected to generate. 

 

Chairman Seevers asked if there were any questions of the presenters relating to the forecasts provided for percentage fees collections.

 

Mr. Greathouse asked if the state overly stressed a “sharp turn” look at results in the models; such as counting the number of Saturdays in a month.  For example, in the 1990’s there were some major expansions in Las Vegas resulting in a couple of good years, then there was a soft year, and that pattern continued.  The state has just come off of a couple of good years and is now having a soft year.  Looking at the Budget Office’s report at the top of page 14 “. . . the annual percentage change of 6.4% is really a ten-year look . . .”  so he would be motivated to go higher on the range of forecasts presented because the Forum should take a long-term view rather than just using results from the past six months.

 

Mr. Guindon asked if Mr. Greathouse was referring to a long-term view as related to the FY 2002-03 forecast, or with respect to the base forecast.  Mr. Greathouse replied he was inclined to use the higher forecast for the FY 2002-03 forecast.

 

In response, Mr. Guindon said the model used for FY 2002-03 was run on a quarterly basis so he does not get caught up in the trading day aspect in terms of the number of Saturdays, etc.   However, he cautioned that although the average growth is 6.4%, over several periods during the 10-year referenced, there were booms caused by the building of new properties primarily on the Strip.   Starting in 1992, the economy was coming off a nationwide recession but had additional capacity available from the prior opening of the Mirage and Excalibur properties which contributed to the strong growth observed in early 1990’s.  The opening of three new major properties at the end of 1993 helped the FY 1994-95 period growth.  Some new properties did open during the FY 1997 and FY 1998 period, but the normal “bump” in growth observed during prior openings did not occur.  Finally, the growth that has occurred with the opening of the Bellagio, Venetian, Paris, and Mandalay Bay properties has been phenomenal.  This strong growth was the reason for the Fiscal Division’s November forecast being somewhat low due to the uncertainty regarding the ability to maintain the current occupancy rates into the future and no major anticipated increases in capacity expected.  For these reasons, growth was expected to slow down and flatten out.  In projecting the growth for FY 2002-03, with no major properties expected to come on-line, the Fiscal Division’s forecasts remains in the 4.4% range.

 

Mr. Streshley, on behalf of the Gaming Control Board, responded to Mr. Greathouse by stating that forecasts are made by using figures for coin-in per-unit, drop per-unit as well as growth rate averages.  Without any new properties expected to come on line during the forecast period, the growth is going to be below the average, which is about 6%. 

 

Mr. Anderson replied to Mr. Greathouse by stating that the Budget Office takes a broader view in forecasting.  The Budget Office does not differentiate between nickel slots and quarter slots and the different table games.  His research suggests that a longer range view should be taken.  The Budget Office does not split out their view by market or by game.  For a revenue source such as gaming, the Budget Office believes that their forecasts are satisfactory.  In other words, the Budget Office does not get “bogged down” in details and that is why they ignore the estimated fee adjustment and just look at the broader picture.

 

Mr. Fisher stated that he agreed with Mr. Anderson in that the Forum members cannot count slots but instead must take the word of the Gaming Control Board and the other forecasters.  However, the Forum does need to take a look at the general overall picture and he has noticed that of the four forecasts presented, WEFA’s is the most conservative, yet the Forum is not hearing from WEFA at this meeting.  He asked if any of the presenters spoke with anyone from WEFA about their forecasts.

 

Mr. Anderson replied that he did in fact speak with Jim Diffley, President of WEFA.  Further, he explained that the Budget Office uses WEFA’s forecast as their “benchmark.”  He advised that WEFA is headquartered in Philadelphia and it is hard for them to get a handle on what is happening in Las Vegas.  However, he would say that WEFA takes an even broader view at forecasting than does the Budget Office.  Further, WEFA does not receive the figures broken down by individual slot categories.  The Budget Office just looks at those categories as a benchmark and if significant differences are noted then further examination is conducted.

 

Mr. Guindon commented that he spoke with Mr. Diffley after the October 2000 meeting of the Economic Forum plus they have exchanged several e-mails.  He pointed out that WEFA’s modeling equation is running off the percentage fees collections so that would not capture the estimated fee adjustments (EFA).  Therefore, it could be argued that in the out-years, the EFA is not necessarily worth spending much time on debating.  However, in the base year, the EFA should be considered.  Mr. Guindon pointed out that the EFA in the base year will have an $11.2 million impact during FY 2001 which actually ends up reducing the growth rate by 2%.  Although all of the forecasters knew there would be some impact from the EFA due to the extra payments as a result of licensing matters, the EFA can be strongly affected during any fiscal year when a bad month occurs.  In WEFA’s base year forecast, they do not make any adjustment for the EFA and then in the out-years they just drive off of their equations.  Mr. Guindon reiterated that when forecasting he does not get caught up in the different denominations of slots or the different types of games; rather, that detail is only reviewed to determine what has occurred historically with the current fiscal year-to-date information but does not get used in forecasting.  If the base year is not accurate then trouble occurs in the out-years.

 

Regarding FY 2002-03, Mr. Zideck asked whether all of the forecasters’ presumptions were based on the fact that the economy will not be getting any worse.  Further, did any of the forecasters take into consideration information regarding California gaming during FY 2002-03.

 

In response, Mr. Streshley of the Gaming Control Board indicated the state was at the bottom now and that would continue through December 2001 and then in December 2001 a gradual increase of the growth rates is made throughout 2003.  Additionally, the new units that will come on line will occur in December 2001 so those extra units will increase the growth rate upwards.  When adjustments were made to the growth rates, Indian Gaming in California was considered; however, without sufficient information they were unable to specifically consider that market.  For instance, when the individual markets were considered, the Gaming Control Board would consider which of those markets might be affected by Indian Gaming and then brought the growth rates down in those markets.

 

Mr. Anderson, speaking on behalf of the State Budget Office, stated that the Budget Office pays attention to what WEFA has to say and, along with having access to other budget services, that is how the Budget Office makes predictions.  Currently, WEFA’s forecast falls into the same category as the Budget Office which shows, on average, 3% growth.  As far as downside risks of the forecasting (Indian Gaming, possible economy problems in California), the Budget Office believes the out-year forecasts of roughly 4.5% growth provide enough “wiggle-room” knowing that there are potential downsides during the forecast period.

 

Mr. Guindon pointed out that the forecast of the Fiscal Analysis Division during the out-years shows slot win growing 3% in FY 2002 and 3.8% in FY 2003.   Historically, that reflects low growth patterns for slot win.  According to WEFA’s latest forecast, inflation is expected at 2.7% to 3% range.  Therefore, slot win is growing not much faster than inflation. 

 

In response to Mr. Zideck’s inquiry, Mr. Guindon related that the Fiscal Division does not have anything explicitly built into their forecast relating to Indian Gaming and/or the impact of disposable income because that type of information is difficult to put into a forecasting model.  However, he pointed out that the Fiscal Division’s forecast for games win shows growth of 5.9% in FY  2002 and 3.7% in FY 2003.  These are not high rates of growth so there is an assumption built in for the out-years, but he cannot explicitly tie that into Indian Gaming or California’s economy.

 

Mr. Greathouse suggested numbers for the Economic Forum’s forecast for Percentage Fees Collections.  Considering everything that has been seen and looking at the base year being at the lower end of $560 million of revenue and then looking at growth rates in FY 2002 and FY 2003 being toward the higher end of those percentages, he would propose the following:

 

MR. GREATHOUSE MOVED TO APPROVE 4.5% GROWTH IN

FY 2002 AND 4.5% GROWTH IN FY 2003 FOR PERCENTAGE

FEES COLLECTIONS.  MR. ZIDECK SECONDED THE MOTION.

 

Mr. Anderson interjected that roughly those numbers would be:  $560 million for FY 2001, $585.2 million for FY 2002 and $611.5 million for FY 2003.

 

      THE MOTION CARRIED UNANIMOUSLY BY THOSE PRESENT.

 

Casino Entertainment Tax

 

         Frank Streshley – Gaming Control Board

 

Mr. Streshley stated that according to the tables provided, the Forum could see that the casino entertainment tax forecast was up from the November forecast.  As with percentage fees collections, the Gaming Control Board has adjusted their forecast from what was previously provided.  The current month’s figures are also in and the Gaming Control Board is looking at approximately 11-12% growth in collections for the month of April over last year’s numbers.  This is coming after two months of flat growth in casino entertainment tax.  Year-to-date collections for the casino entertainment tax are up approximately 8.6%, including last month’s collections.  Mr. Streshley stated that the Gaming Control Board anticipates this figure will decline over the last several months of FY 2001.  Growth in collections for casino entertainment tax for the next couple of years will be fueled mostly by increases in the food, beverage and admission charges because the new properties coming on line will not contribute heavily to the casino entertainment taxes.

 

For FY 2001, Mr. Streshley indicated the Gaming Control Board’s forecast was adjusted up from 6.35% to 7.95% with $63.2 million in total collections.  For FY 2002, the growth rate was not adjusted and remains at 5.05% with $66.4 million in total collections.  For FY 2003, the forecast was adjusted up from 4.01% to 5.01% with $69.7 million in total collections.

 

Bill Anderson – State Budget Office

 

Mr. Anderson stated that the casino entertainment tax was an interesting tax to forecast because 1) the share of total revenue in the state’s gaming properties accounted for by casino activities is down from roughly 60% a decade ago to 53% in FY 2001; and 2) the casino entertainment tax is one revenue source that has the potential to be directly impacted by business-type decisions.  For example, casino operators cannot change the cost of a $5 bet or the cost of a $.75 spin on a quarter slot machine, but they can change the cost of drink at a show, a meal or the cost of admission and that directly impacts the tax base.  In other words, more revenue is coming from non-casino activities.  In fact, over the past ten years, this revenue source has grown at slightly more than 14% on an average annual basis, which is about twice as fast as the percentage fees collections growth. 

 

Mr. Anderson stated the Budget Office’s forecast in December 2000 showed 8% growth this year and year-to-date prior to preliminary numbers being received, the Budget Office was still at 8% growth so they are leaving that forecast unchanged for FY 2001.  There is a slight increase for the two out-years to simply reflect changes in the Budget Office’s inflation forecast and the per-room rate forecasts.  Turning to page 36 of the handout (Exhibit J), Mr. Anderson stressed that the Budget Office was not predicting anything out of the ordinary and was simply following a trend that has been unfolding. 

 

Russell Guindon – Fiscal Analysis Division

 

Mr. Guindon directed the Forum to the green sheets (Exhibit G), which show the Casino Entertainment Tax (CET) forecasts for the past several meetings of the Forum.  The Fiscal Division did not revise its forecast from 7.1% as was presented in November 2000.  Further, in FY 2002, the forecast was revised down from 5.7% to 5.3% and the growth rate is unchanged in FY 2003.  For fiscal year-to-date, the collections are at 8% and it looks as though the preliminary numbers of next month will be relatively strong compared to a strong month one year ago.  Mr. Guindon opined that the extra Saturday contributes to the strength for that month.  However, there are three more months left in the fiscal year and one of those months had one less Saturday.  The Fiscal Division looks at forecasting the casino entertainment tax for the out years by 1) looking at the “moving average” and 2) on a win-per-visitor approach.  The Fiscal Division forecasts a 7.1% range for FY 2001 with a reduction in FY 2002. 

 

Mr. Guindon directed the Forum to page 13 of the handout (Exhibit K) whereby the chart shows the 12-month moving sum of the casino entertainment tax collections as well as the growth rate for that moving sum which shows that revenue source flattening out.  The Fiscal Division did not believe with only three months remaining in this fiscal year that the strong growth would occur as compared to April of last year when casino entertainment tax collections were up almost 16% and over the last two months of the fiscal year last year it was up 14%.  Having to go against those relatively strong rates, the Fiscal Division’s forecast for casino entertainment tax remains the same.

 

Chairman Seevers asked if the Forum had any questions from any of the presenters regarding the casino entertainment tax forecasts.

 

MR. GREATHOUSE MOVED TO APPROVE THE FORECAST OF CASINO ENTERTAINMENT TAX OF $63.1 MILLION FOR THE BASE YEAR WHICH IS SLIGHTLY BELOW THE BUDGET OFFICE AND ABOVE THE FISCAL DIVISION’S FORECAST, AND A 6% INCREASE FOR FY 2002 AND A 5% INCREASE IN FY 2003.

 

MR. FISCHER SECONDED THE MOTION AND THE MOTION CARRIED UNANIMOUSLY BY THOSE PRESENT.

 

Sales Tax

 

         Lynne Knack – Department of Taxation

 

Lynne Knack, Administrative Services Officer, Department of Taxation (department), addressed the Economic Forum indicating that since the last time that she appeared before the Forum in November 2000 has brought forth an additional four months of sales tax data.  The November collections came in at 4.18%, December was strong at just above 5.5%, January taxes came in at 5.77% and February came in at 3.69%.  Ms. Knack explained there was a slight drop in tax revenues received in February 2001 that the department attributes to the fact that February 2000 had 29 days and February 2001 had only 28 days. 

 

Ms. Knack said with all things remaining equal, the department predicts a 5.34% increase is more likely instead of a 4.9% increase overall for sales tax.  Even with the economic downturn in taxable sales, Ms. Knack pointed out there are signs of continued strong consumer buying in the categories of general merchandise, automobiles, purchases, apparel and miscellaneous retail.  The only slow-down seen in taxable sales that has been indicative through the first eight months of FY 2001 is in mining, building construction, construction in special trade, and personal services, which is consistent with there being no major construction of casino projects at this time.

 

Ms. Knack informed the Forum that the department’s projections were developed by comparing historical information with regression analysis.  For FY 2001, the projection  dropped slightly to 5% for $628 million, and the projections for the two out-years FY 2002 and FY 2003 remained the same which was 5.9% increase and a 5.6% increase, respectively.

 

Bill Anderson – State Budget Office

 

Mr. Anderson stated that the Budget Office’s forecast for sales tax is unchanged from a forecast that was presented to the Forum in November 2000.  At that time, the Budget Office forecasted 4.9% growth in collections for FY 2001 and, as was pointed out by the Department of Taxation, that has not changed.  Elaborating further, Mr. Anderson reiterated that with respect to percentage fees collections, the Budget Office has learned nothing in the past four months that would lead to a changed view for the two out-years so all three years for this forecasting period remain unchanged.

 

Mr. Anderson recalled that during one of the last meetings before the Economic Forum, member Zideck had asked the Budget Office to defend their 4.9% growth rate for FY 2001 because at the time the other forecasters were up to 6%; however, in looking at the Budget Office handout (Exhibit J, page 6), it is apparent that the Budget Office is now forecasting a 7% growth rate for FY 2002.  In looking at the history of collections in sales tax, there is a cyclical biennial component in that growth goes up one year then goes down the next year, up the next, etc.  For instance, in FY 1993 sales tax growth was 9% then up to 14.5% then down to 11% then back up to 13% and down again to 10%.  As a result, in order to bring forth a concise forecast for sales tax collections, the Budget Office looks at growth on a 2-year average annual growth which eliminates the year-to-year cyclicality.  As an example, a review of the 1995-97 period, growth averaged between 11.5% and 12.5%.  Looking at 1998-2000, the average growth was 7-8%.  Mr. Anderson concluded that the average annual growth was about 5.6% for FY 2001-03.  So, the Budget Office’s projection for FY 2002 of 7% represents the cyclicality evident in this forecasting period.

 

Mr. Anderson stated that he was not going to be talking to the Forum about the room rates with respect to percentage fees collections because there has been no indication that there will be any major openings prior to the end of the next biennium.  However, he has heard the same rumors that there will be a new tower at the Bellagio, a new tower at Caesars, a London-theme property, a San Francisco theme property and the Desert Inn property.  In that light, the Budget Office would not be surprised to see some major construction activity between now and the end of the next biennium although that has not been built into their budget.

 

Structurally, Mr. Anderson asserted that their forecast was sound because in looking at job growth and collections growth there is a standard relationship relative to historical patterns.  Also, looking at collections on a per-job basis, the Budget Office does not have anything in their forecast that is out of the ordinary and that is why the forecast remains unchanged.

 

Ted Zuend – Fiscal Analysis Division

 

Ted Zuend, Deputy Fiscal Analyst, Fiscal Analysis Division (division), directed the Forum to page 14 of the division’s handout (Exhibit K).  He noted that the division’s forecasts were $629.6 million for FY 2001, $668 million for FY 2002 and $706 million for FY 2003.  In addition, at both the October and November meetings of the Forum, he provided a history (13-14 years) showing sales tax collections and how, over time, mirror nominal growth in the state’s economy and that was true whether the basis used was population growth, inflation, employment and wage growth, or just gains in personal income.  Over that time period, deviations from the relationships has shown to be attributable to one or two factors:  1) a national recession; or 2) the construction of major gaming projects.  In the former case, spending slowdowns particularly related to construction activity and big-ticket purchases during a recession are followed by spending on construction projects and durable goods when the recession ends.  It should be noted that during the time period used for his analysis (the last 13-14 years) there was one recession in 1991. 

 

The other influence, the construction of major projects, has occurred with more frequency over the last 13-14 years.  In that instance, one-time revenues occur with the purchase of construction supplies, equipment, furnishings and consumable items associated with each mega-resort project.  However, those revenues are not replicated after the property opens thus dampening growth in taxable sales at that time. 

 

Mr. Zuend acknowledged that the division has significantly reduced its forecast for FY 2001 from 6.4% to 5.2% sales tax growth since sales have simply not been as strong as was forecast.  He pointed out that the principle factor missed in the earlier forecast was the continued sluggishness in construction-related sales.  In comparison, Mr. Zuend said sales in construction-related activities during the first months of 2001 showed collections down by 2.5% from the same level in February 1997 which was before the major construction projects in Las Vegas were underway.  Considering inflation in that mix, sales tax collections would be down about 14%.  As a percent of the total amount of taxable sales, construction-related activity was 12.4% of the total in February 1997 and now is only 9.4% of the total in February 2001—four years later.

 

Another factor directly affecting sales tax collections this year was the atypical situation whereby the percentage increases in collections are less than the percentage increases in taxable sales.  This difference is now 0.3% so we are currently sitting at 4.9% for collections but 5.2% for taxable sales.  Historically, the reverse is usually true due to the different ways that the two measures are recorded at the Department of Taxation.  Mr. Zuend said the 0.3% difference was difficult to explain, and it was uncertain whether it would go away before the end of FY 2001 so the division’s increase towards the end of the fiscal year to 5.2% is not predicated on that gap narrowing whatsoever. 

 

Turning to the yellow tracking sheet (Exhibit L), Mr. Zuend opined that there was cause for optimism in that tax collections were up by 5.6% and 5.8% in January and February 2001 which is actually December and January sales representing a solid yet not spectacular performance during the Christmas and post-Christmas sales period.  Although revenues were only up 3.7% in March 2001, this represents having one less day in February 2001 versus February 2000 when there was a leap year.  Had the months been of the same length, the March revenue gain would likely have exceeded the January and February increases.

 

Mr. Zuend directed the Forum to the moving average table (Exhibit K, page 15) and noted that the January and February figures showed good monthly gains which compares the current three months to those three months from the prior year.  The division is optimistic that growth in sales tax will be at 5.2% by the end of the fiscal year because growth in the remaining months of the year will be in the range that has been experienced in the last three months within the 5-6% range.

 

Mr. Zuend stated that the projections made for growth in FY 2002 and FY 2003 are nearly identical to where the growth rates were for the November 2000 forecast with a forecast of 6.1% for FY 2002 and 5.7% for FY 2003.  Editorially, Mr. Zuend said the weakness in construction demonstrates that there is more of an upside potential in the out-years then when making the forecast in December because construction has remained sluggish and, historically, that should turn to an upward trend in the next two years.

 

Chairman Seevers asked if any member of the Forum had any question regarding the sales tax forecasts.

 

Mr. Zideck asked whether there had ever been any analysis of tracking sales tax related to the gaming industry versus the rest of the sales tax.  In response, Mr. Anderson said there was a huge impact on sales tax revenue when major properties were constructed and opened.  Obviously, the dollars that visitors bring in to the state has a huge impact on the state.  Directing his comment to Ms. Knack, he mentioned that a study was performed by the Department of Taxation in the late 1980’s, the Nevada Fiscal Agenda that looked at the extent to which visitors account for sales tax and, according to his recollection it was a sizeable impact.

 

In response to Mr. Zideck’s question, Ms. Knack responded that in the casinos the only thing that is taxable is the collections from the restaurants, drinking establishments and retail stores.  So, the major indicators for the department are the eating and drinking establishments that are part of the taxable sales because the gaming itself is not subject to sales tax.  In addition, the start-up costs of construction and the purchase of the goods needed to run daily operations are also subject to use tax.  Other than that, there are no sales tax collections related to gaming.

 

Mr. Zuend indicated that in response to what Mr. Anderson related, the number from the 1980’s study was 27% which was attributable to sales taxes collected from tourists and whether that relationship remains the same today nobody can be certain.  Again, the sales category as presented by the department shows construction categories so an impact is seen and an impact can be seen after a new property opens.  In addition, there is a dramatic impact at the time of the casino opening because of the one-time purchase of consumable items needed for the property to get underway.

 

Mr. Morgan noted that Mr. Anderson’s presentation excluded any discussion regarding the effects of new construction and that was not in the Budget Office’s projections but perhaps was somehow included in the forecast through the rate of growth.  He asked Mr. Anderson to clarify his testimony.  In response, Mr. Anderson stated that the Budget Office has not built a specific construction schedule for major mega-resort type properties into their forecast and his comments were designed to provide a comfort level to the Forum of the 7% growth rate for FY 2002 since the other forecasters were approximately one percentage point below that figure.  Additionally, his testimony was designed to let the Forum know that there were numerous projects on the horizon that might potentially be built in to the forecast.  The projects he mentioned were the towers at the Bellagio and Caesars, a San Francisco theme-based property, a London theme-based property, as well as the Desert Inn property.  Mr. Anderson opined that there was a good possibility that some of the above projects would be under construction by the end of the biennium.  He reiterated that none of those projects were factored into his forecast.

 

Chairman Seevers asked whether there were any further questions.  Seeing none, he asked for a motion regarding the sales tax forecast.

 

                  MR. MORGAN MOVED THAT THE FORUM PROJECT THE

                  REVENUE FOR STATE SALES TAX FOR FY 2001 AT $630

                  MILLION, AND GROWTH FOR FY 2002 AT 6.1% AND

                  GROWTH FOR FY 2003 AT 5.8%.

 

                  MR. GREATHOUSE SECONDED THE MOTION WHICH WAS

                  CARRIED UNANIMOUSLY BY THOSE PRESENT.

 

Business License Tax

 

 

Lynne Knack – Department of Taxation

 

Ms. Knack advised the Forum that the November 2000 meeting, the Department of Taxation only had the first quarter of FY 2001 figures which was at 3.88% and the December quarter came in lower than expected at 2.60%.  For fiscal year-to-date, the figures stand at approximately $39 million in collections for the business license tax collections with the percentage of increase at 3.24%.  Ms. Knack indicated that the department historically runs regression analysis on the business license tax and considers the percentage of increase provided by the research section of the Employment Security Division, which has usually held close.  The department reduced its projections by one percent for FY  2001 from the original projections due to the lowness in the last quarter; 3.8% to $78.8 million.   Forecasts for the two out years include 4.3% for FY 2002 and 4.1% for FY 2003 and are based strictly on the regression.

 

Ms. Knack explained that the department’s projections were slightly higher than the other forecaster’s projections because historically the trend for the last two quarters of a fiscal year normally came in stronger and higher for percentage increases than the first two quarters of the fiscal year.  With that in mind, the department increased their projections for the business license tax collections.

 

Bill Anderson – State Budget Office

 

Mr. Anderson directed the Forum to page 30 of his handout (Exhibit K), which showed one minor adjustment to the Budget Office’s forecast.  The forecast for FY 2001 was adjusted down to .08% which relates to changes in the second quarter figures.  Mr. Anderson informed the Forum that the Budget Offices’ forecast for the two out years was unchanged from the November forecast.

 

Ted Zuend – Fiscal Analysis Division

 

Turning to page 17 of his handout (Exhibit _K), Mr. Zuend indicated that the Fiscal Analysis Division (division) was projecting $78.6 million for FY 2001, $81.8 million for FY 2002 and $84.5 million for FY 2003.  Overall, he indicated the numbers were not much different than the original forecast.  As was noted by the previous forecasters, there was a weak second quarter, which has not been verified by the Employment Security Division.  However, there are collection differences between Employment Security’s number which is a head-count, and the Department of Taxation’s number which is a full-time equivalency count for payment of the business license tax.

 

Mr. Zuend stated that the division used a multiple regression model for forecasting from the quarterly forecast of the numbers provided by the Bureau of Research and Analysis, Department of Employment, Training and Rehabilitation.  Also, the Bureau’s forecast for private sector employment showed gains of 4.6% for the last two quarters of FY 2001, 3.5% for FY 2002 and 3.4% for FY 2003.  After reviewing these figures, the division believes it is consistent with employment growth when taking into account the employment effects of major casino projects.

 

Mr. Zuend continued by stating that for purposes of the 2001 forecast, revenues have been adjusted for sluggish tax collections during the first two quarters of the year which reduces the 2000-01 growth rate to 3.5%; however, because collections tend to mirror private employment growth over time, the model, which includes a lagged independent variable, forecasts an increase in the growth rate of tax collections in FY 2001-02 despite a projected decline in the rate of employment.  So, what doesn’t come in this year, gets made up in the future.  The growth rate in FY 2002-03 nearly matches the bureau’s forecast.

 

Chairman Seevers asked if the Forum had any questions for the forecasters.  Seeing none, he asked for a motion regarding the business license tax.


 

                  MR. ZIDECK MOVED TO APPROVE THE AMOUNT OF

                  $79 MILLION FOR FY 2001 WITH A 4.1% INCREASE

                  FOR FY 2002 AND A 4.1% INCREASE FOR FY 2003.

 

                  MR. GREATHOUSE SECONDED THE MOTION WHICH

                  CARRIED UNANIMOUSLY BY THOSE PRESENT.

 

Insurance Premium Tax

 

Lynne Knack – Department of Taxation

 

Ms. Knack concluded that all of the forecasters were fairly conservative in their forecasts for insurance premium tax during the October and November 2000 forecast period.  Since that time, the Department of Taxation (department) has received complete information on the September and December 2000 quarters and the annual returns that came out in March 2001.  With those quarters and the annual “true-up” that the insurance companies have made payments on, the department has realized 14.75% increase for just those three components of the tax alone.  In addition, due to audits, the department has realized additional premium taxes from the prior fiscal year and additional penalties and interest that would not normally be collected.

 

Ms. Knack indicated that the department increased their forecast for the insurance premium tax for 2001 to 10.8% and 6.4% for FY 2002 and 6% for FY 2003.  The first two quarters and the annual installment allowed the department to realize approximately $9 million additional dollars over the previous fiscal year. 

 

The other component that has been controversial is the industrial insurance factor, stated Ms. Knack.  Through the end of March 2001, the department has collected approximately $3.6 million while last fiscal year it was $4.5 million.  However, there has been a lot of controversy over the credits that are allowed from the Division of Industrial Relations.  In addition, many companies still have not taken their credits but that could be realized within the out years of FY 2002 and FY 2003 and that is why the department’s forecast was reduced slightly in those years.

 

Bill Anderson – State Budget Office

 

Mr. Anderson announced that the insurance premium tax was the second of the revenue sources that he alluded to at the beginning of the meeting that the Budget Office has made significant and notable changes to their forecast (See page 23 of Exhibit J).  At the November 2000 forecast, there had been a very strong first quarter and the growth ended up being 19-20% during the first quarter of collection activity and that was factored into the forecast at that time.  The Budget Office has treated the insurance collection revenues that have come on line very carefully because they were not quite sure if those revenues would remain.  Subjecting industrial insurers to this tax is new and there have been many questions; yet it is becoming apparent that collections in this area will remain, at least for this year.  The budget office’s revised forecast reflects the relatively strong first quarter, a fairly strong second quarter growth at 9.1% as well as the industrial insurance collections that continue to occur.

 

Mr. Anderson said the budget office expects the insurance premium collections to return to “normal” by next year.  Mr. Anderson reminded the Forum that the way the Budget Office forecasts the insurance premium tax revenue was by using the relationship between insurance premium tax collections and overall economic growth as measured by personal income.  That relationship should still hold once the policy-driven changes run their course.  The growth rates as forecast for the two out years (7.1% and 6%, respectively) remain unchanged since the personal income forecast remains unchanged.  He added that the insurance premium tax is a difficult revenue source to get a handle on but in looking at the budget office’s track record on forecasting the insurance premium tax since 1996, there have been approximately 16 meetings and at 14 of those meetings the budget office has provided forecasts in this area that were too low.

 

Mark Stevens – Fiscal Analysis Division

 

Mr. Stevens directed the Forum to pages 18-19 of the handout (Exhibit K).  He stated that the fiscal division has taken into account the strong growth in the first two quarters as well as the annual payment referenced by the Department of Taxation—about a 14.8% growth for those three collection dates, compared to the same period of one year ago.  The fiscal division used a 7.5% growth rate for the final two quarters of the fiscal year, not counting workers compensation lines of insurance, to reach their forecast for FY 2001 which is $144.9 million.  That growth rate was used in each year of the biennium, not counting workers compensation insurance.  He stated that $3.6 million has been collected year-to-date through workers compensation lines of insurance—with $1.4 million in the first quarter and $2.2 million collected since the Economic Forum last met. 

 

Mr. Stevens stated that the division’s forecast has $1 million built into each of the two quarters that remain for FY 2001 and he believes the insurance companies will begin to take the credits due and then that revenue source will decline.  He has built in $3 million for the first year of the biennium from worker’s compensation, reducing to $1.5 million for the second year of the biennium, resulting in the fiscal division’s forecast of approximately $145 million for FY 2001; $152.7 million in FY 2002 and $162.4 million in FY 2003.

 

Chairman Seevers asked if the Forum had any questions.  Seeing none, he asked if the Forum had any projections to make in the form of a motion.

 

                  MR. FISHER MOVED TO ACCEPT THE AGENCY’S FORECAST

                  FOR ALL THREE YEARS OF THE FORECAST PERIOD.

 

                  MR. GREATHOUSE SECONDED THE MOTION WHICH

                  CARRIED UNANIMOUSLY BY THOSE PRESENT.

 


 

Cigarette Tax

 

Lynne Knack – Department of Taxation

 

Ms. Knack stated that for the first eight months of FY 2001, the state portion of the cigarette tax is at a 4.5% increase.  She informed the Forum that for all of FY 2000, cigarette tax revenues were flat even though they expected some additional fallout from the surrounding states, which have higher tax rates than Nevada.  Nationally, on a per capita consumption basis, the rate has been decreasing for several years.  The latest information from the National Tobacco Institute for calendar year 1999 reported a drop of over 6.5% whereby per capita consumption in Nevada showed a slight increase.  Because of the population growth of 3-4% in Nevada, even though consumption is decreasing slightly, an increase is still shown.

 

Ms. Knack stated the department ran a trend regression analysis on the cigarette tax and, maintaining the 4.5% percentage increase throughout the remainder of FY 2001 would be required.  For FY 2001, the department slightly increased their projection for cigarette tax revenues to 3.8% or approximately $44 million.  For FY 2002 a 3.2% increase is reported for approximately $45 million; and a 3% increase for FY 2003 which is approximately $46.6 million.

 

Bill Anderson – State Budget Office

 

Mr. Anderson said the State Budget Office did not change their forecast from what was presented to the Forum in November 2000 for cigarette tax revenues.  The cigarette tax revenue source is very volatile.   For instance, just two months ago, year-to-date growth was at 2.3% then there was a couple good months and it increased to 4.5% where it stands today.  Monthly growth has gone from –10% to 24% during just FY 2001. 

 

Russell Guindon – Fiscal Analysis Division

 

Mr. Guindon stated that in November 2000, the Fiscal Analysis Division (division) projected growth in cigarette tax revenue at 2.4% which was being looked at on a per capita basis.  At that point, it appeared that a slow-down was occurring but the months thereafter showed the numbers indicating otherwise. The division now projects a current forecast for FY 2001 to grow 4.5% to $44.1 million which is about $900,000 higher than the previous forecast which is what the Forum adopted in November 2000.  To reach the forecast of 4.5%, Mr. Guindon pointed out that the 4.5% growth would need to be reached over the remaining months of FY 2001, but as compared to the actual growth of the final four months of FY 2000, the actual growth was –3.7%.  The division believes that obtaining a 4.5% average over the remainder of the fiscal year should be maintained.

 

Turning to FY 2002, Mr. Guindon stated that the fiscal division has revised its forecast up to 2.8% for $45.4 million and kept the 2.8% growth rate for FY 2003 at $46.6 million.

 

Chairman Seevers asked if the Forum had any questions for the presenters.  Seeing none, he asked the Forum to review the information on cigarette tax revenues and formulate a motion.

 

                  MR. MORGAN MOVED TO ESTIMATE THE REVENUE FOR FY 2001

                  FOR CIGARETTE TAX AT $44 MILLION WITH GROWTH RATES OF

                  3.1% AND 3.1% IN EACH YEAR OF THE BIENNIUM.

 

                  MR. GREATHOUSE SECONDED THE MOTION, WHICH CARRIED

                  UNANIMOUSLY BY THOSE PRESENT.

 

Minor General Fund Revenues

 

         Russell Guindon – Fiscal Analysis Division

 

Mr. Guindon directed the Forum to Tab A of the meeting packet (Exhibit C, page 51) whereby Table 2 showed the May 1, 2001 Economic Forum’s preliminary forecast compared to the December 1, 2001 forecast.  All the other minor forecasts on the chart include the latest forecasts produced by the staff of the technical advisory committee.  The difference shows that in FY 2001, there was a loss of $1.6 million due to net revisions to all the minor revenues.  In FY 2002, there is a loss of approximately $13.3 million due to the net revisions to minor revenues and in FY 2003, there is a loss of approximately $12.4 million.  Mr. Guindon said that the major revisions occurred in the areas of unclaimed property ($3 million in FY 2001, $1 million in FY 2002 and $750,000 in FY 2003); however, money was lost in interest income.  Lastly, the recordings at the Secretary of State’s office having to deal with corporate filings resulted in downward revisions to that forecast.

 

Mr. Guindon asked if there were any questions relating to the minor revenue forecasts.

 

Mr. Morgan asked if the minor revenues as presented represented a consensus of the technical advisory committee.  Mr. Guindon responded that the figures did represent a consensus.

 

                  MR. MORGAN MOVED TO APPROVE THE MINOR REVENUES

                  AS PRESENTED.

 

                  MR. GREATHOUSE SECONDED THE MOTION.

 

Mr. Greathouse asked if the figure for interest income represented a change in the average balance expected or whether that was a change in the expectation of rate earned.

 

Mr. Stevens responded that both the State Treasurer’s Office and the Fiscal Analysis Division separately projected interest income in a couple of different fashions but came up with virtually the same numbers.  The amount of $415.8 million was finally agreed to the asset base for FY 2001 at an average interest rate of 4.75%.  That asset base would be reduced by approximately $15 million in FY 2002 at an average interest rate of 4% and then the balance would lower again to about $388 million at a 4% interest rate in FY 2003.  Mr. Stevens said he used a higher interest rate based on the WEFA forecast and lowered the balance somewhat which tended to offset each other and the two offices came up with the figures shown in the meeting packet (Exhibit C).

 

                        THE MOTION WAS RETURNED AND CARRIED

                        UNANIMOUSLY BY THOSE PRESENT.

 

 

PUBLIC COMMENT

 

Chairman Seevers asked if there was any public comment.  Seeing none, the Forum recessed at 3:05 p.m., and reconvened at 3:57 p.m.

 

 

APPROVAL OF THE REVENUE FORECAST REPORT

 

Chairman Seevers asked if the members had a chance to review the new charts (Exhibit L) and had any questions.  Hearing none, he asked for a motion to accept the revenue forecast report.

 

      MR. FISCHER MOVED TO ACCEPT THE REVENUE

      FORECAST REPORT.

 

      MR. ZIDECK SECONDED THE MOTION WHICH

      CARRIED UNANIMOUSLY BY THOSE PRESENT.

 

 

DIRECTIONS TO THE TECHNICAL ADVISORY COMMITTEE

 

There were no directions to the Technical Advisory Committee.

 

Chairman Seevers indicated that the report (Exhibit L) would be made available to the public.  He thanked the Technical Advisory Committee for their hard work, and the members of the Forum.

 

The meeting of the Economic Forum adjourned at 3:58 p.m.

 

 

                                    ________________________________

                                    Joi Davis, Secretary

 

 

APPROVED BY:

 

 

__________________________________

LEO V. SEEVERS, Chairman

State of Nevada Economic Forum