Fiscal woes could extend into 2011
Compared to most other states, Nevada faces a longer and deeper recession, which could linger for another two years, according to several leading financial experts.
"We’re not as diversified (as other states)," economist Tom Cargill recently told the Reno News & Review. "That’s one thing that sets us aside."
In addition to having an economy that relies mostly on one industry, gaming, Nevada’s fiscal system faces other challenges in mounting a rebound, Cargill said.
"We don’t have a very flexible fiscal system, since there are no income taxes," he said. "A third thing is … we rely on taxing (visitors)."
Cargill said at some point, the money from tourism that is used to pay the state’s bills will eventually dry up.
"Eventually, the outsiders will go away," he said. "They’ll go somewhere else."
Specifically, Cargill said the erosion of tourism from California, which has plagued Northern Nevada for the past couple of years, will eventually spread to Southern Nevada and Las Vegas.
A fourth factor that has put Nevada into a deep financial hole is government spending. "Government spending in Nevada has grown in a very, very rapid rate," he said.
These factors, coupled with a stagnant construction industry, the highest foreclosure rate in the country and an unemployment rate (11.3 percent) that’s the highest in the state’s history, could extend the recession well into 2010, Cargill said.
Cargill’s prediction is actually more optimistic than many. Economist Glen Atkinson thinks the recession in Nevada will linger until 2011.
Atkinson cited two determining factors: the drop in revenue from California gamblers and Nevada’s construction industry.
"I think the thing on the horizon that makes people nervous would be, how sick is California’s economy," Atkinson said. "And there’s such an inventory of housing and commercial structures on the market, there’s not much construction going on."
Overall, the economists agree that Nevada is facing challenges it hasn’t faced in the past: profound economic problems that fly in the face of things that were considered the state’s strengths.
Those include the ability of the gaming industry to grow, despite what was happening outside the state, and the influx of new residents that once made Nevada the fastest growing state in the nation.
Which means any recovery, regardless of when it happens, hinges on the return of jobs and construction.
"We need to see unemployment start to turn to where it either flattens off or starts to (drop) before we’re going to see housing start to recover to any degree," said Heritage Bank of Nevada President Stan Wilmoth.
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