PHOTO/DENNIS MYERS Carole Vilardo, left, chats with another lobbyist at the Nevada Legislature.

The Nevada Legislature, now approaching its final days, is getting the state all ready for prosperity. But if prosperity doesn’t show up, the legislators have not gotten the state ready for that.

All during the 2015 legislative session, legislators have had a happy-days-are-here-again attitude that economic recovery is already an established fact.

The lawmakers have been considering ending the foreclosure mediation program in this, the state that experienced the highest foreclosure rate in the nation—even while they also processed a measure to deal with squatters living in empty homes.

In perhaps the most pronounced gesture of faith in recovery, the Assembly budget committee, Ways and Means, last weekend emptied the Account to Stabilize the Operation of State Government—better known as the state “rainy day fund”—to use the money for current spending.

“Saturday they cleaned out the rainy day fund,” said Nevada Taxpayers Association executive director Carole Vilardo. “They’re transferring everything out so anything that’s available we’re not going to know for a year. They may have left a million dollars in there, but I’d have to go back and look.”

About $28 million was moved out of the fund.

Under normal procedures, each session of the Nevada Legislature leaves a substantial amount—in double-digit millions—in the fund, which is then also supplemented by a trickle of revenue generated as the biennium passes. That is, the fund grows during the two years between legislatures.

This time, however, the fund will apparently be supplied only by the supplementary revenue.

Vilardo, one of the state’s leading experts on the tax system, has long expressed concern about the way the fund is serviced.

In 2011, she said, “And so the other problem that you had is we’ve never, in my opinion, funded the rainy day fund properly. … And in a bad economy, more people who did not need social services … such as Medicaid now need those services. …What we’ve gotten used to is taking every cent that we get and spending it on programs without looking at the sustainability of the programs.” (“Where’d the money go?” RN&R, June 2, 2011.)

For instance, there is often unappropriated money available at the end of legislatures, and the lawmakers have usually used it for one-shot boosts for favored programs, instead of adding it to the rainy day fund. And surplus revenue in 2005 was rebated to taxpayers instead of put in the fund.

The legislators’ reliance on the economy recovery seems to overlook what economists have called the fragility of that recovery, as well as its nature—a “recovery of the rich.”

In 2013, St. Louis Federal Reserve office’s widely respected report on household wealth indicated that 62 percent of the wealth recovered since the recession took the form of increase value of stocks, 80 percent of which is held by the upper 10 percent. That kind of recovery does not help the working poor and is of limited help to the middle class, meaning that the kind of assistance programs needed during hard times may still be facing demands. Moreover, even the value of that recovered wealth is uncertain when adjusted for inflation.

Not only are Nevada’s legislators not expecting much demand for those kind of services, they are also not making preparations for any economic downturn in the next two years. There’s a sort of Tesla effect that has affected the money committees in particular. It’s reminiscent of what Gov. Robert List said when hit by a major recession in 1981-82, after he had pushed through the legislature a sales tax hike that made state government highly vulnerable to a weak economy.

“I had no way of knowing a recession was coming,” List later said.

But a recession is always ahead. In the postwar years until 1981, there were recessions in 1948-49, 1953-54, 1957-58, 1960-61, 1969-70, and 1973-75. Since the Nevada tax shift, they have occurred in 1981-82, 1990-91, 2001 and 2007-2009 (though this last one probably began earlier and ended later in Nevada).

And many of those recessions were unforeseen. At the moment, nearly all economic predictions for Nevada are positive, including that of the Nevada Economic Forum, whose projections govern the legislative budget. Last month, a report done for the Forum by the state Employment, Training and Rehabilitation Department said Nevada will gain 45,000 jobs this year, 52,000 next year, 60,000 the year after that.

The lawmakers were thrilled with the Forum’s report and ran with it.

Even Forum members did not offer much caution. “I feel good about the major source of revenue,” said forum member Marvin Leavitt. “The sales tax is performing well.”

The sales tax always declines rapidly if hard times hit.

Moreover, the state’s profligate distribution of tax credits create uncertainty in the revenue picture because no one knows when companies—Tesla and movie companies—will take those credits.

Vilardo said the legislators do have a difficult job in foreseeing budget needs when the legislature meets only every other year.

“You don’t suddenly plan for something like a 9/11,” she said.

However, legislators can plan for hard times, which are always a threat. In fact, some municipalities in the state are taking the threat more seriously than are the lawmakers. Relatively new state laws (Nevada Revised Statues 354.6115-6118) allow local governments to set up their own rainy day funds.

In an interview in this week’s edition of the RN&R, for instance, Reno Mayor Hillary Schieve said that even with the city facing $500 million in debt, a recent surge of unexpected revenue was being used in part to be ready for hard times if necessary.

“And so we want to be really fiscally responsible with this surplus money,” she said. “And it’s hard because you want to do everything, and people have great ideas, whether it’s parks or bike lanes or things like that. They’re all great ideas but there’s just not enough money to go around, and we’re playing catch-up, so capital improvements, we’re paying off two bonds, and we’re going to put 8 percent away in the rainy day fund. So I think we’re making a really wise choice.” (See full interview, page 11.)

If the lawmakers proceed to final adjournment the way they appear to be doing, Nevada won’t have much of a cushion if the economy goes bad. There’s a term in the insurance field—going bare, meaning doing without insurance. Until enough money trickles into the rainy day fund to give the state a substantial level of protection—and that’s probably a year or more away—Nevada will be going bare.

In that 2011 interview, Vilardo recalled that during the early years of the century, Nevada “had such a stretch of good times” that it didn’t do much about the future.

“I just wish we would stop operating reactively instead of proactively,” Vilardo said this week.

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Dennis Myers

Dennis Myers was the news editor of the Reno News & Review. He was a journalist for more than four decades. In 1987-88 he was chief deputy secretary of state of Nevada. He was coauthor of Uniquely...