Last year’s theme for Nevada’s economy was one of recovery versus recession as the state entered 2021 with coronavirus restrictions still in place. As the year progressed those restrictions slowly eased allowing for gaming revenues to recover, even as thousands of employees remain sidelined.
The recovery was also assisted by employment recovering to pre-coronavirus levels in northern Nevada and by billions of dollars in federal aid that offset the damage done to the economy by the pandemic. Those dollars are expected to continue to flow into state coffers through the end of 2024.
Bob Potts, deputy director of the Nevada Governor’s Office of Economic Development (GOED), indicated that, once all the federal dollars from the CARES Act, infrastructure bill and other programs are received it should add up to about $44 billion.
“Nevada’s gross domestic product (GDP) was $169 billion in 2019,” Potts said. “The $44 billion is a quarter of our annual GDP. Nobody is going to argue that we don’t need the funding.”
While Potts said the federal funds will have a “huge impact” on Nevada, he warned, “this is not a sustainable funding source.”
As the calendar turns to 2022, Potts and other analysts believe the theme for this year’s economy will continue to be one of recovery even though new and existing variants of the coronavirus could impact the good economic news the state has enjoyed recently.
“The coronavirus will still haunt us going forward,” said Stephen Miller, director of research with the Center for Business and Economic Research at the University of Nevada, Las Vegas (UNLV).
“Although it is still too early to draw any judgements on the omicron variant’s short-and long-term effects, we will continue to see such concerns emerge as long as the rest of the world has large geographic areas of unvaccinated persons, where new variants can spawn,” Miller said.
Miller noted that the U.S. and southern Nevada economies have been improving in periods of extremely fast recovery interspersed with periods of sliding sideways when a new surge in the virus occurs.
“So, this year’s theme is recovery and corona variants,” Miller said.
Brian Gordon, a principal with Applied Analysis in Las Vegas, said since the height of the pandemic-induced recession, the national economy has been surging in any number of ways.
“However, the recovery in the state of Nevada has been asymmetrical,” Gordon added.
“Overall, the northern portion of the state has fared relatively well with employment expanding beyond pre-COVID levels. On the other hand, the southern Nevada economy has been one of the hardest hit communities given its relative dependence on travel and tourism.”
More than 292,000 people worked in the leisure and hospitality sector in southern Nevada in February 2020, according to the U.S. Bureau of Labor Statistics. That number bottomed out last summer to around 127,000 but has been steadily improving.
As of January 1, 2022, roughly 72,000 of those jobs have yet to return. Potts cautioned that 40,000 leisure and hospitality jobs may not come back at all as Nevada undergoes a structural shift in its labor force.
Potts noted that there are 22,000 more transportation and warehousing jobs in Nevada than before the pandemic, which he described as, “way more than seasonal. That’s a structural shift.”
“There are a lot of opportunities which creates diversification,” Potts said. “That’s naturally happening.”
Potts added that Nevada’s gaming industry has reached the state of advanced development allowing that industry to do more with less.
“Nevada’s economy has essentially completely recovered except for gaming employment in southern Nevada,” he said.
Gordon said the state’s gaming industry continues to suffer from a lack of international travel, which typically accounts for 14 percent of visitors and was shut off by the pandemic.
“Additionally, convention-related travel came to a standstill. Only now are notable events returning, albeit in smaller numbers,” Gordon said. “Going forward, these two key components will be necessary to fill the gaps left by too few leisure travelers.”
That said, gaming revenues and other performance metrics such as hotel room rates remain off the charts.
Gordon said the underlying fundamentals of the economy remain stable and well-positioned for growth in 2022.
“That said, should inflation remain elevated for an extended period of time or supply constraints persist deep into 2022, the implications become more concerning,” Gordon said.
While Miller continues to believe the economy will continue its recovery, he cautioned that it will be at a slower pace that last year. So far, he said, “The periods of recovery have been much faster than anyone expected.”
In southern Nevada, Miller added a number of variables have exceeded their prior peaks, such as gross gaming revenue and taxable sales. Meanwhile, other variables are not back to the prior peaks, including visitor volume and the hotel occupancy rate.
“At some point in the recovery, the rate will naturally slow,” Miller added. “We’ve reached that time. We cannot continue to recover at the rapid rates of the two most recent several-month expansions.”
Brian Bonnefant, director of the Center for Regional Studies at the University of Nevada, Reno (UNR), said the outlook for this year in northern Nevada includes a lot of moving parts with industry navigating coronavirus mutations, supply chain issues, labor shortages and high housing costs.
Bonnefant said industry will also have to navigate unknown target spending by the federal American Rescue Plan and Infrastructure Investment Act, mid-term elections in an increasingly polarized nation, geopolitics that are impacting global trade and climate change that will continue to cause economic disruptions.
“However, our region is primed to benefit from the logistics shift from ‘just in time’ to ‘just in case’ requiring growth in logistics and our abundant renewable resources,” Bonnefant said.
Labor, Market Tight, Pressure on Wages
The labor force in Nevada – the number of people working or looking for work – has gone through substantial changes since the coronavirus pandemic forced most of the state’s economy to shut down for several months leaving employees laid off or furloughed.
Gordon said the participation rate in Nevada has been impacted by adults who have retired, are in college, have become discouraged and given up trying to find a job or a host of other reasons. According to the latest data, Nevada’s labor participation rate stood at 61 percent.
“While that was an improvement from the 58 percent in May 2020 during the early months of the COVID pandemic, it remained well below pre-pandemic levels, and even lagged the 62 percent from October 2020,” Gordon said.
“Before the pandemic, Nevada’s labor force participation rate surpassed 65 percent amid a three-year upward trend,” Gordon explained.
“The gap in participation rate from then to today equates to 99,000 fewer potential workers in the labor force,” he said. “The current environment is creating a tight labor market and putting upward pressure on wages heading into 2022.”
David Schmidt, chief economist with the Department of Employment, Training and Rehabilitation (DETR), said they are still seeing lower participation rates.
“I think this is pretty typical because when you are in the middle of a recovery participation ultimately depends on whether you are looking for work in the last two weeks or not,” Schmidt said. So, there is a share of the nonparticipation from people who don’t think there are any jobs available for them.”
Healthcare, childcare and other concerns are also keeping some who would like a job from getting one, Schmidt said.
Schmidt attributed lower participation rates to a demographic shift that the state has been experiencing for some time.
“Baby Boomers are on the cusp of retirement and there are some natural impacts that have [been] compressed into a brief period of time,” he added. “So, you have the natural trend but accelerated a bit because of outsized forces taking place, with as big of a disruption from COVID.”
Schmidt cautioned that it would take some time to make changes and fill all those positions with new generations of workers.
“We saw a disruption with the coronavirus that was twice as big as the Great Recession in a period of time that was as short as the 2001 recession,” Schmidt said. “So, it is a remarkable amount of change in a really small amount of time.”
Potts agreed, saying the pandemic didn’t cause more baby boomers to retire but it accelerated their exit from the workforce. He said Nevada is just coming to terms with that shift as, “we move into a new world with more jobs than workers.”
“That is going to be more of an issue moving forward,” Potts said.
Northern Nevada will also continue to deal with lower participations rates, especially with 6,100 fewer jobs in leisure and hospitality, a trend that has continued as the region diversifies its economy.
“Although COVID is part of the labor calculous, high wages paid by logistics has led to poaching of jobs from low-wage service industries prior to the pandemic,” Bonnefant said. “This will be an ongoing issue as our cost of living becomes more of a barrier to in-migration.”
Bonnefant also expected the continued phasing of Baby Boomers into retirement, “dysfunctional immigration policies and inequality of wages by type of industry requiring unskilled labor will continue to be part of the problem.”
The Taxman Cometh, Sort of
After a decades long fight, mining companies saw their taxes increase last year as lawmakers approved a measure that will effectively double the amount of taxes imposed on silver and gold mines.
But a plan to hike the unemployment tax rate in 2022 was taken off the table by Governor Steve Sisolak. The Employment Security Council had recommended an increase of the state unemployment insurance (UI) tax on employers from 1.65 percent to 2 percent. The rate will hold at 1.65 percent for 2022, according to the governor’s office.
Cindy Creighton, president of the Nevada Taxpayers Association, supported the decision to hold the UI tax rate steady to help companies continue to grow and recover from the damage caused by the pandemic.
“It’s fragile right now,” Creighton said. Anything that adds extra costs, threatens [a company’s] decision to keep their doors open or bring back employees.”
With a combination of employer contributions and federal American Rescue Plan money, Nevada’s Unemployment Insurance Trust Fund is recovering from the pandemic. Schmidt said there is a little over $300 million in the trust fund right now.
“That is more than a year’s worth of benefit payments,” Schmidt said. “We will be drawing down those funds on a weekly basis, but we only pay $5 to $6 million a week right now, so that is why we have a year’s worth.”
Schmidt said the agency will receive next quarter’s contributions in May.
In terms of adding an excise tax to the state’s mining tax last year, Tyre Gray, president of the Nevada Mining Association, said the industry felt it was the right thing to do at the time but cautioned it could have a negative impact on future investments in mines.
Gray noted that, before the tax increase, mining’s per-employee tax burden was $20,400, compared to $8,300 per-employee in the gaming industry.
“We use that figure in Nevada because we don’t have an income tax,” Grey said. “We have created some of these taxes to mask that. It also really does start to change the economics behind mining projects.”
Assembly Bill 495 preserved the state’s Net Proceeds on Minerals tax structure, which required mining operations to be taxed at 5 percent of net proceeds, profit minus deductions for certain costs. The new structure adds an excise tax of 0.75 percent on mines that report gross revenue of $20 million to $150 million and 1.1 percent on mines that report higher revenues.
That added percentage is expected to raise $165 million in pre-tax credits during the current budget cycle.
The unknown is two sales tax initiatives that remain on the November 2022 ballot. The initiatives were submitted more than a year ago by the Clark County Education Association.
The first measure proposes raising the portion of sales taxes dedicated to school funding from 2.6 percent to 4.1 percent. The second initiative increased the state’s gaming tax rate from 6.75 percent to 9.75 percent.
Nevada’s Secretary of State doesn’t plan to remove the two measures from the November ballot after lawmakers bargained to raise the mining tax and withdraw the two measures.
Cegavske told Attorney General Aaron Ford that a state law modified during the 2021 legislative session specifically to allow for the withdrawal of petitions does not comport with the Nevada Constitution, which contains no reference for withdrawal.
Jennifer Russell, a spokeswoman with the Secretary of State, said, as of now, “both will be on the ballot.”
Nevada’s Public Option Law
Last year, Nevada became the second state in the nation to sign into law a public option for healthcare. The law seeks to create state-managed health insurance plans by 2026 and requires insurers that bid to cover Medicaid recipients and state employees to also bid to offer a so-called public option plan.
State officials would select certain providers to be in-network for the public option plan and mandate that they charge 5 percent less in monthly premiums than the average plan on the state insurance marketplace created by the Affordable Care Act. That discount would increase to 15 percent after four years.
“Nevada is in the early stages of the design phase of the Nevada Public Option,” said Richard Whitely, director of the Nevada Department of Health and Human Services.
“Access to care is among the many subjects being explored during the design session meetings that continue through January,” Whitely said. “Through these public meetings the department will be identifying stakeholder priorities around affordability and access to care.”
Whitely was optimistic that the public option will enhance support for efforts that are already underway to improve access in rural areas.
“Telehealth is already proven to help in rural areas and expanding the capability of certain providers is also anticipated to improve access and efficiency.”
Supporters believe the state-based public options will expand coverage to the state’s 350,000 uninsured residents and lower the cost of insurance, while opponents argue against price controls and worry that the law could lead to a decline in the number of doctors, nurses and everything in between.
“We already have a shortage of medical personnel in Nevada,” Miller said. “This will provide added pressure to a system that is already stressed.”
“The issue is how many people who take up the public option will not have health insurance before and how many will drop out of some other health insurance plan to take the public option,” Miller said.
In terms of workforce challenges, Whitely said it has, “been a longstanding challenge and a topic of great concern.”
“Providers and healthcare workers of all types have been on the frontline of the pandemic and we must continue to support them, while also developing opportunities to increase and support.
According to the Department of Health and Human Services, the goal of the program is to leverage the state’s purchasing power to lower premiums and costs, improve access and quality of care while promoting value-based healthcare financing.
Despite the demand a public option could place on the state’s need for doctors, Miller said the pipeline is now in place and the first crop of UNLV medical students are into their residencies.
“The UNLV medical school made connections to Nevada and Las Vegas as one of the components of the admission process, hoping that this would improve the likelihood that new doctors trained by the medical school would practice in Nevada and Las Vegas,” Miller said.
Miller added that we need more residency positions in Nevada going forward to maximize this strategy.
“That is, doing their residencies out of state increases the likelihood that medical students will remain out of state when they establish their practices,” Miller said.