Nevada taps rainy day account for $401 million to close 2020 cash flow gap

Since Nevada Governor Steve Sisolak closed all nonessential businesses on March 17, state tax revenue has plummeted. In an effort to fund the state government for the remainder of the 2020 fiscal year that ends on June 30, the Nevada Interim Finance Committee voted along party lines earlier today to transfer $401 million dollars from the Account to Stabilize the Operation of the State Government or “rainy day” account to the General Fund to fend off an impending cash flow deficit at the end of this month.

In a broad sense, the Nevada State Board of Examiners study the state’s cash flow. On May 14, the Board recommended that the entire balance of $401 million in the state’s rainy day account be transferred to the General Fund to help compensate for the loss of revenue incurred from the shutdown.

Nevada law mandates that only the Legislature can decide to transfer the funds. The Legislature is now in-between sessions, so the Interim Finance Committee is charged with making the decision to move the money.

Susan Brown works for the Governor’s Finance Office and told committee members during a virtual meeting that unless money is added to the General Fund, the state will not be able to meet its financial obligations at the end of this month.

“As far as cash flow issues go, with the DSA (Distributive School Account for K-12 funding) payments, which are in excess of $115 million dollars a month and the payments to the system of higher education, we would need some cash by the end of this month,” Brown said during an online committee meeting. Brown said the DSA and Nevada System of Higher Education (NSHE) are two of the largest General Fund budget items.

According to NSHE, a 4 percent cut in Fiscal Year 2020, and a 14 percent reduction in Fiscal Year 2021 results in a total budget reduction for NSHE of $124.7 million for the two-year period – $27 million in 2020 and $97 million in 2021. The annual NSHE budget for 2020 is around $650 million.

Assemblyman Jim Wheeler is a Republican who represents Assembly District 39, Douglas County and parts of Lyon and Storey counties. Wheeler said that he did not support the transfer of rainy day funds without better understanding future budget details to include cuts and new sources of revenue.

Assemblywoman Maggie Carlton, a Democrat from Las Vegas and chair of the Interim Finance Committee, tried to address Assemblyman Wheeler’s concerns.

“Basically what we are doing, Mr. Wheeler, is the state is moving its money from a savings account to its checking account to pay the bills,” Carlton said. “So everything that you voted on and all the budgets that you were involved in during the last legislative session, all those decisions that we made in a bipartisan fashion to fund the state is where the money from the Rainy Day fund will be going to support those issues.

“Now, knowing full well that this amount is not going to be enough to get there. That’s the part of the plan that we need to still keep working on. I’ve been looking at different things. Other members of this committee have been looking at things, and so has the Governor’s office, but I think it is incumbent upon us to be prudent and make sure that we fund government, the way we promised to fund it when we voted last June, almost a year ago to fund all these programs,” Carlton said.

Last week, Nevada state government received roughly $836 million in CARES Act federal relief funding. State Senator Ben Kieckhefer is a Republican who represents Senate District 16, Carson City and part of Washoe County. Kieckhefer sits on the Interim Finance Committee and asked Susan Brown if the CARES Act money could be used before the rainy day account to help protect the state’s credit rating.

“I have heard that may be the case that the money (CARES Act) can be used for cash flow,” Brown said. “However, that does not change the fact that by the end of this fiscal year (without added funds) we would have a general fund balance that would be below $120 million dollars,” Brown said.

Several Republican members of the Interim Finance Committee expressed concern that depleting the rainy day account would affect the state’s credit rating. Companies like Standard and Poor’s grade states on their ability to pay debt. In a broad sense, when a state’s credit ranking goes down, the cost of borrowing money goes up.

“I also look at the aspect that this year we’re looking at a deficit, but in the next year, we’re looking at potentially over a billion dollar deficit,” said state Senator James Settelmeyer, a Republican who represents District 17, Churchill, Douglas, Lyon and Storey counties. The annual state budget for 2021 is around 14.7 billion.

“I go back to the fact that when the MGM and the Wynn shut down, a couple days later, the Governor made the right decision to shut down the casinos,” Settelmeyer continued. “We all knew that that’s about $100 million dollars a month that we would not be receiving in revenue, yet there was no plan in March to start reducing costs. In April, again, no plans to reduce costs. May, there’s still no plans to reduce costs. Without that I cannot approve.”

In March Nevada Governor Steve Sisolak circulated a memo to state agency heads asking them to prepare for a 4 percent budget cut in 2020 and up to a 14 percent cut in 2021.

Susan Brown said the 2020 budget was clear, but the 2021 budget was still being sorted as departments make requested cuts of up to 14 percent of their 2021 spending.

Looking ahead to 2021, the $836 million in Coronavirus Relief Fund money would not fully compensate for the Governor’s 16 percent budget reduction. Senator Kieckhefer acknowledged that if they use the CARES Act money for cash flow deficits this and next month, that those funds would ultimately have to be back filled with rainy day account money or budget cuts.

Speaker of the Assembly, Las Vegas Democrat Jason Frierson, used the dynamics of a home economy as example.

“You don’t wait until you bounce a check to transfer money into your checking account,” said Speaker Frierson. “And you certainly don’t borrow from a source you’re gonna have to pay back when you know that you have money in your savings account to be able to meet those obligations.”

Brian Bahouth has been a public media journalist since 1994 and has lived in Reno since 2000. He first came to northern Nevada to be news director at KUNR, Reno Public Radio and has subsequently filed scores of reports for National Public Radio, Nevada Public Radio, Capital Public Radio and KVMR in Nevada City, California. He is co-founder of KNVC community radio in Carson City. Support his work.

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