Nevada Budget & Fiscal Outlook: Projected Mid-Cycle Challenges in FY 2025

Written By Greg Bailor
 

MEMORANDUM

TO: Interested Stakeholders
FROM: Greg Bailor | President GB Political & The Pathfinder Group
DATE: April 15, 2025
RE: Nevada Budget & Fiscal Outlook: Projected Mid-Cycle Challenges in FY 2025

I. Overview

This analysis draws on publicly available data, including state and local budget documents, Economic Forum reports, and credible news sources. This memorandum provides an update on Nevada’s fiscal position as the state approaches the end of the 2023–2025 biennium and prepares for the development of the 2025–2027 budget cycle. Key indicators suggest the potential for a mid-cycle shortfall driven by underperforming revenues, agency overspending, and increased reliance on federal funds. While the state has experienced periods of economic growth post-pandemic, recent fiscal data and testimony from local officials indicate tightening conditions, particularly at the municipal level.

In addition to real-time budget pressures, macroeconomic conditions such as a cooling labor market, flattening retail activity, and high operational costs for public agencies contribute to a more cautious fiscal outlook. As Nevada continues to recover from the volatility of recent years, the interplay of federal policy, local government finance, and state-level appropriations will be key to ensuring service continuity and long-term stability.

II. December 2024 Economic Forum Forecast

  • FY 2025 General Fund Revenue: $6.01B

  • Gaming Percentage Fees: Forecasted -3.0%

  • Sales Tax Growth: Forecasted +0.2%

  • Live Entertainment Tax (LET): Projected -13.6% following one-time FY 2024 events

  • Interest Income: Peaking in FY 2025; decline expected thereafter

  • Tax Credits: $155.5M projected for 2025–27 biennium

Projections assume stabilized job growth, easing inflation (targeting 2–3%), and modest GDP growth. Risks include consumer volatility, federal fiscal pressures, and the continued delay of expected federal interest rate cuts. While the Economic Forum assumed rates would begin to decline by mid-2025, elevated borrowing costs persist as of April, impacting household spending, capital financing, and debt service obligations for both state and local governments.

According to the Nevada Department of Employment, Training and Rehabilitation's February 2025 jobs report, the state added 3,600 jobs over the month and 49,000 jobs over the year. The statewide unemployment rate held steady at 5.3%. Notably, job gains were most substantial in health care, construction, and government sectors, while leisure and hospitality employment remains below pre-pandemic levels. The report underscores a gradually stabilizing labor market, though regional variation persists, with Southern Nevada showing slower recovery in some service industries.

III. Rainy Day Fund Status

Nevada's Rainy Day Fund is fully funded at $1.24B as of September 2024. The statutory cap was increased to 26% of General Fund appropriations. The Fund plays a critical role in insulating the state from unforeseen fiscal shocks, offering flexibility during downturns or emergent revenue shortfalls. While its current status provides stability, the use of these reserves should be carefully weighed against projected multi-year needs and sustainability.

IV. Reliance on Federal Funding

27.7% of Nevada's budget ($14.8B) is federally funded, with Medicaid comprising over 80% of this. Vulnerable areas include Title I education, CDC grants, FAA infrastructure, and Section 8 housing. Federal cuts could cost $1.9B over a decade.

Should broad federal reductions materialize, the state may need to explore contingency allocations or supplemental appropriations to avoid service interruptions across these critical programs.

V. Local & Agency-Level Shortfalls

 
Jurisdiction Projected Shortfall Causes Actions Considered
City of Las Vegas $100M+ (Badlands legal liabilities) Ongoing litigation and land-use disputes Departmental belt-tightening, financial strategy review
City of Henderson Operating deficit (projected) Inflation, slowed economic recovery Engagement with lawmakers on revenue reform
City of Boulder City Infrastructure & capital strain Aging systems, limited revenue base Request for flexibility and legislative support
City of Reno $24M (by FY 2026) Labor cost increases, inflation Use of one-time funds, targeted cuts
City of Sparks $12M (FY 2026) Public safety burnout, staffing strain Further review underway, public warnings
City of North Las Vegas $993M proposed budget. -$81M Reduction Structural balance via personnel cuts and reserves Enacted staffing reductions, increased reserves
 

These local-level deficits have drawn increasing attention from state lawmakers. In April 2025, North Las Vegas proposed a $993 million budget to achieve structural balance, including personnel reductions and strategic use of reserves to stabilize operations. In February, city officials from Reno, Henderson, and Boulder City testified before the Legislature to express growing concerns about fiscal pressures, inflationary costs, and constrained revenue bases. Henderson noted its operating deficit trajectory despite strong growth, while Boulder City cited infrastructure and capital obligations straining its limited revenue sources. These challenges echo the broader statewide need for structural fiscal solutions.

 

VI. Tourism & Gaming Declines

Las Vegas Strip Gaming: -13.8% YOY – February 2025 figures show a 13.8% decline in gaming revenue compared to the previous year. This marks one of the sharpest monthly contractions in recent memory, signaling potential saturation in consumer gaming demand and a downturn in high-spending visitor activity. The drop may also reflect a slowdown in international and convention-driven play.

Convention Attendance: -20% – Convention and trade show attendance in Southern Nevada has fallen 20% year-over-year, attributed to fewer large-scale events and ongoing lag in business travel recovery. This decline not only impacts room bookings but also reduces spending in hospitality, entertainment, and retail sectors typically boosted by conference attendees.

Airport Traffic: -7.5% – Passenger traffic at Harry Reid International Airport dropped 7.5% year-over-year in February, reflecting reduced inbound tourism and lower midweek travel volumes. The decline is particularly notable among domestic leisure travelers and contributes to softening demand for hotel nights and local attractions.

Room Tax: 5% decline expected – The Las Vegas Convention and Visitors Authority (LVCVA) projects a 5% decline in room tax collections for FY 2025, dropping from an anticipated $361 million to $340 million. This reflects broader occupancy challenges, especially during non-peak periods, and declining per-night rates amid competitive pressures and economic uncertainty.

Visitor Spending: Down -6%. Midweek occupancy softens. Room tax is forecasted to drop from $361M to $340M due to event slowdown and international travel dips. In addition to declining headline indicators, per-visitor spending has shown signs of tapering, with discretionary expenditures in shopping, dining, and entertainment flattening or declining per capita. Industry analysts have raised concerns that this plateau and fewer large-scale events in FY 2025 will create long-term headwinds for gaming and hospitality tax performance.

Moreover, while significant event-driven boosts helped support previous fiscal years (e.g., the Formula 1 Grand Prix and Super Bowl), the lack of comparable events this year may reduce volatility in projections but at a lower baseline of expected revenue. Business travel and convention demand remain below pre-pandemic norms, with occupancy exceptionally soft during midweek periods. International visitation, especially from Canada, Mexico, and Asia, continues to recover slowly, further contributing to a muted tourism outlook.

VII. Estimated Fiscal Impact Summary

Dept. of Corrections: $53M – Active budget shortfall driven by staffing shortages and rising overtime costs. Emergency funding may be required to avoid service reductions.

Clark County School District: $11–$20M – Projected funding gap under review as part of a corrective action plan.

Other Local Education Agencies: $4–$8M – Revenue pressures and expenditure growth reported, particularly in Carson City and smaller districts.

Washoe County: $27M – Forecasted structural deficit beginning in FY 2026, requiring long-term fiscal realignment.

Reno: $24M – Anticipated general fund gap due to inflation and labor-related cost increases.

Sparks: $12M – Expected budget deficit for FY 2026 contributing to police department staffing strain and service impact.

Carson City: 1.96% year-over-year decline in consolidated tax revenue, raising concerns about balancing operations if trends persist.

Tourism Decline: $150–$250M – Revenue impact from lower gaming win, room tax declines, and fewer large-scale events.

Sales Tax Lag: $40–$60M – Underperformance in consumer-driven revenues across sectors.

Convention Dip: $25–$50M – Reduced business travel and trade show recovery.

Agency Overruns: $50–$100M – Unanticipated costs across major state departments, including corrections, education, and health.


Estimated Range of Impacts: $250M–$500M

State-Level: $100M - $250M

Local Government: $150M - $200M+

VIII. Conclusion & Considerations

The upcoming May 1 Economic Forum will be critical for refining both short- and long-term revenue projections and determining whether mid-cycle budget adjustments are warranted.

While Nevada’s Rainy Day Fund is currently fully funded, it should be viewed as a temporary cushion, not a substitute for structural balance. Reliance on one-shot funding to sustain recurring expenses is unsustainable and should be minimized where possible.

Rainy Day Fund Usage Considerations

As the state navigates these fiscal challenges, use of the Rainy Day Fund should be guided by clearly defined thresholds and focused on maintaining essential services. Under NRS 353.288, access to the Rainy Day Fund (Account to Stabilize the Operation of State Government) generally requires:

  • A declaration of fiscal emergency by the Governor, or

  • An appropriation by the Legislature, typically in response to revenue shortfalls or extraordinary conditions.

Use of reserves should prioritize one-time allocations for stabilization, rather than covering ongoing operational gaps. The Legislature may consider phased appropriations, enhanced oversight, and reporting requirements to ensure funds are deployed responsibly and with long-term fiscal credibility in mind.

Given the risks ahead, the Legislature may also need to prepare for a potential special session should the revenue outlook deteriorate or local needs escalate. In the interim, the Interim Finance Committee (IFC) and relevant revenue and budget committees have a critical role in:

  • Monitoring real-time developments

  • Soliciting input from agencies and municipalities

  • Producing actionable insights for the full Legislature

Disciplined planning and proactive legislative engagement will be essential to navigate the final year of the biennium and build a sustainable foundation for the 2025–2027 budget cycle.

 

Sources and References

Public Reports & Forecasts

  • Nevada Economic Forum. December 2024 General Fund Revenue Forecast.

  • Nevada Revised Statutes. NRS 353.288 – Rainy Day Fund access provisions.

  • Nevada Gaming Control Board. February 2025 Revenue Report.

State and Local Budget Data (from linked articles)

Tourism & Travel Data

 
Greg Bailor
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