“It was the best of times, it was the worst of times,” wrote Charles Dickens in his 1859 novel A Tale of Two Cities.
The book’s title refers to London and Paris, but for Las Vegans, it conjures up their own city’s schizophrenia: after a decades-long stint as the nation’s spring of hope, it has abruptly descended into a harsh winter of despair.
Booming population growth sustained one of the longest periods of unbridled prosperity that the country has ever seen.
Starting last year, however, an economic perfect storm has decimated the holy trinity of Nevada tax revenue streams: property, sales, and gaming.
“We were kind of operating under the assumption that the growth wouldn’t suddenly stop, even if it wouldn’t go on forever,” said Jeff Hardcastle, Nevada state demographer.
In a state that bet its entire infrastructure on the boom never busting, Nevada’s long and storied addiction to its narrow tax base has left consistently underfunded social services in ruins.
And like any such operatic fall from grace, it is wrought with tragic inevitability and was a long time in the making.
In the mid 90’s, the Las Vegas economy was as hot as the scorching desert the city was built on. It had the fastest growing job market in the nation, the lowest unemployment rate, and the most affordable housing, all because tourists couldn’t fork their money over to Sin City fast enough.
In turn, resorts went on a building spree and people were moving to Las Vegas in droves—sometimes 8,000 in one month—to feed the boom’s insatiable appetite for labor.
Residential and commercial construction exploded, gaming was making money hand over fist, and there was enough to trickle down into everyone’s pockets no matter how many showed up to snag their piece of the pie.
Since 1990, Nevada’s population has more than doubled, skyrocketing from 1.2 million to 2.6 million in 2008. Nearly three quarters of the state’s population resides in Clark County, home to Las Vegas.
Hiccups in the national economy didn’t phase the Las Vegas growth machine. Even 9/11, which wreaked havoc on air travel and tourism in its aftermath, didn’t keep Vegas down for long.
Resorts were undertaking multi-billion dollar expansion projects well into 2006 and 2007 as the first signs of the impending housing market collapse materialized.
And why not? The Vegas brand was thriving thanks to the ubiquitous “What Happens in Vegas, Stays in Vegas” marketing campaign. The number of visitors continued to grow year over year, and it was their money that was staying and keeping the state afloat.
Nevada’s love affair with gaming as its primary source of tax revenue began innocently enough: the state legalized gambling in 1931 as a temporary stopgap to lost revenue from a defunct silver mining sector.
The plan was to shift to less cyclical forms of tax revenue, but by the 50’s, Las Vegas was the gambling capital of the United States. Inevitably, the fledgling state’s tax structure became intertwined with the gaming industry and the perpetual growth it fostered.
The last real statewide recession came and went in 1989. Since then, state politicians have had no reason to change the status quo and risk losing a re-election bid for hiking their constituents taxes during a time of prosperity.
A study published by the Nevada Commission on Economic Development in 1999 titled “Does Economic Development Pay For Itself in Nevada?” stated that “Nevada’s tax structure is pointedly designed to use gaming as a primary source of income for services, allowing its citizens to enjoy a relatively low per capita direct cost of taxes.”
As The Strip went, so went the state.
Addicted to growth, blind to the growing real estate bubble and thinking it was invincible, Nevada was headed toward disaster like the Titanic in the North Atlantic.
Nobody saw it coming: the collapse of real estate values, the drop in tourism and discretionary spending, the evaporation of construction.
But in the summer of 2008, the three pillars that held up the Nevada economy were whacked at the knees and crumbled to the desert floor.
“Here we are in the middle of the perfect storm: fewer tourists, less purchasing, which will hurt sales tax revenues, foreclosures, meaning property taxes will be in trouble, with a more regressive tax system in a time of spectacular growth, which is now ending,” said Michael Green, a UNLV professor and Nevada historian.
The people that are suffering the most as a result are the ones who Nevada has always ignored: the poor, the indigent, the homeless, the ailing, and their children.
“We were already at the top of every bad list and the bottom of every good list,” of state rankings in social services said Launce Rake, spokesman for the Progressive Leadership Alliance of Nevada.
“And that was before the current economic mess.”
State policy makers haven’t seemed to care.
Study after study commissioned by the state said Nevada’s economy was heading for a derailment. Once in 1988 and once in 2002, the state legislature was told to diversify the tax base, to lift the load off of gaming’s back. But nobody listened. And a state that already had a lousy commitment to public services and health care was now even more stingy.
“That has left us with very little revenue to deal with the social problems that are accelerating with the economic collapse,” said Rake.
State politicians can’t willingly stay in the dark for so long without the help of their constituents, however.
Californians flush with equity from the ballooning real estate bubble sold their homes, flocked to Nevada to maximize their nest egg in a state with no income, inheritance, estate, or gift taxes. As they became residents, they voted to protect their money.
“You’re dealing with retirement communities that don’t want to pass bonds, that don’t want to see taxes increased,” said Terry Lindemann, executive director for Family Promise Las Vegas, an organization that helps reintegrate homeless families back into society.
“The problem is, our demographic has changed from being a retirement community to one where families came, one where people who need services came,” said Lindemann.
A hard-working middle class was equally as reluctant to support any tax reform that would reduce their take home. Politicians were happy to oblige and secure re-election.
“We’ve had this really lopsided view of the world, which is that all government investment in entitlement programs is bad and when you really need it, when the middle class are falling into the need bracket, the infrastructure isn’t there,” said Dr. Carl Heard, chief medical officer for the publicly funded Nevada Health Centers.
The reality of the situation should have sunk in during the 2009 Legislature, when the state found itself in its worst-ever fiscal condition. But Nevada politicians being Nevada politicians, their priority was their own reelection campaigns in two years. So once again, they pulled out band-aids versus making hard public-policy decisions that would change the course of the state’s revenue strategy.
If Nevada recovers over the next two years, it will be in spite of its own politicians. Gambling companies are seeking bankruptcy protection, multi-billion-dollar Strip developments have halted mid-construction, you can walk into a fine restaurant on a Saturday night without a reservation and get a good table.
Nevada is in a big hurt. It may be numb. For the first time ever, more people are moving away from Las Vegas than moving here.
This is the new Nevada demographic. People are leaving, and the ones who are
staying don’t seem to want to do address the real problems facing the state: the creation of new state policy to address all of the state’s ills in order to make it an attractive place to live.
“Without some reshaping of the form of tax revenue, or the source of tax revenues, we are destined to forever go through these good and bad times,” said Heard.