Question of the Day - 20 April 2020

[Editor's Note: This answer is written by business reporter and LVA.com Stiffs & Georges blogger David McKee.]

Short-term impacts are, of course, being felt in a big way, whether it’s the loss of $1 billion due to the cancellation of the National Association of Broadcasters Convention and the NFL Draft or Nevada jobless claims hitting historic highs.

And it doesn't take an economist to foresee austerity measures in the next state budget, given that the tourism industry generates 40% of General Fund revenue and $1.8 billion in industry-specific fees and taxes. Even a six-week suspension of tourism and gaming, as Gov. Steve Sisolak has already put in place, eats a big hole in those numbers.

To measure the size of the hole, we turn to a recent study commissioned by the Nevada Resort Association. It begins, “Nevada relies more on tourism than Alaska does on oil, Wyoming does on coal mining or New York City does on the financial sectors; Las Vegas—the state’s largest economic center—is more dependent on tourism that Detroit is auto manufacturing, Seattle is on aerospace or Nashville is on music and entertainment.”

Tourism supports 276,300 jobs directly, a number that swells to almost a half-million when tourism-supporting jobs (think of the firm that catered your Vegas wedding) are factored into the equation.

Take away tourism and you lose $1.3 billion in salaries, money that’s not being pumped back into the local economy, whether in the form of locals casinos, home buys, doctor visits, or trips to the grocery store. Continuing to pay those salaries, says the NRA, “is unsustainable.”

And it’s not like the tourism industry can be turned back on like a light switch. The NRA estimates that a 30-day shutdown will entail a year’s recovery, or 18 months (i.e., until the beginning of 2022) if Nevada is closed for business for 90 days. This prolonged recovery will, according to the NRA, translate into 102,000 jobs lost and $5 billion in direct wages. Tourism will take a $22.5 billion hit directly, with ancillary impacts bringing the number close to $39 billion.

Taxes lost will include a half-billion on hotel rooms, $380 million on gambling, and $73 million on entertainment. These are “numbers nearly twice that reported during the peak of the Great Recession,” including the scary prospect of 30% unemployment.

“The ensuing strain on state and local governments and other service providers, which are disproportionately reliant on tourism-related tax revenues and will quickly deplete unemployment insurance funds and reserves, would be catastrophic.”

How is that possible? Consider that the tourism industry represents 33% of Nevada employment and 29% of wages generated. Take away travelers and airline service and the Silver State is in a world of hurt. Imagine worse schools and fewer state services (and you thought lines at the DMV were bad now). Already, the state’s revenue collections are estimated to have absorbed a $1 billion blow.

In addition to wooing back conventioneers, Las Vegas will have to resurrect tent-pole events, like the 2020 NFL Draft and March Madness. There's a little good news on this front, as the NFL is contemplating a 2022 Las Vegas draft and the NBA has been talking pretty openly about holding a truncated, season-ending playoff tourney on or near the Las Vegas Strip. The latter could help repair $3 billion in lost convention revenues, even if it’s just a start. (Visitors to Nevada spend $120 million a day, to put matters into perspective.)

At present, the Nevada casino worker is caught by multiple X factors: 1) When will the pandemic subside? 2) How long before Sisolak reopens that state for business? 3) How much longer will their severance and health benefits last?

“Should operators have insufficient cash on hand or be forced to make alternative decisions, the impacts realized on the unemployment rolls and other social service caseloads would be materially higher than those realized today,” warns Applied Analysis, a Nevada-specific economics, information technology, finance, and accounting consulting firm. Its worst-case scenario is a crisis that abates somewhere around mid-June. No one, it seems, dares think about what will happen if the situation drags on into midsummer or worse. It’s too scary.

Applied Analysis' Jeremy Aguero and Brian Gordon conclude, “The impacts associated with COVID-19 are unparalleled and economically staggering. Should companies’ ability to maintain payroll and health-care coverage diminish, hundreds of thousands of employees and billions in wages and salaries will be immediately at risk, as will the very core of Nevada’s economy and its fiscal system.”

Let’s hope it doesn’t come to that.