Nevada Braces for ‘Unprecedented’ Impact
Nevada is unique in its reliance on tourism and gaming, and with both shut down by Governor Steve Sisolak (l.) for the foreseeable future, the fallout in terms of jobs, tax revenues and a functioning state economy could be uncommonly harsh.
Nevada’s tourism-dependent economy has weathered its share of 21st century crises𑁋the dot-com crash, 9/11, the global financial meltdown and the Great Recession that followed and the 2017 mass shooting on the Las Vegas Strip. None of them compares to the destructive whirlwind of Covid-19.
The Nevada Resort Association, the gaming industry’s lobbying arm, described the threat in stark terms in a letter to the state’s congressional delegation.
“Nevada depends more on tourism than Alaska does on oil; Wyoming does on coal mining; or, New York City does on the financial sector,” association President Virginia Valentine wrote. “Las Vegas, the state’s largest economic center, is more dependent on tourism than Detroit is on auto manufacturing; Seattle is on aerospace; or, Nashville is on music and entertainment.”
Just how dependent was painfully clear last week in an assessment from Las Vegas-based economic research firm Applied Analysis, which stated that gaming and tourism support more than 450,000 jobs in the state𑁋one of every three𑁋while the taxes they pay annually account for some 40 percent of Nevada’s general fund. Combined, gaming and tourism are responsible for 45 percent of the state’s aggregate economic output𑁋$75 billion a year, in dollar terms, according to the NRA.
The engine that drives that output is gaming, which generated $12 billion in casino revenue alone in 2019. Most of it, nearly $7 billion, was generated on the Las Vegas Strip, the largest casino market in the U.S. and the second largest in the world after Macau.
As it stands, the Strip and the rest of the state’s 200-plus casinos are closed by order of Governor Steve Sisolak for at least 30 days, a move aimed at trying to contain the spread of the virus and one that’s thrust some 320,000 supported jobs, 260,000 of them direct jobs, into limbo.
Cancellations in the conventions and meetings sector, the other key component of the Las Vegas economy, have already approached losses of $2 billion, “and subsequent events are generating losses multiple times this in the coming weeks,” Valentine said.
In the meantime, the major Las Vegas casino companies are continuing to pay their workers, but they’re burning through millions of dollars a day to do so.
Some, like MGM Resorts International, Caesars Entertainment, Wynn Resorts and Boyd Gaming, say they’ll maintain full- and part-time salaries for at least two weeks, and health benefits for longer.
But then, as Charles Protell, president and CFO of Golden Entertainment, put it, “The longer this shutdown lasts, the greater the impact it will have.”
The federal stimulus package, known as the CARES Act, will give the nation’s businesses, casinos included, some relief in the form of tax breaks and loans. But there’s no telling what happens if the epidemic continues for a second month, or a third. As of last week, Covid-19 was known to have infected more than 81,000 people nationwide, the most confirmed cases of any country, and claimed more than 1,000 lives.
Applied Analysis called the threat “unprecedented” and “far-reaching,” with a “very real potential to cripple the Nevada economy.”
“Based on current information and over two decades of industry-specific expertise, we believe that the industry is at risk of losing $39 billion over the next 12 to 18 months. As a result, 320,000 employees relying on $1.3 billion in wages and salary payments each month are at immediate risk, numbers nearly twice that reported during the peak of the Great Recession.”
Job losses in Nevada from the 2008-09 recession totaled around 186,000, and the aftershocks lasted for years. The state, an epicenter of the housing crash that helped sparked the recession, was still leading the nation in new foreclosures as late as 2015, according to RealtyTrac statistics cited by CDC Gaming Reports.
The state has been pushing ever since to diversify its tourist- and gaming-centric economy, albeit with mixed results. While the crisis it faces now is far worse than a decade ago, in all its 90 years as a legal industry, gaming in Nevada has never closed. The state could be looking at the loss of 5 percent of its private sector jobs, according to a recent study by the Economic Policy Institute.
Then there’s the public-sector fallout from the loss to state and local government coffers of more than $1 billion in tax revenue. That’s just from gaming. It’s not counting the certain plunge in sales tax revenue and other essential sources of funding.
It’s coming at a time when the demand on those sources, from unemployment checks to Medicaid coverage to fire, police and emergency services will likely never be greater.
The state’s rainy day fund contains more than $400 million in addition to other surplus funds, but as state Senator Joyce Woodhouse, co-chair of the legislature’s Budget Committee, said, “Of course there will be a very significant impact on the stage budget. Our hotels are empty of guests, and now with the shopping malls and all of that closed too, it has a huge impact.”
Meanwhile, Las Vegas Mayor Carolyn Goodman has made no secret of her belief that Nevada Governor Steve Sisolak erred too far on the side of health and safety when he called for casinos to close.
Las Vegas is not like New York, Los Angeles or San Francisco, she said. Shutting down businesses for more than two weeks will cause “untenable hardship.”
“Our economy depends on tourism and being open for dining, entertainment, gaming, sports,” she said. “Forty-two million people come to us every year as tourists. Our own 3 million Nevadans depend on the income from that tourism. I know we, they, cannot survive any total shutdown of the economy beyond the immediate week or two.”
Sisolak, needless to say, was not amused.
“Your life and the life of your neighbors and family members will always be more valuable to me than the perceived and mistaken economic gain we have by cutting this isolation period short or by waiting one more day to get serious,” he said in a statement addressing Nevada’s citizens. “I am not asking them anymore. I am telling them they must close their doors or they will face the consequences.”
“Elected officials,” he added, should “understand the severity of the situation they are facing and become part of the solution.”