State Budget Update after the May 1 Economic Forum Forecast

The Nevada Economic Forum issued its final General Fund revenue forecast for the 2025-2027 biennium on May 1. Expected General Fund revenue decreased by $191 million compared with the December 2024 forecast, but the total budget impact including FY2025 and the State Education Fund could be as much as $568 million. That’s out of a biennial budget of about $21 billion. This article provides some background and additional detail on the state budget situation.  The NSHE budget closing is discussed in a separate article.

Figure 1 shows the history of Economic Forum forecasts compared with actual revenue.  The Economic Forum underestimates future revenue most often, except they did not anticipate the recessions in 2008-2009 and 2020. This session is the first time since the 2007 session that the May forecast has been less optimistic than the December forecast, which means the legislature must reduce spending from the Governor’s Recommended Executive Budget (GovRec) from January, which was based on the December forecast. 

Figure 1.  Economic Forum revenue forecasts from FY2006 to FY2027.  December forecasts for the next biennium (blue patterned columns), May forecasts of the next biennium (solid orange bars), and actual revenue (black line).

In absolute dollars, the available funds for 2025-2027 are still increasing over 2023-2025, by about 2.6% per year. However, as shown in Figure 2, when adjusted for inflation and population growth (estimated at 2.5% and 1.9%, respectively, for FY2025 to FY2027) the available real revenue per person is decreasing--it has never recovered to the levels before the Great Recession and is now dropping below pre-pandemic levels.

Figure 2. Economic Forum revenue forecasts from FY2006 to FY2027, adjusted for inflation and population growth.  December  (blue patterned columns) and  May forecasts of the next biennium (solid orange bars), and actual revenue (black line). *FY2025-FY2027: inflation estimated at 2.5%, population growth at 1.9%.

The lower revenue forecast, as detailed by the Nevada Independent and Nevada Current, is mainly due to lower economic and tourist activity because of tariffs, federal funding reductions, and other actions of the Trump administration. The erratic policies coming out of Washington are making all forecasts highly uncertain.

The General Fund is not the only budget that must be balanced. The State Education Fund (SEF) receives revenues from a variety of dedicated taxes as well as appropriations from the General Fund. The State Education Fund was created in its present form in 2021-2023 and is not included in Economic Forum forecasts, but the Nevada Independent obtained the May 2023 forecast by the Legislative Counsel Bureau.  Comparing that forecast of non-General Fund revenue with the Pupil-Centered Funding Plan Account in GovRec, as shown in Table 1, suggests shortfalls of  $183 million for FY2025 and $212 million for the 2025-2027 biennium (vs about $200 million and $160 million, respectively, as reported by the Nevada Independent).

Table 1. Pupil-Centered Funding Plan Account (GovRec vs May 1 Forecast)
	FY2024 Actual	FY2025 Projected	FY2026 Forecast	FY2027 Forecast	TOTAL
General Fund Appropriation	$1,187,446,261	$1,487,995,964	$1,605,397,182	$1,524,854,793
Other Revenues Dedicated to Education (per GovRec)	$4,251,063,621	$4,261,465,701	$4,321,863,115	$4,493,003,499
TOTAL	$5,438,509,882	$5,749,461,665	$5,927,260,297	$6,017,858,292
Other Revenues Dedicated to Education (May 1 LCB Forecast)	$4,251,063,621	$4,078,421,600	$4,217,315,000	$4,385,677,000
Change in Other Revenues	$0	-$183,044,101	-$104,548,115	-$107,326,499	-$394,918,715

The one brighter spot in the Economic Forum forecast was an increase in projected General Fund revenue of $17.9 million for FY2025, the current fiscal year. Excess revenue from FY2024 and FY2025 may be used for one-shot appropriations (much of it already allocated). Combining the forecast changes for the General Fund and State Education Fund for FY2025, FY2026, and FY2027 gives a reduction of as much as $568 million.  For the 2025-2027 biennium, the forecasted reduction to the General Fund is from $12.433 billion to $12.242 billion (1.5%) and the reduction to the State Education Fund is from $8.814 billion to $8.603 billion (2.4%).  Nevertheless, both are still projected to increase over actual revenue during the 2023-2025 biennium, but only by 1.7%  and 3.3%, respectively. 

The budget committees, Assembly Ways & Means and Senate Finance, have been anticipating shortfalls and have been trimming agency budgets from GovRec.  It’s nearly impossible to keep a tally, but the Nevada Independent reported about $130 million in cuts as of the end of April. That includes a NSHE-related items $29 million from the Knowledge Fund.  On May 1 during the capital improvements budget closing, reductions of a net $141 million from the General Fund were made, mainly by shifting maintenance items to General Obligation Bond funding. During the May 2 NSHE budget closing, the implementation of the new funding formula in GovRec was cancelled, saving $13 million.  That gives a total of roughly $284 million in cuts so far, exceeding the $191 million needed for FY2026 and FY2027 for the General Fund alone.  However, the K-12 education budget closings are on May 8 and 9 and general funds may be needed to compensate for the shortfalls in the State Education Fund.

The Governor’s recommended budget included large new outlays upwards of $500 million for various programs that have yet to be considered by legislative committees, including education, housing and economic development. Legislative leaders have their own ideas. Conversations will continue through the end of the session.

None of this discussion accounts for potential future federal cuts to Medicaid or other essential services or for cuts made by Trump/Musk/DOGE to various programs including Nevada Humanities, AmeriCorps, public broadcasting, and university research grants.  There will likely be additional pressure on the state to provide lifelines to many deserving organizations.