Moody's downgrades Nevada

Moody's downgrades outlook for Nevada's finances

Moody's Investors Service has downgraded its outlook for Nevada's finances, attributing their ratings action to projected slow growth for the state's casino industry.

"Any substantial improvement in the gaming industry in Nevada remains at least a year away, with the most likely scenario after that being one of slow recovery," wrote Emily Raimes, co-author of the report and an analyst with Moody's Public Finance Group.

Moody's on Tuesday revised from stable to negative its outlook on the state's debt, citing "uncertainty around how the state will solve the (budget) gap, given the fact that the state has drawn down almost all of its reserves already."

Nevada is expected to face a $3 billion budget shortfall for its next budget cycle. The report predicted the actual shortfall to be closer to $2 billion since "approximately $1 billion of exisiting temporary revenue enhancements could be renewed.

In their report, Raimes and analyst Julius Vizner also attributed the downgrade to Nevada's weak economy, and its heavy reliance on gaming and sales tax revenues to support operations.

"Geared disproportionately towards consumer discretionary spending, Nevada's economy took a hit when global wealth evaporated during the recession," the report said. "Nevada's economy contracted 2.5 percent in 2008 and 6.4 percent in 2009, the latter being the worst among U.S. states. Nevada's unemployment rate, 14.2 percent as of October 2010, has been the highest in the country."

As economic strengths, Raimes said Nevada has a "relatively well-funded" pension system and lawmakers have a record of responding "quickly during periods of weakness and has responded to budget solutions quickly during the current downturn."