June 4 (Bloomberg) -– Nevada rancher and Eureka County Commissioner J.J. Goicoechea says he used to get a livestock update on local radio. Now it’s the daily gold report.
That’s because the tax collections that county and state officials count on are tied to the precious metal’s price, which has plummeted 35 percent from its peak in September 2011. While mining brings the state less than gambling, Nevada is facing a $74 million shortfall in its minerals tax after gold fell last year by the most in more than three decades.
“The general public is focused on gold,” said Goicoechea, 40. “If it’s up, my kids are going to have money at school. If it’s down, we’re looking at a tightening of the purse strings.”
As many as a dozen U.S. states join Nevada in facing shortfalls, according to the National Association of State Budget Officers in Washington. The challenge is acute in smaller states that rely on ever-fluctuating commodities and have less diverse economies.
The situation bedevils Nevada, where dreams of quick wealth created the Golden Nugget casino, which graces Fremont Street in Las Vegas. The state which accounts for about 80 percent of the gold produced in the U.S., collects a minerals tax on companies’ net proceeds of as much as 5 percent, according to the Nevada Mining Association. The revenue makes up about 5 percent of state revenue and as much as a third of some county budgets.
Concerns that inflation would accelerate made for a gold rally that lasted 12 straight years through 2012. Auric investments were heavily marketed as a hedge against in times of terrorism and economic uncertainty.
Nevada did well while it lasted. Revenue from producers such as Barrick Gold Corp. (ABX) and Newmont Mining Corp. (NEM:US) increased to $253.3 million in fiscal 2012 from $74.1 million in 2008, the state Department of Taxation said.
Then the price declined 28 percent in 2013, the most since a 33 percent drop in 1981. Yesterday, futures closed at $1,244.50 an ounce, down from a record $1,923.70 on Sept. 6, 2011.
While Nevada projected $95.7 million from the mineral tax for fiscal 2014, actual collections are $21.3 million, the department said. Moreover, states and counties may have to credit or return prepayments that mining companies made based on their expected tax bills.
Governor Brian Sandoval, a first-term Republican, is working with the legislature to solve the shortfall, said Tyler Klimas, a spokesman. It won’t affect meeting day-to-day obligations with a general-fund budget of $3.1 billion, he said.
Budgets also could change more thanks to a November ballot question that would remove the 5 percent assessment on mining companies from the state constitution and let the legislature implement a new taxing mechanism.
While supporters want a higher tax, the mining industry is opposed because companies want certainty, said Tim Crowley, president of the Nevada Mining Association. The gold surge was an anomaly, he said.
Falling prices hurt more at the county level, said Jeff Fontaine, executive director of the Nevada Association of Counties in Carson City. The mineral tax is split between the state and counties where the gold is produced, he said.
When revenue was flowing, counties typically used the money for capital projects and one-time spending, Fontaine said. As the 18-month recession that started in 2007 forced counties to cut budgets, they were used for operations. Now, counties have to figure out how to account for the decline in revenue, he said.
Eureka County, home to Barrick and Newmont mines with a population of about 2,000, expects $1.2 million in mineral taxes this year instead of an initial forecast of $6 million, Goicoechea said. Last year, it got $12 million.
The county had committed to a $4 million water, sewer and repaving project that will now have to be funded with reserves, he said. White Pine County is hoping to avoid firings, Commissioner John Lampros said.
Some officials were lulled into complacency, Goicoechea said.
“We’ve seen the boom and bust multiple, multiple times here,” he said. “Unfortunately, a lot of our elected officials got very comfortable over the last decade.”
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