EUREKA COUNTY: FINANCIAL TRENDS AND INDICATORS

Transcription

1 TECHNICAL REPORT UCED 96/97-14 EUREKA COUNTY: FINANCIAL TRENDS AND INDICATORS UNIVERSITY OF NEVADA, RENO i

2 EUREKA COUNTY: Financial Trends and Indicators Prepared By: Ted E. Oleson, Jr. Peter Janson and Thomas R. Harris Nevada Cooperative Extension Center For Economic Development University of Nevada, Reno Ted E. Oleson, Jr. is an Instructor in the Department of Economics at the University of Nevada, Reno. Peter Janson is a Graduate Research Associate with the University Center for Economic Development, Department of Applied Economics and Statistics at the University of Nevada, Reno. Thomas R. Harris is a Professor in the Department of Applied Economics and Director of the University Center for Economic Development at the University of Nevada, Reno. December 1997 UNIVERSITY OF NEVADA RENO The University of Nevada, Reno is an Equal Opportunity/Affirmative Action employer and does not discriminate on the basis of race, color, religion, sex, age, creed, national origin, veteran status, physical or mental disability, and in accordance with university policy, sexual orientation, in any program or activity it operates. The University of Nevada employs only United States citizens and aliens lawfully authorized to work in the United States. ii

3 This publication, Eureka County: Financial Trends and Indicators was published by the University Center for Economic Development in the Department of Applied Economics and Statistics at the University of Nevada, Reno. Funds for this publication were provided by the United States Department of Commerce Economic Development Administration under University Centers Program contract # This publication's statements, conclusions, recommendations, and/or data represent solely the findings and views of the authors and do not necessarily represent the views of the U.S. Department of Commerce, the Economic Development Administration, Eureka County Commissioners, State of Nevada Commission on Economic Development, the University of Nevada, Reno, or any reference sources used or quoted by this study. Reference to research projects, programs, books, magazines, or newspaper articles does not imply an endorsement or recommendation by the authors unless otherwise stated. Correspondence regarding this document should be sent to: Thomas R. Harris, Director University Center for Economic Development University of Nevada, Reno Department of Applied Economics and Statistics Mail Stop 204 Reno, Nevada UCED University of Nevada, Reno Nevada Cooperative Extension iii

4 Table of Contents Section Executive Summary I Economic and Demographic Characteristics 1 Page 1.1 a Population b, c Population Components d Dependents as Percent of 6 Population 1.2 a Total Housing Units b Types of Housing Real Income per Capita Poverty Food Stamp Recipients Per Population 1.5 a Labor Force b Unemployment Rate 16 vi II Tax Bases Real Assessed Value of Property Real Sales Net Proceeds of Mines Tax Base Indices 26 III Revenues Real Total Revenue Real Revenues Per Capita Revenues by Source per Capita Composition of Revenues Restricted Revenues Intergovernmental Revenues Elastic Revenue Sources Ratio of General Fund to All Funds County Property Tax Rate Actual - Budgeted Revenues 50 IV Expenditures Real General Fund Expenditures Expenditures Per Capita Expenditures by Major Type Composition of Spending Functions b Composition of Spending 63 iv

5 4.4 c Spending Functions Public Employees Per Population 4.6 Fringe Benefits as Percent of Salaries 69 and Wages V Operating Position Net Surplus (Deficit) Ending Balance as Percent of Total 74 Expenditures VI Capital Outlay Capital Outlay Capital Outlay to Total Spending 77 Appendix 79 v

6 Introduction Executive Summary Local Governments must understand their current fiscal position for planning their future needs and resources. The Financial Trends Monitoring System was developed by the International City Management Association as a standard approach to evaluate local fiscal conditions. The goal of this report is to present an overview of the county's economic, demographic, tax base, revenue, and spending trends. The trends in the indicators presented for these areas allow the county to assess its current condition and identify any emerging needs or problems. Within each group of indicators, the following aspects are presented: Indicator Description and Relevance: Each indicator is defined in the context of its importance in evaluating the fiscal condition. A Comparison of Current and Past Conditions: A ten year history of the indicator in tabular and graphic form allows the county to evaluate whether its current condition has improved or deteriorated. Changes and Trends: The changes in the indicator are examined to determine what has happened and whether it is an aberration or part of a trend. Multiple Measures: Each group of fiscal indicators presents several different measures which each show a particular aspect of the broader area. For example, demographics are measured by total population, growth rates, percent over age 64 and school enrollments. Economic and Demographic Conditions: The economic and demographic condition indicators are used to evaluate the community's needs and resources. The economy (measured by employment and other labor related measures) is an indicator of both the health of the community and its needs for public services. The demographic indicators (population and housing) show who is living in the community and what types of services are likely to be needed. Certain measures such as poverty rates or mobile home residents may indicate particular needs. Population: The county added 375 people from 1986 to This is a growth rate of 31.4% over the period. The statewide growth rate was 67.0%. The population is aging somewhat as the over 64 age group increased from 7.7% to 10.4% of the population and the under 20 age group decreased slightly from 30.2% of the population to 29.2%. Population growth has been relatively slow since 1990, only increasing by 1.6% overall. Housing: Total housing units increased slightly during the last ten years. The county s housing is dominated by mobile homes. vi

7 Income: Income per capita adjusted for inflation fluctuated during the period but has generally risen. Overall, real income grew by 38.7%. Real income in Eureka County is now higher than the statewide average. Poverty: The number of welfare recipients (AFDC and Food Stamps) increased significantly during the early and mid 1990 s. The number of food stamp recipients per 1000 local residents is lower than the statewide average, however, the increase is alarming. Labor: Industrial employment in Eureka County has increased tremendously as mining activity picked up. However, the actual labor force of county residents has declined and the unemployment rate has increased. This is a result of the large number of incommuters. In general, the economic and demographic indicators show that the county has a relatively high level of economic growth. Again, this is due to an increase in mining activity. The population growth of the county has not responded as incommuters contribute to the industrial employment figures. The higher than average poverty and unemployment rates are concerning and indicate potentially higher needs for certain social services. The various indicators may also indicate some concern about the local tax base. Tax Bases: The local economy provides resources for local government through a variety of revenue sources. These revenues are derived from taxes or charges levied upon particular tax bases. In Nevada, the major tax bases for local government is sales, property and mining. While increasing tax bases are positive, the true indicator for evaluating the local government's ability to provide services is the inflation-adjusted amount of the tax base per person (or per capita). If the per capita tax base is increasing, the local government will generate more revenue per resident. A decreasing per capita tax base is a negative indicator since it means that the county has fewer resources per resident. The following indicators are used to evaluate the tax base in the county: Real Assessed Value of Property Real Sales Net Proceeds of Mines Tax Base Indices The economy in Eureka County is dominated by the mining industry. Because of the incredible rise in mining activity during the last ten years the tax bases have grown phenomenally. Eureka County has prospered during this time period while some of the other counties statewide have not faired as well. However, the downside is that when the mines play out the tax base disappears. Tax bases usually have a relatively stable portion, the property tax base, and a relatively volatile portion, the sales tax base. The sales tax base is more volatile because it is tied to fluctuations in the economy. Eureka County is unique. First, gold mining is not necessarily responsive to trends in the overall economy. Second, the tax base sources are not typical. The stock of real property vii

8 is dominated by mining industry structures. The sales tax base is tied to mining activity with a large percentage of mining equipment sales. Therefore, the entire tax base is relatively volatile and not necessarily tied to the economy as a whole. The Division of Assessment Standards of the Department of Taxation has in place a formula that would apply to the property improvements of mines, which have been either mothballed or closed down. The formula systematically devalues the property over a five-year period. If there is a significant downturn in the mining industry the property tax base will not be depreciated away entirely for up to five years. During this same period the sales tax base can erode at a much faster rate. Revenues: Local governments receive revenues from various sources. Some sources are relatively stable while the business cycle and growth of the community affect others. The community needs to have sufficient revenues to provide the necessary services while having a mix of revenue sources that will not be too sensitive to any downturn in the local economy. The elastic revenue sources are that sensitive to the business cycle. If the share of revenues coming from elastic sources is rising, this may forebode problems in the event of an economic downturn. A community's tax rates are an indicator of whether the tax base is keeping pace with growth or whether higher rates are needed to finance necessary services for growth. Tax rates are limited by Nevada Statutes and by voters. The following indicators are used to evaluate revenues in the county: Real Total Revenue Real Revenues Per Capita Revenues by Source Per Capita Composition of Revenues Restricted Revenues Intergovernmental Revenues Elastic Revenue Sources Ratio of General Fund to All Funds County Property Tax Rate Actual Minus Budgeted Revenues Revenues grew tremendously for Eureka County during the past decade except for a period from 1994 through The overall increase in real revenues from 1986 to 1996 was 369.5% compared to a statewide growth rate of 88.9%. When further adjusted for changes in population, revenues increased by 257.4% while statewide per capita revenues grew by a relatively smaller 13.1%. The source of revenues has changed somewhat. Sales tax revenues have increased considerably more than property and other revenue sources, although property tax revenues are expected to equal sales tax revenues in Sales tax revenues per capita increased by 429.7% from 1986 to Property tax revenues increased by 246.9% while other revenue sources increased by a comparatively modest 36.1% during the same period. It appears that other revenue sources will continue to be a diminishing share of total revenues. The county relies on an viii

9 average of only 1.8% in the form of restricted revenue funds. Intergovernmental revenues amounted to 61.8% of all revenues in Elastic revenues amounted to 61.4% in Both intergovernmental and elastic revenue sources have increased because sales tax revenues have increased in importance for the county. Eureka County appears to have a higher than normal general fund to all funds ratio. The county s property tax rate is relatively low compared to the statewide average rate. The budget process and revenue surplus figures for the county appear to be adequate. Expenditures: Local expenditures should be providing the necessary services to the local population. Factors determining expenditures include budget priorities, demands for services and uncontrollable factors such as federal mandates, and inflation. Expenditures per capita should not rise excessively (unless reflecting voter desire for more services) nor decrease excessively (unless due to efficiency savings). If the composition of spending changes, it may indicate changes in budget priorities or forced reductions due to lack of revenues. The following indicators are used to evaluate expenditures in the county: Real General Fund Expenditures Expenditures Per Capita Expenditures by Major Type Composition of Spending Functions Composition of Spending Public Employees Per 1000 Population Fringe Benefits as Percent of Salaries and Wages Real per capita spending was relatively constant from 1986 to Since 1989 it has increased tremendously. Because of the great increase in spending, even though it has been volatile, level of service has only increased. Capital improvement projects have occurred in most major types of expenditures, and the capital outlay share of the budget has increased significantly. However, spending in general has increased for all major types of expenditures as revenues have increased with the increase in mining activity. Therefore, spending increases of one type have not adversely affected spending in other areas of government. Employees per 1000 population are higher in Eureka County than in any other county in Nevada. Even though Eureka County has a very low population, which would justify a higher ratio, this indicator should be monitored. Like most rural counties the ratio of benefits to salaries and benefits is increasing and should be monitored. Operating Position: Local governments are not allowed to operate in a deficit position. Some local governments facing higher expenditures than revenues had an operating deficit made up by depleting the previous years ending balance. This is acceptable for short-term or unforeseen circumstances but a trend of operating deficits is negative. The following indicators are used to evaluate operating position in the county: ix

10 Net Surplus (Deficit) Ending Balance as Percent of Total Expenditures The county maintained an adequate net surplus before revenue and spending patterns began to fluctuate. The ending balance for Eureka County has always been very high. This may not be unusual, because the required amount is determined by characteristics unique to the county. Overall, it appears that the county has maintained an adequate operating position. Capital: Expenditures for operating equipment such as trucks and computers drawn from the operating budget are usually referred to as capital outlay. Capital outlay items normally include equipment that will last longer than one year and that has an initial cost above a significant minimum cost. The ratio of capital outlay to net operating expenditures is a rough indicator of whether the stock of equipment is being adequately replaced. If this ratio declines it may mean that the local government s needs are temporarily satisfied or that they are being deferred due to other budget priorities. The following indicators are used to evaluate capital outlay for the county: Capital Outlay Capital Outlay to Total Spending The county has taken advantage of the recent economic growth to increase level of service. Eureka County is in a unique situation and the extraordinary increases in capital spending seem reasonable. x

11 I Economic and Demographic Characteristics The economic and demographic condition indicators are used to evaluate the community's needs and resources. The economy (measured by income, labor force, employment, and unemployment) is an indicator of both the health of the community and its needs for public services. The demographic indicators (population, poverty, and housing) show who is living in the community and what types of services are likely to be needed. Certain measures such as poverty rates or mobile home residents may indicate particular needs. By and large, the economic and demographic characteristics are beyond the control of local government, which can usually only react to them. In the long run, a community needs a local economic base that is protected from sudden downturns in the business cycle but can take advantage of upturns. Population: The county added 375 people from 1986 to This is a growth rate of 31.4% over the period. The statewide growth rate was 67.0%. The population is aging somewhat as the over 64 age group increased from 7.7% to 10.4% of the population and the under 20 age group decreased slightly from 30.2% of the population to 29.2%. Population growth has been relatively slow since 1990, only increasing by 1.6% overall. Housing: Total housing units increased slightly during the last ten years. The county s housing is dominated by mobile homes. Income: Income per capita adjusted for inflation fluctuated during the period but has generally risen. Overall, real income grew by 38.7%. Real income in Eureka County is now higher than the statewide average. Poverty: The number of welfare recipients (AFDC and Food Stamps) increased significantly during the early and mid 1990 s. The number of food stamp recipients per 1000 local residents is lower than the statewide average, however, the increase is alarming. Labor: Industrial employment in Eureka County has increased tremendously as mining activity picked up. However, the actual labor force of county residents has declined and the unemployment rate has increased. This is a result of the large number of incommuters. In general, the economic and demographic indicators show that the county has a relatively high level of economic growth. The population growth of the county has not responded as incommuters contribute to industrial employment figures. The higher than average poverty and unemployment rates are concerning and indicate potentially higher needs for certain social services. The various indicators may also signal need for concern about the local tax base. 1

12 Indicator 1.1a Population 1,800 1,600 1,400 1,200 1, Indicator 1.1a Population 1,196 1,261 1,386 1,466 1,547 1,560 1,581 1,650 1,550 1,580 1,571 1,654 Percent Growth 5.4% 9.9% 5.8% 5.5% 0.8% 1.3% 4.4% -6.1% 1.9% -0.6% 5.3% Source: Nevada State Demographer 2

13 Indicator 1.1 a Population Description: Population is a fundamental indicator of the size of the community. It thus reflects the most basic measure of the demand for public services and the local tax base. Significant population changes can have budgetary implications. If population grows too rapidly this may create need for increased capital and public services. If population declines or grows too slowly, the community may not enjoy economies of scale from local infrastructure (such as sewer and roads) and costs per resident may actually increase. Population decline may also require reduced spending. Analysis: The county experienced steady growth in the late 1980s and then leveled off in the early 1990s. Growth was generally flat during the 1990s except for a 4.4% growth rate in From 1986 to 1996 the statewide population growth rate was 67.0% while the county grew at a rate of 31.4%. However, from 1990 to 1996 the county grew at a rate of only 1.6%. 3

14 Indicator 1.1b,c Population Components Over 64 Under Age 20 School Enrollment

15 Indicator 1.1b Over % Over % 7.9% 8.2% 8.1% 8.5% 8.5% 8.8% 9.5% 9.9% 10.3% 10.4% 11.1% Under Age % Under Age % 29.9% 29.9% 29.7% 29.5% 29.2% 29.6% 29.7% 30.0% 29.7% 29.2% 28.3% Indicator 1.1c School Enrollment Enrollment Ratio 17.1% 18.6% 18.4% 18.6% 18.5% 19.4% 20.1% 19.3% 17.7% 19.5% 21.1% 5

16 Indicator 1.1d Dependents As Percent of Population 50.0% 48.0% 46.0% 44.0% 42.0% 40.0% 38.0% 36.0% 34.0% 32.0% 30.0% Indicator 1.1d Dependents Ratio 37.9% 37.8% 38.0% 37.9% 37.9% 37.8% 38.4% 39.2% 39.9% 40.0% 39.6% Source: Nevada State Demographer 6

17 1.1 b, c Population Components 1.1 d Dependents as Percent of Population Description: The components of the population represent different age groups within the county. The importance of this indicator is that school enrollment represents demand for school services and other child services while the population over age 64 typically has different demands for public services. Older population groups typically require higher levels of services such as medical care, long-term care, and other social services. The percent of dependents in the population consists of persons under age 20 (children and school age) and persons over age 64 (presumably retired). If the number of dependents in an area rises too high it may mean that a higher tax burden may be imposed on the rest of the population. Analysis: Demographic characteristics of the county are gradually changing. The under age 20 group has decreased slightly from 30.2% of the population to 29.2% during the period of 1986 to The over age 64 group has grown significantly from 7.7% to 10.4%. Overall the dependents ratio has increased, which signifies an aging of the population. At the same time, the school enrollment ratio has increased in recent years. It appears that the county will require increased expenditures for social services even as the working age population decreases. 7

18 Indicator 1.2a Total Housing Units Indicator 1.2a Total Housing Source: Nevada State Demographer, County Assessor 8

19 Indicator 1.2b Share of Types of Housing 70.0% 60.0% 50.0% 40.0% SF Share MF Share Mobile Share 30.0% 20.0% 10.0% 0.0%

20 Indicator 1.2a Total SF MF Mobile Indicator 1.2b SF Share 30.7% 34.8% 34.1% 34.7% 32.6% 32.6% MF Share 3.9% 0.8% 0.7% 0.4% 0.4% 1.8% Mobile Share 65.5% 64.4% 65.2% 64.9% 67.0% 65.6% Source: Nevada State Demographer, County Assessor 10

21 Indicator 1.2 a Total Housing Units Indicator 1.2 b Types of Housing Description: The number and type of housing are indicators of the need for housing related services and indirect indicators of the property tax base. Like population, if housing grows too fast, the community s infrastructure may be stretched. If housing grows too slow or declines this may cause declining housing prices and declining property tax base. The type of housing is important as different housing has different values and different impacts on infrastructure and public services. For example, mobile homes typically have lower values than single family and depreciate faster. Single family houses typically have higher number of persons per house. Multifamily (apartments or condominiums) often serves as entry level or temporary housing. A community should have a mix of housing types. Analysis: Total housing has increased slightly during the period and the mix of housing has remained relatively constant. Eureka County has a large percentage of mobile homes. In 1996 the percentage is 65.6% compared to a statewide average of 12.2%. Since 1992 the share of single family housing has actually declined slightly while the mobile home share has increased slightly. This can negatively affect the tax base (see indicator 2.1) in the long run. 11

22 Indicator 1.3 Real Income Per Capita 30,000 25,000 20,000 15,000 10,000 5, Indicator Income Per Capita 15,421 15,740 19,916 22,338 21,064 20,392 21,763 24,628 26,984 Real Income Per Capita 18,649 18,485 22,790 24,762 22,394 20,926 21,763 24,067 25,859 Sources: Bureau of Economic Analysis REIS. State of Nevada, Human Resources Department, Welfare Division Note: Welfare data are estimates only, not official caseload. 12

23 Indicator 1.4 Food Stamp Recipients Per 1000 Population Indicator AFDC Recipients Food Stamp Recipients Stamp Recipients/1000 Pop Sources: Bureau of Economic Analysis REIS. State of Nevada, Human Resources Department, Welfare Division Note: Welfare data are estimates only, not official caseload. 13

24 Indicator 1.3 Real Income Per Capita Indicator 1.4 Food Stamp Recipients Per 1000 Population Description: The two measures of income represent the level and distribution of income within the county. Real per capita income shows the average amount of income earned by residents within the county. A rising level of per capita income indicates a more prosperous economy. Food stamp and AFDC recipients represent the number of people in poverty. A rising number of Food Stamp or AFDC recipients may indicate increasing demands for social services and problems with the local economy. To adjust for population changes, the number of Food Stamp recipients is also reported per 1000 population. Analysis: Real income per capita was flat during 1987 then increased through It decreased from 1989 to 1991 before increasing again from 1991 to Eureka County per capita income in 1994 was $25,859 compared to a statewide average of $22,694. The growth rate of per capita income was 38.7% in Eureka County compared to a statewide rate of 14.0% during the period from 1986 to The relatively high per capita income and volatility is a result of the significant mining activity in the county (see indicator 2.3.) Food stamp recipients per 1000 population increased by 317% from 1990 to 1996, going from 12 to 50. The total is expected to drop down to 27 in 1997 compared to a statewide average of 49. The two trends are somewhat contradictory and may reflect changes in the distribution of income. 14

25 Indicator 1.5a Labor Force and Industrial Employment Labor Force Industrial Employment Indicator 1.5a Labor Force * Industrial Employment Sources: State of Nevada, Employment, Training and Rehabilitation Department. * Labor Force data for the years 1986 to 1989 was intentionally left out. A break in this series rendered the data unusable. 15

26 Indicator 1.5b Unemployment Rate 10.0% 9.0% 8.0% 7.0% 6.0% 5.0% 4.0% 3.0% 2.0% 1.0% 0.0% Indicator 1.5b Unemployment Rate 4.3% 2.6% 1.8% 2.3% 5.7% 4.2% 5.6% 7.2% 9.5% 8.8% 7.8% Sources: State of Nevada, Employment, Training and Rehabilitation Department. 16

27 Indicator 1.5 a Labor Force and Industrial Employment (Combined with Indicator 1.5b) Indicator 1.5 b Unemployment Rate Description: Indicators 1.5a and 1.5b show the labor market conditions in the county. Labor availability, measured by labor force and industrial employment, indicates the number of people who are either actually working or actively seeking a job. Labor force is the number of residents working or looking for work within the county, while industrial employment is the job availability within the county. Industrial employment is an indicator of job availability within the county. The participation ratio indicates the proportion of people in the labor force relative to the total population. An increasing participation rate indicates that more of the population is able to work. The unemployment rate measures the percent of the labor force that is unable to find employment. A decreasing unemployment rate is an indicator of a better local economy. Analysis: Industrial employment increased drastically from 1986 to This was a result of a huge increase in mining activity. The growth rate during this period was 255.8%. The industrial employment growth rate has moderated considerably since 1989 with an average annual growth rate of 3.5%. The industrial employment figures include incommuters. Many of the miners live in the Elko area and work in Eureka County. Labor force accounts solely for workers that reside in Eureka County. Because of a break in the data series 1990 is the first year of reliable data. The labor force has remained fairly constant except for a drop of 19.6% in A similar drop occurred in the industrial employment data and accounts for a drop in mining activity. 17

28 II Tax Bases Description: Local tax bases are directly related to the level of economic activity in the county. Through the various tax formulas, the tax bases generate revenues for local government. The largest tax bases for county governments in Nevada are property, sales, mining and gaming. Unfortunately, gaming data is not available for most rural Nevada counties. To provide necessary services, a local government requires a stable or increasing tax base. To measure tax bases requires adjusting for two factors: inflation and population. A tax base must keep pace with both these factors. The most important measure of a tax base is therefore its real per capita level. The term real refers to inflation adjusted while per capita refers to dividing by the population. If the real per capita tax base is increasing, then a constant tax rate will provide increased tax revenues per resident. If the per capita base is decreasing, then tax rates must be increased just to maintain the current tax revenues. Often when local governments ask whether growth pays for itself, they are asking whether the local tax base per capita is rising or falling. Analysis: The economy in Eureka County is dominated by the mining industry. Because of the incredible rise in mining activity during the last ten years the tax bases have grown phenomenally. Eureka County has prospered during this time period while some of the other counties statewide have not faired as well. However, the downside is that when the mines play out the tax base disappears. Tax bases usually have a relatively stable portion, the property tax base, and a relatively volatile portion, the sales tax base. The sales tax base is more volatile because it is tied to fluctuations in the economy. Eureka County is unique. First, gold mining is not necessarily responsive to trends in the overall economy. Second, the tax base sources are not typical. The stock of real property is dominated by mining industry structures. The sales tax base is tied to mining activity with a large percentage of mining equipment sales. Therefore, the entire tax base is relatively volatile and not necessarily tied to the economy as a whole. The Division of Assessment Standards of the Department of Taxation has in place a formula that would apply to the property improvements of mines, which have been either mothballed or closed down. The formula systematically devalues the property over a five-year period. If there is a significant downturn in the mining industry the property tax base will not be depreciated away entirely for up to five years. During this same period the sales tax base can erode at a much faster rate. 18

29 Indicator 2.1 Real Assessed Value of Property 900,000, ,000, ,000, ,000, ,000, ,000, ,000, ,000, ,000, Real AV Real AV Excluding NPM 19

30 Indicator Assessed Value* AV Excluding NPM* NPM* Real AV* Real AV Excluding NPM* Real Total AV Per Capita** Real AV-NPM Per Capita** *In Millions of Dollars **In Thousands of Dollars Source: Nevada Department of Taxation 20

31 Indicator 2.1 Real Assessed Value of Property Description: Assessed value is the taxable value of real and personal property. It includes centrally assessed property (such as utilities) and net proceeds of mines. Assessed value is normally the most stable tax base in a county. Wide fluctuations, especially downward, are indicative of a decrease in local tax base. Real Assessed value adjusts the reported values for the effects of inflation. Real assessed value per capita adjusts for population. This indicator should be stable or increasing. Analysis: Real assessed value of property has increased by 846.8% from 1986 to This increase is attributable to the significant increase in mining activity in Eureka County during the period. This reflects the increased value in the physical structures of the mining properties. Typically, if an industry closes down, the property tax base in a community is still supported by residential home values, at least for a period of time. However, in Eureka County the property tax base is supported to a large extent by industrial mining property. Any significant downturn in the industry will eventually have an effect across all tax bases. For Eureka County assessed value of property is a more volatile tax base than for counties in general. 21

32 Indicator 2.2 Real Taxable Sales 250,000, ,000, ,000, ,000,000 50,000, Indicator Taxable Sales* Real Sales* Sales Per Capita** *In Millions of Dollars **In Thousands of Dollars Source: Nevada Department of Taxation 22

33 Indicator 2.2 Real Sales Description: Taxable sales represent the second largest tax base in most counties (after property). Local governments do not collect sales tax directly. The state government collects all sales and use taxes and redistributes them to local government depending on various formulas. The most significant sales taxes for county government are BCCRT (Basic City County Relief Tax), a 0.5% tax, and SCCRT (Supplemental City County Relief Tax), a 1.75% tax. Both these taxes are shared with cities and special districts on the basis of population and relative assessed value. Taxable sales are sensitive to business cycles and local economic activity. Because of a small retail sales base many local counties in Nevada are considered guaranteed counties for SCCRT purposes. Guarantee status means that sales taxes will be less subject to fluctuation than the underlying taxable sales base. Analysis: Taxable sales have shown fluctuations throughout the period. Sales tax bases typically fluctuate with the condition of the state or national economy. Sales taxes in Eureka County are primarily related to the gold mining industry, which does not necessarily fluctuate with the economy in general. Not only is the sales tax base a relatively volatile tax base but in Eureka County it has unique characteristics. This indicator should be monitored. 23

34 Indicator 2.3 Real Net Proceeds of Mines 450,000, ,000, ,000, ,000, ,000, ,000, ,000, ,000,000 50,000, Indicator Net Proceeds of Mines* Real NPM* Real NPM Per Capita** *In Millions of Dollars **In Thousands of Dollars Source: Nevada Department of Taxation 24

35 Indicator 2.3 Net Proceeds of Mines Description: Net Proceeds of Mines is the primary tax base for determining the property taxes of mines. It is calculated similar to net profit and allows mines to subtract their operating costs from their gross output. Analysis: Net proceeds have had significant fluctuations during recent years although they are generally increasing. External forces including the market value of gold influence net proceeds. This causes the fluctuations to be unpredictable. Eureka County has the highest net proceeds of mines in the State of Nevada. The magnitude of gold production is not expected to change substantially in the near future. However, the gap between gross proceeds of mines and net proceeds of mines has been widening in recent years. Because this industry dominates the local economy, this indicator should be monitored 25

36 Indicator 2.4 Tax Base Indices 1988= AV Sales NPM Indicator Assessed Value of Property* Real Taxable Sales Net Proceeds of Mines *Excluding value of Net Proceeds of Mines 26

37 Indicator 2.4 Tax Base Indices 1988=100 Description: The tax index is created to adjust for two factors, inflation and population. This measures the relative amount of tax base per resident. An increase in the index indicates more tax base. The amount of tax base per capita in 1988 is used as the base. An increasing tax base index indicates that the tax base is increasing faster than the local population or inflation. An increasing tax base index potentially means that the same tax rate would generate an increased amount of revenue. Conversely, a decreasing index means that either the tax base is decreasing or is growing slower than the population or inflation. A decreasing index may mean that an increased tax rate is required to generate the former level of revenues. Analysis: All three relevant tax base indices are generally increasing for Eureka County. This indicates that resources per capita have been increasing. The fluctuations are attributable to mining activity (see indicators 2.1, 2.2 and 2.3) which is difficult to predict. 27

38 III Revenues Description: Revenues determine the capacity of a local government to fund and provide services. Important issues to consider in revenue analysis are: Growth: Revenues should grow at a pace sufficient to meet demands for services from increased population, housing or employment. Per capita revenues should be stable or increasing. Sources: No one economic sector or population group should bear the entire tax burden. The county should have diverse sources of revenue, which are appropriate to the economic base. Relying too heavily on one particular source (such as property) may cause excessive tax rates. Dependability: Revenues should be balanced between those that fluctuate with the economic base (such as sales) and those that are stable (such as property). If revenues are too elastic they may increase quickly during economic growth but decline too quickly during a recession. Flexibility: Revenue sources should not be too restricted as to their use (such as grants) and should be available to fund different spending priorities as the priorities change. Administration: Revenues should not be too difficult to collect and administer. Forecasts of revenue for budgeting purposes should be relatively accurate. Analysis: Corresponding to the issues described above, a number of revenue indicators were analyzed. Real Revenues Revenue Sources Composition of Revenues Restricted Revenues Intergovernmental Revenues Elastic Revenues All Funds Property Tax Rate Budget Minus Actual Revenues grew tremendously for Eureka County during the past decade except for a period from 1994 through The overall increase in real revenues from 1986 to 1996 was 369.5% compared to a statewide growth rate of 88.9%. When further adjusted for changes in population, revenues increased by 257.4% while statewide per capita revenues grew by a relatively smaller 13.1%. The source of revenues has changed somewhat. Sales tax revenues have increased considerably more than property and other revenue sources, although property tax revenues are expected to equal sales tax revenues in Sales tax revenues per capita increased by 429.7% from 1986 to Property tax revenues increased by 246.9% while other revenue sources increased by a comparatively modest 36.1% during the same period. It appears that other 28

39 revenue sources will continue to be a diminishing share of total revenues. The county relies on an average of only 1.8% in the form of restricted revenue funds. Intergovernmental revenues amounted to 61.8% of all revenues in Elastic revenues amounted to 61.4% in Both intergovernmental and elastic revenue sources have increased because sales tax revenues have increased in importance for the county. Eureka County appears to have a higher than normal general fund to all funds ratio. The county s property tax rate is relatively low compared to the statewide average rate. The budget process and revenue surplus figures for the county appear to be adequate. 29

40 Indicator 3.1 Real Total Revenue 8,000,000 7,000,000 6,000,000 5,000,000 4,000,000 3,000,000 2,000,000 1,000, a 1997b Indicator a 1997b Total Revenue* 1,125 1,508 1,670 2,392 3,593 4,591 5,318 6,495 6,643 6,572 7,073 8,678 Real Total Revenue* 1,361 1,771 1,911 2,652 3,820 4,711 5,318 6,348 6,366 6,097 6,390 7,582 Source: County Budget, LCB *Thousands of dollars 30

41 Indicator 3.1 Real Total Revenue Description: Total revenue includes General Fund revenues from all sources. Nominal revenue presents the total in current or actual amounts. Real Total Revenue presents the revenue adjusted for inflation or in constant purchasing power. Nominal revenue may be increasing but if inflation is increasing faster, real revenue may actually decrease. Real revenue is a better indicator since it adjusts revenues for the effects of inflation and thus allows comparison between different years. Ideally, real revenue should be increasing at a rate parallel to population (see Indicator 3.2). If real revenue is declining the county will be unable to purchase as much as it could previously. Analysis: Both nominal and real revenue grew considerably for Eureka County during the past decade except for a period from 1994 through The overall increase in real revenues from 1986 to 1996 was 369.5%. The statewide growth during this same period was 88.9%, while the rural counties (15 Nevada counties excluding Clark and Washoe) growth rate was 53.7%. 31

42 Indicator 3.2 Real Revenues Per Capita 5,000 4,500 4,000 3,500 3,000 2,500 2,000 1,500 1, a 1997b Indicator a 1997b Real Revenues Per Capita 1,138 1,404 1,379 1,809 2,469 3,020 3,364 3,847 4,107 3,859 4,067 4,584 Percent Change 23.4% -1.8% 31.2% 36.5% 22.3% 11.4% 14.4% 6.8% -6.0% 5.4% 12.7% Source: Local Budget, LCB 32

43 Indicator 3.2 Real Revenues Per Capita Description: Real revenues per capita are the total real revenues divided by the county population. Since this adjusts for the effects of both inflation and population growth, it is a good indicator of the county s revenues and hence its ability to fund services. To provide a constant level of services, real revenues per capita should also be constant. Decreasing revenues per capita is a negative factor. Analysis: Real revenues per capita have averaged a substantial 14.3% yearly growth rate from 1986 to The growth rate statewide during the same period is only 5.3%. Only during the years of 1988 and 1995 was the per capita growth rate of revenues less than the state average. The revenue growth rate for Eureka County is substantially exceeding inflation and population growth rates. 33

44 Indicator 3.3 Per Capita Revenue Sources Ad Valorem Sales Other a 1997b 34

45 Indicator a 1997b Ad Valorem Sales SCCRT BCCRT Other

46 Indicator 3.3 Revenues by Source Per Capita Description: Indicator 3.3 presents a disaggregated view of the information in the previous indicators. It presents real revenues per capita from selected individual revenue sources. This information is useful since it shows how different revenue sources are affected differently by the business cycle. Traditionally, sales taxes are the most sensitive to economic changes while property taxes are much more stable. The two major sales taxes are Supplemental City County Relief Tax (a 1.75% tax with certain minimum amounts guaranteed to certain rural counties) and Basic City County Relief Tax (a 0.5% sales tax based on actual county sales). Since BCCRT is not guaranteed, it will experience wider swings with the business cycle. The category Other includes all other revenue categories (see Indicator 3.4 for more information). Analysis: From 1986 through 1992 sales tax revenues and other revenue sources increased at a fairly steady rate. Sales tax revenues grew by 217.0% and other revenue sources grew by 204.0%. Property tax revenue increased during this period although it was more volatile and didn t grow at the same rate. Property tax revenues grew by 160.0% during this early period. From 1992 through 1996 sales tax revenues continued to rise by 33.6%. However, other revenue sources decreased by 55.2%. During this period property tax revenues increased by 67.0%. After 1992 all three revenue sources have become more volatile. In general, sales and property tax revenues have become more important while other revenue sources have become less important. It appears that budget sales and property tax revenue will be almost equal for 1997 while other revenue sources remain fairly constant. 36

47 100% Indicator 3.4 Composition of Revenues 90% 80% 70% 60% 50% 40% 30% 20% 10% Transfer In Misc Revenues Filt Grants Bond Proceeds Interest Earned Chrgs for Services Intergovernmental Local Gaming Licenses, Permits, Fines & Forfeits Sales Ad Valorem 0% a 37

48 Indicator a 1997b Ad Valorem 30.8% 38.6% 20.2% 28.7% 39.5% 40.8% 27.1% 23.6% 21.8% 20.0% 29.9% 45.0% Sales 39.7% 36.4% 47.5% 43.2% 39.3% 37.5% 42.6% 64.0% 63.5% 60.3% 58.8% 44.9% SCCRT 27.9% 29.2% 30.1% 23.2% 26.3% 27.7% 31.5% 48.9% 48.6% 47.3% 42.4% 34.6% BCCRT 11.8% 7.1% 17.4% 20.0% 13.0% 9.8% 11.1% 15.1% 14.9% 13.0% 16.4% 10.3% Other 29.5% 25.0% 32.3% 28.1% 21.2% 21.7% 30.3% 12.4% 14.7% 19.7% 11.2% 10.2% Lic., Per., Fines & Forfeits 2.0% 1.7% 1.3% 0.9% 1.1% 0.7% 1.2% 0.8% 1.4% 1.2% 0.8% 0.7% Local Gaming 0.1% 0.1% 0.1% 0.1% 0.1% 0.0% 0.1% 0.0% 0.0% 0.0% 0.0% 0.0% Intergovernmental 8.4% 2.4% 4.0% 7.6% 4.8% 4.6% 3.2% 3.1% 3.1% 3.3% 2.5% 1.9% Charges for Services 10.7% 11.7% 16.1% 11.6% 8.0% 6.7% 5.6% 5.1% 6.8% 7.0% 4.9% 4.7% Interest Earned 4.9% 2.7% 5.6% 6.7% 6.2% 8.0% 5.7% 2.3% 1.9% 3.7% 2.1% 1.0% Bond Proceeds 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% Grants 0.0% 0.2% 0.7% 0.3% 0.1% 0.5% 14.3% 0.6% 1.0% 2.4% 0.5% 1.5% Filt 1.4% 4.2% 3.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% Misc. Revenues 1.9% 2.1% 1.4% 0.9% 1.0% 1.1% 0.3% 0.5% 0.5% 2.1% 0.4% 0.4% Transfer In 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 38

49 Indicator 3.4 Composition of Revenues Description: Indicator 3.4 presents a detailed breakdown of the revenues for the county general fund. For each year, the revenue is shown as a percent of the total. In general, a county should have a diverse mix of revenues some of which are relatively stable and some of which are sensitive to the business cycle. Analysis: As noted in the discussion on tax bases, the mining industry dominates the county s revenue sources. Because of this a proper mix of stable and business cycle sensitive revenues is not easily engineered. However, property tax revenue will remain relatively stable, though diminish eventually, in the event of a downturn in mining activity. The most noticeable trends of this indicator is the rise in importance in sales taxes and the decrease in importance of other revenue sources (The table for indicator 3.4 shows that budgeted property tax revenues for 1997 will equal sales tax revenues.) Because of the dominance of the mining industry in Eureka County, tax revenue sources that respond the quickest to changes in mining activity will have the greatest impact. When mining activity increases this is an asset and when mining activity decreases this is a detriment. This indicator should be monitored. 39