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Gaming Guru

Hubble Smith

California tax changes may hurt Vegas tourism

13 January 2009

LAS VEGAS, Nevada -- UNLV economics professor Alan Schlottmann isn't optimistic about the prospects of Las Vegas' economy rebounding anytime this year.

This is not a normal recession for Nevada and the gaming industry, Schlottmann said. He sees "structural changes" in the region's econometric model as consumers cut back on spending.

"We hope we're wrong, but we feel Southern Nevada will poke along until 2010," Schlottmann told the Review-Journal.

Schlottmann is predicting a 5 percent potential reduction in demand from Southern Californians for hospitality services in Las Vegas as a result of proposed increases in vehicle taxes and sales taxes in the Golden State.

Roughly one-fourth of Las Vegas visitors drive from Southern California. Those residents will have each year, Schlottmann calculated.

"That's a structural change, as opposed to a trend, and that's not built into the model," he said.

Household debt service ratio, or debt payments as a percentage of disposable personal income, increased from about 11 percent in 1980 to nearly 14 percent in second quarter 2008, according to the Federal Reserve Board.

With consumer debt at historically high levels, a quick recovery with standard increases in income cannot be expected, said Schlottmann, executive director of Irvine, Calif.-based Theodore Roosevelt Institute.

What does that mean for the casino industry?

"Unfortunately, in the view of TRI, recessions that started with a financial crisis similar to our current condition are long and deep rather than short and quick," Schlottmann said. "In our view, Nevada gaming is going to be in a bit of a tussle not through 2009 but through 2010 as well. If we are correct, this is an eight-quarter to 10-quarter problem before recovery, not a wait-until-next-year problem."

Jeremy Aguero, principal of Applied Analysis research firm in Las Vegas, said he doesn't disagree with Schlottmann's assessment that consumers will have less to spend after taxes. However, lots of states, including California, have raised taxes over the last 20 years and yet tourism continued to grow, he noted.

Other factors influence consumers' spending decisions such as whether or not they're employed, the foreclosure wave and economic stimulus package for public works projects, Aguero said.

"Economies are more complex than simply the tax structures," Aguero said. "People have counted out Las Vegas' ability to attract visitors. ... I think you'd lose count if you went from the 1970s, whether it was a regional, national or global crisis that was going to be the undoing of Southern Nevada. And yet our economy continues to be resilient and resourceful."