Nevada bracing for further slump in revenues

By Jim Christie - Analysis

SAN FRANCISCO (Reuters) - Nevada suffered a double-whammy of bad economic news on Tuesday that underscores its revenues will weaken and widen the state budget shortfall as consumers rein in spending at its casinos and resorts.

The first signal of a falling revenues is that tourism to Las Vegas, the state's economic engine, is on the slide.

The number of visitors flying into and out of America's most famous gambling destination marked its eleventh consecutive monthly decline in September and sank 13.2 percent from a year earlier, the biggest year-over-year drop in tourist traffic through McCarran International Airport since the months after the September 11, 2001 attacks.

Fewer tourists points to a wider state budget gap.

Next week state budget director Andrew Clinger will hand over his revenue forecast to an advisory council that sets revenue projections used by state officials for budget purposes. He told Reuters that a $1.2 billion budget shortfall estimated this summer would grow as tourism sags.

"We're seeing our visitor volume decline but we're also seeing that the visitors that do come are spending less," Clinger said. "That has an impact not only on the gaming tax but on the sales tax because most major casinos in Vegas now have a huge retail component attached to them."

Nevada's year-to-date revenues are already off 4.6 percent from an initial forecast, largely on an 8.6 percent drop in gambling-related revenues, which reflects a drop in gambling now appearing in casino operators' corporate results.

'LESS STEAK, MORE BEANS'

Boyd Gaming Corp (BYD.N), for instance, posted on Tuesday a 73 percent drop in quarterly profit. Boyd also gave the day's second signal of hard times state officials should expect: The company said its partially built Echelon project on the Las Vegas Strip would remain on hold through at least 2009.

Boyd had said in August it would mothball the $4.8 billion project, originally slated to open in 2010, for at least nine months because of an inability to secure financing for joint venture segments of the site.

"Given what has happened in the market since we announced the suspension of our Echelon project on August 1, it is unlikely we will resume construction in 2009," Boyd Chief Executive Keith Smith said on a conference call.

The decision to put Echelon on hold will cut construction payrolls in Las Vegas, another drag to retail activity there and sales-tax revenues the state needs.

"The prospect of Echelon not moving forward at this point is going to be a detriment to our revenue collections," said Ben Kieckhefer, a spokesman for Gov. Jim Gibbons.

State Treasurer Kate Marshall said tight credit may slow other projects in Las Vegas, adding to the view in the state capital of Carson City that a revised state budget will be marked by "less steak, more beans."

"You're going to see some of the major developments slowing down a little bit because our development is driven by access to credit," Marshall said.