Is Nevada’s corporate welfare paying off?
Gov. Steve Sisolak last week said he will do a review of how Nevada uses incentives to lure businesses to the state, although the language in his prepared statement did not seem to suggest he is likely to scrutinize the process very vigorously.
“We have an incredible opportunity to make Nevada a place with a robust economy without sacrificing education,” Sisolak said. “Education and investment in education, I believe, is the single greatest economic development force this state can harness. I believe we can prioritize our education system and still remain a strong, pro-business state.”
This promised review comes after Sisolak vetoed legislation that would have created a legislative oversight panel on business incentives, angering state lawmakers.
Sisolak is a longtime advocate of corporate welfare. He lobbied for the Las Vegas Raiders stadium incentives although nearly every independent expert on sports finances recommended against it, and he reaped the benefits—Raiders President Marc Badain was a “special guest” at a private $500-a-person fundraiser for Sisolak’s campaign last year.
There has long been concern that Nevada’s new policy of offering huge amounts of abatements and credits is not being given independent scrutiny to determine whether it is paying off for the state, and as supporters of corporate welfare, Sisolak and his predecessor Brian Sandoval had little interest in such studies.
“Independent is the critical word,” said Sparks financial analyst Stuart Skalka. “Otherwise, the economic development people hype self-serving stats.” The state economic development office—previously a stand-alone agency—became an arm of the governor under Sandoval’s administration.
But skepticism toward incentives is one of the things that both left and right agree on, and they have often called for tough probes of whether incentives pay for themselves and whether the incentives would be better used for expansion of existing locally-based firms—or simply dropped altogether.
“If I’m in a position where I can benefit from it politically, or I have a chance to lease or sell to a company, I’m likely to stand up and say, ’Isn’t this great?’ instead of looking for research,” said Reno industrial developer Mark Glenn.
He said the housing crunch was a product of incentives, and the area’s homeless problem has been exacerbated.
Money is not always the issue, something unsophisticated state officials often do not understand. The National Legal and Policy Center pointed out that while Nevada was giving Tesla the largest state corporate welfare package in history—$1.3 billion—to get a mere battery plant, Texas got the Toyota North American headquarters for a paltry $50 million after Toyota rejected a $100 million bid by North Carolina.
In 2008, when the renewable energy firm Mariah Power chose Youngstown, Ohio over Reno, the Reno Gazette Journal lamented that the city had not ponied up “the short-term $1.8 million interest-free loan offered by Youngstown.” That prompted the conservative Nevada Policy Research Institute to post an essay that observed, “Had Reno given away a $1.8 million interest-free loan (read corporate welfare), that would have amounted to $300,000 per Mariah Power employee. Surely there are better ways to ’invest’ taxpayer money in Reno.”
In any event, Mariah—which later dropped Youngstown for Manistee, Michigan—said it wasn’t subsidies but Nevada’s lack of skilled labor that caused its elimination.
Given the tax abatements Tesla has used so far in Nevada, and with its workforce at 7,059 employees, taxpayers are paying $34,042 per job, according to a recent calculation by analyst Brian Bonnenfant at the Center for Regional Studies, but he also said more in-depth research on benefits received is needed to reach any conclusions.
Dumping on locals
Comedian Bill Maher recently chastised executives of mega-corporations for pitting places against each other:
“Two hundred thirty cities and regions submitted proposals to Amazon for the company to locate in their area, all desperate for jobs that don’t involve guarding prisoners or murdering chickens. And Amazon picked two places that didn’t need them at all, places where prosperity already was. Bezos, you’re worth 130 billion. Take one for the team. Stop playing cities off against one another and help a dying one come back to life.”
During the Sandoval administration, Nevada gained a worldwide reputation as a soft touch for mammoth corporations—and also for corporate welfare that does not come through.
The London Guardian has reported, “Cities around the so-called Gigafactory in northern Nevada lined up to reap the [Tesla] bonanza. No longer dusty, provincial versions of Las Vegas, these municipalities would become innovative makers of lithium-ion batteries for electric cars and partners in Elon Musk’s vision of a clean-energy revolution. That was the pitch. These days, many residents in Sparks—a sunbaked, low-rise city of 100,000 people located 20 miles from the factory—express humbler dreams: food, shelter, health care.”
Sandoval, and now Sisolak, did not have to deal with the effects of corporate welfare. They lure the corporations. Local governments are then saddled with the costs—housing shortages, drains on school district budgets. According to state figures, in fiscal year 2017, various tax breaks drained off $4 million from Washoe County revenues and $9.5 million from Washoe County School District revenues.
In addition, the failure of the benefiting corporations to pay their taxes—while donating occasional grants—has forced local governments to seek replacement income for basic services like roads and schools. The Washoe County School District turned to voters for a $781 million sales tax hike in 2016—not exactly the “without sacrificing education” Sisolak spoke of.
Everyday citizens get angry over tax hikes, but the giveaways that necessitate those increases don’t seem to bother them, if they have jobs.
The Mackinac Center for Public Policy has reported, “There is broad consensus among academic economists that these programs are wasteful at best and actively damaging to a state’s economy at worst. In addition, they encourage cronyism and corruption by creating high stakes for the winners and losers of such policies.” The Center is promoting an interstate mutual disarmament pact with which states would forswear competitions against each other.