Nevada considers tax break overhaul
CARSON CITY ” Searching for ways to fill a huge budget hole, lawmakers may erase some of the many tax breaks authorized in Nevada over the years. But advocates of the tax abatements say they’re exactly what the state needs now, during a severe economic crisis, to help attract businesses and create more jobs.
Legislators say hundreds of millions of dollars are at stake, and money not collected because of tax breaks could have eased the state’s current budget crisis and helped to fund critical programs such as public education.
But business leaders counter that the state would not have received those uncollected tax dollars in the first place, because without the incentives many companies would not have expanded or moved to Nevada.
Assembly Speaker Barbara Buckley, D-Las Vegas, is working on a plan to decrease tax abatements by about 20 percent, and use the new tax revenue for public education. She maintains that the state is held back from attracting business by its underfunded school system.
“Nevada should be able to attract businesses here with our weather, our proximity in the nation, our favorable tax climate ” there are many things that we know and love about Nevada that should attract these businesses,” Buckley said. “What’s keeping them away is our school system.”
“Why are we one of the lowest-taxed states in the nation, and we’re still giving tax breaks that takes money away from our schools? It doesn’t make sense to me.”
But economic development experts say that reduced tax abatements could have an adverse impact on the state’s ability to draw business, since competing states offer free money, land and buildings ” incentives that Nevada does not offer. They’re also concerned that legislators will lump together varying types of tax abatements when they should be preserving those that help the state the most.
“We’re in a very competitive environment, and trying to keep incentives on the books is totally integral to creating jobs,” says Mike Skaggs, director of the Nevada Commission on Economic Development.
In fiscal 2008, amid a widening subprime mortgage crisis and market meltdown, Nevada saw more capital investment than it had in a decade, and nearly doubled the value of its tax abatements, from $18.8 million in 2007 to $34.7 million.
Over that time frame, the Economic Development Commission helped new and expanding companies create nearly 2,000 new jobs, with an average wage of more than $20 an hour.
Developers and business executives say the boom in capital investment growth in Nevada is due in part to the state’s competitive push to draw solar and renewable energy companies, among them Ausra Inc., which opened a solar component manufacturing plant in Las Vegas in 2008.
“We had the Nevada Development Authority, and especially Sen. (Harry) Reid’s office, pushing us very hard when Ausra was trying to figure out where to locate Ausra’s first U.S. manufacturing facility,” said former Ausra executive John O’Donnell. “The abatements were a piece of the puzzle.”
Another factor explaining the capital investment growth is that as the recession continues, and companies deal with shrinking revenue, many businesses see Nevada as a cheaper place in which to operate. Nevada historically has lower taxes, cheaper worker compensation insurance and cheaper land and utility costs.
The economic development experts say businesses are relocating from California because executives are concerned that the budget meltdown in that state will trickle down to their companies, in the form of increased taxes and fees.
“The general consensus of people we are talking to right now is that they’re just fearful that the state will file for bankruptcy, and the debt will drift down to them,” said Somer Hollingsworth, president and CEO of the Nevada Development Authority, which recruits business to southern Nevada and helps companies apply for abatements.
The Commission on Economic Development plans to launch a campaign targeting California businesses on Monday ” the day on which those companies must pay taxes. Skaggs said he has about 130 business prospects, and 40 percent of them are in California.
“California just happens to be in the unfortunate position of being one of the more expensive states to do business,” Skaggs said. “Over the last 10 years or so, people have realized it’s not such a big deal to move across the state line, so a whole set of competitive energy is being directed by them.”
Lawmakers agree that competing for business with other states is important, but say that Nevada’s business-friendly tax climate is enough of a draw, even without abatements.
“California has one of the worst business climates in the country, and we’re right next door,” Buckley said. “Our tax level is just night and day compared to California, and California’s problems are getting worse.”
Assemblywoman Marilyn Kirkpatrick, D-North Las Vegas, said that some companies that have been given tax abatements would have come to Nevada anyway. She’s currently reviewing those companies that got abatements to see which were planning to expand in Nevada regardless of the incentives.
Kirkpatrick has been leading the charge to overhaul the state’s abatements, and plans to introduce a bill that, among other things, requires more accountability from companies that receive incentive money.
“We’re not going to get rid of them, but we’re going to in the future make sure that Nevada benefits,” Kirkpatrick said.
She added that if companies with incentives had to report how many jobs were created, whether those jobs went to Nevadans, and the dollar amount of the incentive given, the state could more easily evaluate whether the lost tax revenue was worth it.
But the companies and economic development agencies often cite confidentiality, and decline to provide the information.
“If I’m going to borrow the people’s money, then there at least should be a minimum of what I should report,” Kirkpatrick said. “Other states put it on their Web site, and we’re working with the Commission on Economic Development to do just that.”
Meanwhile, the competition continues. Even after being approved for abatement money, some companies decide they will get a better deal elsewhere. GlobalWatt, Inc., a Silicon Valley solar manufacturing company that was approved for $1.6 million in Nevada tax abatements in 2008, decided to open a plant in Texas instead.
“We’ve been approached by a number of different states that have better incentive programs, and they also have assisted us in putting some capital investment into the project,” said Mike Thompson, vice president of corporate affairs.
“That’s OK, because we don’t necessarily know that it was beneficial,” Kirkpatrick said. “It’s OK to say no. It happens all the time. I’m in sales, and we say, ‘You know what, I just can’t meet that because it wont cover my overhead costs.”‘
Assemblywoman Debbie Smith, D-Sparks, will soon introduce legislation that examines the effectiveness of Sales Tax Anticipated Revenue, or STAR, bonds, which are used for neighborhood economic development.
“You can’t give away more than you can afford to, to keep someone else from getting that business,” Smith said. “This crisis makes us realize that we need to make sure that every single tax incentive we give is for a good reason, that there’s accountability, that there’s transparency, and that we are getting good return on our investment.”