Diversification’s unhappy history: Part III

Some of the state’s most powerful interests have long fought broadening Nevada’s job base

By Steven Miller
  • Wednesday, February 16, 2011

In early 1999, the Nevada Resort Association was on a roll.

The previous fall, its members had successfully installed their own "Anointed One" in the governor's chair — a former director of Boyd Gaming who shared their eagerness to increase taxes on non-gaming businesses.

His name, of course, was Kenny Guinn.

Touring the state in 1990 and ‘91, Guinn had vigorously beaten the drum for a new state business income tax and a sales tax on services. Given that record and his long history of pushing for ever-higher property taxes in Clark County, Guinn might have seemed a long-shot in the 1998 GOP primary. No credible opponent entered that contest, however, and the gaming industry front-loaded the Guinn campaign with both a huge war chest and top-flight campaign professionals. Those pros then crafted a big, slick mailer assuring Republicans that Guinn would govern as the second coming of Ronald Reagan and sent it to every GOP voter in the state. It worked.

Among gaming insiders, it was widely known that Guinn was entirely committed to the NRA's crusade to change Nevada's tax structure. During both the primary race and the general election campaigns, however, he was never seriously confronted on the issue.

Once elected, though, Guinn increasingly allowed the mask to slip. Publicly, he began saying what he'd been saying in 1991, that "growth doesn't pay for itself" — a major NRA talking point. And his top political staffers began telling non-gaming businesses that gaming already was paying more than its "fair share" and non-gamers should pay more — another major NRA talking point.

However, installing Guinn in the governor's chair was just Step One in the NRA gamers' master plan for Nevada. If they also could get lawmakers singing from the NRA songbook, a prize the gamers had been pursuing for decades would at last be within their grasp.

Ever since Nevada legalized gaming in 1931, state policy had been to leverage the revenues it received from gaming taxes to attract new residents and new businesses to the state. Initially, the notion was only implicit in lawmakers' decision to legalize and tax gaming so that taxes on residents and businesses could stay low. But by the mid-Thirties — in the "One Sound State campaign" — the idea became an explicit economic-development policy. Nevada advertised itself across America as a state where, because gaming was legal and taxed, residents and businesses were subjected to "no income tax, no inheritance tax, no sales tax, no tax on intangibles," while the state had "a balanced budget and a surplus."

On the Nevada-Utah border, the state erected a sign saying, "Nevada State Line — no income tax, no sales tax, no inheritance tax, no corporation tax, no gift tax — A debt free state welcomes you."

Over the years, as the state wrestled with the opportunities, problems and social costs that accompany legalized gaming, Nevada gaming-regulation policy increasingly relied on the same premise as did its economic development policy.

That premise, embodied in statute and ultimately upheld by the Nevada Supreme Court, was that the unique social problems inherent in gambling made it something that could only be permitted to operate legally in the form of a tightly supervised and state-licensed privilege.

In short, no casino owner had a right to operate. Licenses to operate would only be awarded under policies that state policymakers determined would be in the best interest of all the residents of the state — and only to those individuals who agreed to abide by the terms the state specified.

As we've seen, those terms very quickly transcended merely running honest games. They also included paying taxes high enough to cover gaming's added social costs and to make Nevada a low-tax environment where people and businesses would want to relocate.

Or, as the state Commission on Economic Development would phrase it in August 1999: "Nevada's tax structure is pointedly designed to use gaming as a primary source of income for services, allowing its citizens to enjoy a relatively low per capita direct cost of taxes."

It was this very idea, however, that the NRA was out to kill.

So, as the 1999 legislative session began, the gamers were working to add lawmakers to their governor. The NRA lobbyists also unveiled a new weapon: a white paper they'd paid consultants at Arthur Andersen to write.

Titled "The Fiscal Impact of Population Growth in Nevada," the document listed as one author the Center for Business and Economic Research at the University of Nevada, Las Vegas. Some years later, however, Center director R. Keith Schwer would tell NPRI that he'd been surprised to see the Center's name on the paper's cover, because he'd had no role in writing or researching the document. He had merely agreed to read it, he said.

But in the 1999 Nevada legislature, the mere existence of the seemingly authoritative paper had the effect the gaming industry lobbyists wanted: Mandalay Bay Vice President Mike Sloan appeared before a joint meeting of the Assembly and Senate judiciary committees, pointed to the paper and asserted that companies coming to Nevada under the state's economic-diversification program "pay no taxes whatsoever."

Because the NRA was directly and overtly challenging the core mission of the Nevada Commission on Economic Development — and because the idea of economic diversification itself was not sufficiently appreciated — CED Research Director Tim Rubald says he decided to turn to a powerful econometric analysis capability that had only recently become available to a consortium of Nevada state agencies: the REMI modeling and forecasting tool.

"REMI" — shorthand for Regional Economic Models, Inc., of Amherst, Mass. — integrates several advanced modeling capabilities with detailed data of multiple industries, including comprehensive inter-industry relationships.

Working with the REMI economists, with Dr. Keith Schwer at the UNLV Center for Business & Economic Research, and Dr. Tom Harris, director of the Reno Center for Economic Development, Rubald formulated the question to be examined: "Does economic development actually pay for itself in Nevada?" Specifically, the model selected would test the NRA allegation that taxes paid by the gaming resorts were going to pay the freight for the newer, non-gaming industries — primarily manufacturing — that were entering the state.

The fascinating results of the REMI econometric study will be the subject of Part IV of this series, which will be released next Wednesday, February 23, 2011.

Steven Miller is vice president for policy at the Nevada Policy Research Institute. For more visit http://npri.org.

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