Assembly Speaker Barbara Buckley and her colleagues in the Nevada Legislature recently began to consider curtailing or eliminating targeted tax abatements and other incentives within the state as a way of generating additional tax revenue.
Frequently, local jurisdictions and the state award targeted tax abatements and other incentives to certain industries or even individual firms. Eliminating or curtailing the extent of this corporate welfare could provide additional revenue for state operations, reducing the impact of the global recession on state government without creating new taxes.
To this end, the Legislative Counsel Bureau recently completed a study outlining the various types of such corporate subsidies granted in the state. Among the most significant of these subsidies, says the report, are tax abatements granted by the Nevada Commission on Economic Development, tax increment financing (TIF) and sales tax anticipated revenue (STAR) bonds.
Tax abatements granted by the Commission on Economic Development are subsidies that are given to individual firms as an "incentive" for doing business in Nevada. The ostensible purpose of these incentives is to lure high-paying jobs to the Silver State.
The LCB's recent study provides a listing of abatements that have been granted by the Commission on Economic Development. The list demonstrates the success of these incentives in meeting their goal of "creating" jobs. It shows, for example, that last year the Commission provided ICO Satellite Services GP with a $4.8 million break on sales and use taxes, a 50 percent reduction in the modified business tax for four years and a 50 percent reduction in property taxes for 10 years. These combined tax breaks successfully incentivized the creation of two new jobs in Clark County.
Assemblywoman Marilyn Kirkpatrick, chair of the Assembly Committee on Government Affairs, was recently critical of another tax break granted in Clark County.
Last year, the Commission on Economic Development gave El Dorado Energy, LLC a $1.9 million break on sales and use taxes, a 50 percent reduction in the modified business tax for four years and a 50 percent reduction in property taxes for 10 years. In exchange for these subsidies, the company created one new job. Such subsidies raise the question of whether the "economic development" touted is really just corporate welfare.
Use of TIF and STAR bonds in the Las Vegas and Reno areas has been detailed previously by the Nevada Policy Research Institute. These are mechanisms by which community redevelopment agencies can transfer property and sales taxes paid by local taxpayers to private developers as an "incentive" for doing business in the community. Typically, these devices are touted as necessary because there is a lack of incentive for developers to invest in downtown areas and, hence, there is a dearth of worthwhile construction.
The LCB's study shows that Carson City was recently able to overcome its difficulty in attracting automotive dealerships by giving $3.6 million in TIF subsidies to a new Toyota dealership and $4.8 million total to new Subaru, Honda and Chevrolet dealerships. (Were the latter subsidies necessary to put those dealerships on an even playing field with the first subsidy-receiving dealership?) Carson City was similarly able to lure an oh-so-elusive Burlington Coat Factory into town with a $4.5 million subsidy.
Tax breaks for corporate welfare purposes have a notable impact on Nevada's economic and financial fortunes. Corporate welfare recipients are given an artificial advantage over their potential competitors—who may well be paying the taxes going to the new corporate recipients. This discourages the growth of genuine competition and limits economic dynamism in the state. Instead, it fosters an atmosphere of rent-seeking and corruption.
Moreover, as certain legislators are beginning to note, the tax revenue that is foregone through these subsidies limits the amount of funding that is available for state and local government operations. As a result, this foregone revenue can lead to calls for tax increases on the general populace.
Nevadans deserve better than to be forced into paying higher taxes in order to subsidize corporate interests. Nevada lawmakers should recognize that corporate investment is best determined by consumer demand. Companies that produce products of real value for their consumers will always have a market, and this will create jobs that are not dependent on government handouts.
On this front, the recent efforts of Speaker Buckley and her colleagues in the legislature to curtail corporate welfare spending would go far toward safeguarding the economic fortune of individuals and families in the Silver State.
Geoffrey Lawrence is a fiscal policy analyst at the Nevada Policy Research Institute.