Highlighting Worst of the Wurst in Pork-Laden Session
Previously we covered the top 10 best pieces of legislation to be enacted during Nevada’s 82nd Legislative Session, but for every yin, there’s a yang. While we celebrate the positives (all hail the almighty veto pen), we can’t forget that we’re still making sausage here.
In the second piece of our three-part series, we embark on an exploration of the five worst pieces of legislation that managed to navigate the halls of Carson City and find their way onto our Nevada Revised Statutes.
From pork barrel spending riddled with conflicts of interests to the ballpark-sized ill-conceived ventures of economically unsound investments, these misguided policies reveal the insidious grasp crony corporatism continues to hold over the idea of economic development, revealing the grotesque dance between power and special interests.
1. Senate Bill 1 (35th Special Session) / Senate Bill 509 (82nd Regular Session) – Southern Nevada Innovation Act (Oakland A’s Ballpark)
Introduced by: The Office of the Governor
Summary: Senate Bill 1 establishes methods to finance a stadium project for Major League Baseball, or MLB. Among the many things this bill does is:
- Extend the powers of the Clark County Stadium Authority, which currently governs the NFL’s Allegiant Stadium;
- Require the Clark County Board of Commissioners create a sports and entertainment improvement district, or SEID, located at the southeast corner of Las Vegas Boulevard and Tropicana Avenue, when notified that the Stadium Authority has taken steps related to an MLB team’s relocation;
- Delegate power to the Stadium Authority to negotiate a development agreement, lease agreement and non-relocation agreement if a Major League team commits to relocating within the district including the requirements for these agreements and provides for confidentiality of certain information;
- Exempt the MLB stadium project from laws requiring competitive bidding or specifying procedures for procurement of goods or services, except where statutory prevailing wage provisions and certain subcontracting requirements are concerned;
- Require the Clark County Board of County Commissioners to issue general obligation bonds for certain project-related expenses upon request of the Stadium Authority Board of Directors;
- Appropriate $14 million to the Nevada State Infrastructure Bank Fund for a credit enhancement on bonds issued to finance the MLB stadium construction and outlines the revenue sources for bond debt service payments;
- Remove certain exemptions from prevailing wage requirements related to railroad companies and monorail installations; and
- Adds paid family and medical leave for employees requirements in order to qualify for any partial tax abatements for businesses locating or expanding in the state.
Final Vote: Assembly 25-15; Senate 13-8
Governor Approved: Yes
By letting school choice programs die while voting for yet another shiny sports stadium for the second time in less than a decade, the Nevada Legislature continues to send a clear message – in Nevada, the best way to break the cycle of poverty apparently lies in professional sports rather than a quality education.
Nevada has long been a destination for California refugees, but it seems that settling in comes at a hefty price, as Oakland sports team owners continue to exploit us. It is unfortunate that a special session was used to pass policies that, upon economic analysis, repeatedly prove to be a fleecing of taxpayers and a direct subsidy to wealthy sports organizations, all at the expense of critical public needs.
This is particularly disheartening since tax-increment financing systematically diverts tax dollars away from school districts, police departments and fire departments.
During the week the 35th Special Session lasted, lawmakers were bombarded with grandiose figures of the economic activity the new ballpark would supposedly bring to Las Vegas, but these promised numbers are, of course, largely illusory.
Unions and supporters of state-directed economic development argued that any cost would be recouped and then some, thanks to the new construction jobs, consumer spending at the ballpark, the influx of tourists and the supposed multiplier effect from this spending, which would supposedly lead to increased revenues for the state.
Unfortunately, all these promises rely on faulty economic reasoning meant to obscure the true cost and impact of publicly funded stadiums.
One of the fundamental lessons economics teaches us is to consider both what is seen and what is not seen. Applying this concept reveals that stadiums do not create new spending; instead, they divert existing economic activity.
While everyone can envision the spending that would occur at the ballpark through concessions and ticket sales, it is crucial to consider the unseen spending that would be diverted from other forms of entertainment.
Consumers generally have a certain amount of disposable income in their budgets that they spend on restaurants, concerts, movies or even gaming. If the ballpark is not constructed, that entertainment spending would not disappear but rather be shifted to other preferences with similar economic impact, all without the added cost to taxpayers.
This is why the Federal Reserve Bank of St. Louis concluded that “governments could finance other projects such as infrastructure or education that have the potential to increase productivity and promote economic growth” instead of subsidizing sports stadiums.
In the book “Sports, Jobs, and Taxes” by the Brookings Institute, the local economic development argument was thoroughly examined, and the verdict was clear:
“In every case, the conclusions are the same. A new sports facility has an extremely small (perhaps even negative) effect on overall economic activity and employment. No recent facility appears to have earned anything approaching a reasonable return on investment. No recent facility has been self-financing in terms of its impact on net tax revenues. Regardless of whether the unit of analysis is a local neighborhood, a city, or an entire metropolitan area, the economic benefits of sports facilities are de minimus.”
The consensus among top economists further solidifies the case against publicly funded stadiums. When polled, 57 percent agreed that the costs to taxpayers are likely to outweigh the benefits, while only 2 percent disagreed.
This is because proponents of publicly funded stadiums consistently overpromise and fail to deliver the net economic gains that justify such investments, especially when the opportunity cost of such financing is considered.
The economic consensus alone would have ensured that this stadium scam made our list for the worst legislation enacted this year. However, when the governor agreed to revive vetoed legislation (in the form of amendments to SB1) as a ploy to woo Democratic senators, it was cemented as the worst policy decision of 2023.
Recently, the Nevada State Educators Association (NSEA) filed for the creation of a political action committee seeking to overturn the passage of SB1 through litigation and a statewide voter campaign.
While we may not always see eye to eye with the NSEA, we will be closely following their efforts with great interest.
Lastly, it is important to note that Gov. Lombardo has promised that he will help save Opportunity Scholarships by rising private money to fund the scholarships for the upcoming biennium to ensure no child loses access to quality education currently on the program.
We hope he comes through on this but as the school choice movement looks forward to 2024, we must move past Opportunity Scholarships. The entire tax-credit scholarship program was meant to placate the movement away from the holy grail – universal education savings accounts, or ESAs.
What’s done is done; ESAs and deregulation of private schools to foster their growth and expansion is the path forward.
2. Assembly Bill 525 – Christmas Tree Bill
Introduced by: Assembly Committee on Ways and Means
Summary: Appropriates funds to 53 different organizations.
Final Vote: Assembly 39-3; Senate 13-8
Governor Approved: Yes
Rarely have we seen such brazen pork barrel spending from lawmakers in Carson City as Assembly Bill 525. Don’t get me wrong: lawmakers are always channeling money to the politically connected. Lawmakers voted, at times with clear conflicts of interests, to give 53 different organizations more than $100 million for various projects and initiatives.
It should be concerning to all Nevadans that this bill was passed with little oversight, transparency or debate, with lawmakers holding one public meeting on AB 525 around midnight on a Friday.
Bills like AB 525 are the ultimate test of legislative commitment to the principles of limited government and free markets precisely because they will be popular under the dome and among all the politically connected nonprofits. It is hard for politicians to vote “no” on these kinds of legislation when all the incentives are aligned for them to vote “yes.”
A key argument we can anticipate against categorizing AB 525 on our list of bad bills is “but wouldn’t you prefer this money be in the hands of the nonprofits rather than the government?”
Better than either option is for it to be in the hands of private Nevadans who could donate to any organization they wish. That is the only way to ensure the allocation of resources is efficient.
When the allocation of public resources is based on political connections rather than the market it undermines economic efficiency. In a free-market system, resources should be allocated based on merit and effectiveness, not political affiliations. If these nonprofits provide truly valuable services, they should be able to thrive without government assistance.
3. Senate Bill 181 – Raising GOED’s Threshold
Sponsored by: Senator Julie Pazina (D-Senate District 12), Senator Scott Hammond (R-Senate District 18), Senator Jeff Stone (R-Senate District 20), Senator Lisa Krasner (R-Senate District 16)
Co-Sponsors: Senator Edgar Flores (D-Senate District 2), Senator Dallas Harris (D-Senate District 11), Senator Roberta Lange (D-Senate District 7), Senator Heidi Seevers Gansert (R-Senate District 15), Senator Pat Spearman (D-Senate District 1)
Summary: Increases the threshold for the projected value of a partial abatement that is deemed approved by the Governor’s Office of Economic Development: upon approval by the Board of Economic Development from $250,000 or more to $500,000 or more; or upon approval by the executive director from less than $250,000 to less than $500,000
Final Vote: Assembly 31-11; Senate 18-2
Governor Approved: Yes
Nevada Policy versus the Governor’s Office of Economic Development, or GOED: a tale more than a decade old. In 2011, lawmakers dramatically changed the state’s economic development infrastructure by passing a bill which created a new cabinet-level position for economic development, restructured the state’s economic development efforts in a more top-down manner and created a “Catalyst Fund.”
The declared purpose of the Catalyst Fund is to provide financial incentives to firms considering moving to or expanding in Nevada.
Lawmakers in 2019 reduced appropriations toward the Catalyst Fund but left in place a program that allows the Office of Economic Development to issue up to $5 million annually in transferable tax credits, effectively accomplishing the same purpose.
As good students of public choice theory and free markets, Nevada Policy has long questioned whether a state-directed approach to economic development is superior to a market-directed approach, and whether bureaucrats are better able to identify viable opportunities for successful investment than private entrepreneurs.
If public choice theory teaches us anything it is that when production decisions are shaped by politicians instead of market forces – i.e., consumer decisions – society’s capital stock is likely to be invested in ways that serve the best interests of politicians, not consumers.
By raising the amounts that the executive director and the GOED board can dole out to politically connected businesses through SB181, Nevada taxpayers continue to subsidize private companies, some of whom might be direct competitors.
Moreover, there remains an unanswered question regarding legality. Article 8, Section 9 of the Nevada Constitution explicitly forbids the type of subsidy scheme used by the Catalyst Fund: “The state shall not donate or loan money, or its credit subscribe to or be, interested in the Stock of any company, association, or corporation, except corporations formed for educational or charitable purposes.”
At the hearings we urged lawmakers to clarify and restrict the mission of the Office of Economic Development. Nevada does not need a cabinet-level agency to dole out patronage. Rather, the Office of Economic Development could take meaningful steps to ensure future economic development if its mission is changed to identify and correct policies that unnecessarily impede new business formation.
4. Senate Bill 240 – New Market Tax Credits
Sponsored by: Senator Dina Neal (D-Senate District 4)
Summary: The existing Nevada New Markets Jobs Act entitles insurance companies to transferable tax credits for investing in qualified community development entities. These entities must use 85 percent of the investment to fund low-income community businesses.
Senate Bill 240 authorizes additional investments for tax credits; allows certain businesses to receive a premium tax credit for investing in an impact qualified community development entity; mandates that 85 percent of these investments be used for capital/equity investments or loans to impact qualified low-income businesses and defines “impact qualified active low-income community business” as specific types of manufacturing, retail businesses or businesses mostly owned by historically disadvantaged groups (defined as businesses that have 51 percent or more of its ownership interest held by women, disabled veterans, persons who are lesbian, gay, bisexual or transgender, or members of a racial or ethnic minority group); and determines the amount of investments in impact qualified community development entities that can be made in exchange for the tax credit.
Final Vote: Assembly 42-0; Senate 18-2
Governor Approved: Yes
The only thing worse than government subsidies for private businesses is mixing government subsides for private businesses with identity politics.
Senate Bill 240 transitions the already questionable New Market Tax Credits into a program that will subsidize businesses owned by historically disadvantaged groups which it defines as businesses that have 51 percent or more of its ownership interest held by women, disabled veterans, persons who are lesbian, gay, bisexual, or transgender or members of a racial or ethnic minority group.
When the New Market Tax Credit was being sold to the legislators in 2013, it was packaged as a program going to steer new, private business investment into low-income communities. It was more of the same, government picking winners and losers, but to make matters worse, it wasn’t even new winners.
Studies have shown that, for the most part, the program simply redirects investments from higher-growth areas to low-income neighborhoods so that investors can get the tax credit.
By the best estimate, which appeared in the academic journal Public Finance Review, only about 10.7 percent of investments made through the New Market Tax Credit program were actually new investments. Instead, nearly 90 percent were simply funds diverted from higher-growth areas into low-income communities.
Thus, with the federal government footing 39 percent of all investments made through the program, this small fraction of new investment comes at large cost to taxpayers.
Of course, for those who benefit from these dispersed costs, the payoff is huge. As you can see from our list so far, the entire concept of economic development is distorted in the halls of Carson City, perverted to mean something only government can entice.
5. Senate Bill 226 – Prevailing Wages
Sponsored by: Senate Majority Leader Nicole Cannizzaro
Co-Sponsored by: Speaker of the Assembly Steve Yeager
Summary: This bill adds language to the statue emphasizing that payment of prevailing wages on public works projects, funded wholly or partially by public money; requires any public works-related regulation by the labor commissioner to be consistent with the legislative intent statue; authorizes and expands prevailing wage to certain organizations to partner with a state agency or local government to provide private financing solely for the construction of a hospital, medical education building or medical research building in the state; declares that subcontracts for these projects need to be competitively bid, and eligible subcontractors who bid on such projects may receive certain bidding preferences; and requires that at least 15 percent of the subcontracts for these projects must be awarded to local small businesses
Final Vote: Assembly 28-14; Senate 12-6, with three abstentions.
Senate Bill 226 was destined to be the worst bill this session but thanks to stiff opposition from local governments, the governor’s office and Senate Republicans, it was amended down significantly.
The original bill would’ve made drastic changes to prevailing wage law in Nevada and certainly inflated the costs of state projects. Prevailing wages are a special form of minimum wage applicable to publicly financed construction projects that inflates the cost of projects between 40 and 60 percent. It represents one of the clearest and most persistent waste of taxpayer dollars.
Whereas most Nevadans would hope that the government is a steward of their tax dollars acting with good fiduciary interest, prevailing wages are a direct antithesis to that idea.
In a 2011 analysis, Nevada Policy compared the wages reported between the market rate and the prevailing wage rate and found that prevailing wage requirements resulted in a wage premium paid on publicly financed projects that amounted to 44.2 percent in Northern Nevada and 45.8 percent in Southern Nevada.
Among the wage rates officially announced as “prevailing,” 77 percent were simply the corresponding union rate within the area. These wage premiums result in an additional $1 billion expense on publicly financed projects in Nevada across 2009 and 2010. Alternatively, without a prevailing wage mandate, $1 billion may have been available to construct additional projects or finance public services.
These results are uncontroversial. Former Nevada Labor Commissioner Michael Tanchek stated in a 2010 letter to lawmakers, “State and local government agencies pay more for construction projects than the private sector pays for comparable projects. Saying otherwise would be denying the obvious.”
A 2007 analysis of the additional labor costs imposed by prevailing wage laws in Michigan concluded that contractors for public works projects “pay wages that average 40 to 60 percent higher than those found in the marketplace” and that this “increases the cost of construction by 10 percent to 15 percent.”
In 1997, Ohio lawmakers exempted school construction from prevailing wage laws. Five years later, legislative staff reviewed the financial impact of the change and reported that school districts had saved $487.9 million because of the exemption – roughly 10.7 percent of all spending on school construction during the time period.
States are rapidly repealing prevailing wage laws and Nevada should as well. At the high point in 1978, 41 states had enacted prevailing wage laws. Since then, 13 states have repealed these laws (including Oklahoma where the state supreme court declared the law unconstitutional).
The most recent state to do so was Michigan in 2018. In recognition of the economic inefficiency, higher tax burden and the intended racially discriminatory effects of prevailing wage laws, Nevada should join the movement and abandon these laws.
Conclusion
To be frank, this list could’ve been much worse. The Democrat-controlled legislature had all sorts of bad bills introduced and sent to the governor’s office. Items that would’ve represented all sorts of command-and-control measures over our economy, from rent control to healthcare price fixing. We have Nevadans to thank for bringing forth a check on a runaway progressive legislature and the governor for standing strong.
In the final part of our series, we will delve into the best vetoes by our new governor, who smashed the veto record this session. As we look at that list, it will serve as a reminder of the dangers ahead.
Many of those items will return at the start of next session for consideration since many of them were signed after the regular legislative session adjourned, meaning the legislature was not in there to consider a veto override. This adds extra weight to the outcome of the next election cycle in influencing the policy direction of our state.
Learn more about this year’s legislative session by downloading the FREE Legislative Scorecard and Report.