Just passing through the Catalyst Fund

Andy Matthews

Every week, NPRI President Andy Matthews writes a column for NPRI's week-in-review email. If you are not getting our emails, which contain our latest commentaries and news stories, you can sign up here to receive them.

Just passing through the Catalyst Fund

Last Sunday, the head of the Las Vegas Global Economic Alliance, Tom Skancke, penned a column in the Las Vegas Review-Journal attempting to defend the constitutionality and merit of Nevada’s Catalyst Fund. Just a few weeks ago, NPRI launched a lawsuit challenging the constitutionality of state government picking winners and losers in the economy through Catalyst Fund subsidies.

Let’s focus on the constitutional issue first. Article 8, Sections 9 of Nevada’s constitution says: “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.”

Skancke writes that the Catalyst Fund doesn’t do that because “[l]ocal governments award Catalyst grants to locally approved businesses.”

Left unmentioned are the facts that the Catalyst Fund is funded by state tax dollars, that the Governor’s Office of Economic Development receives and votes on applications, and that GOED and state officials send out press releases bragging about the new companies the program has brought to the state. State officials also hold press conferences touting how many jobs “they” have brought to Nevada.

The only thing the political subdivisions do is take in state money and give it to the private companies as directed by GOED.

You don’t have to take my word for it. The City of Reno itself recognizes that it’s nothing more than a channel by which the state is distributing Catalyst Fund money. This week, a staff report to Reno’s city council on a potential GOED handout says the agreement for the subsidy would “allow the City to pass through the State Catalyst Funding to Garlock Printing.” (Emphasis added.)

The report goes on to say the funding “originates with the State of Nevada.”

Skancke appears to realize this, too, as he included a qualifier in his statement that, “No company receives a direct payment from the State of Nevada.” (Emphasis added.)

The scariest part of Skancke’s column, though, is his claim that “state lawmakers explicitly designed the Catalyst Fund to be constitutional.” What he’s saying is that state lawmakers recognized the constitutional prohibition on state government picking winners and losers in the economy and then actively worked to bypass it.

If a court upholds the precedent that state government can bypass Article 8, Section 9 by routing funds through a subordinate political entity, while retaining full control over how those funds are used, your liberty is not safe. What part of the constitution couldn’t lawmakers bypass if they “explicitly designed” future laws to look like the Catalyst Fund bill?

Skancke’s other argument is that Nevada’s economy needs a boost. We agree, which is a side benefit of our lawsuit.

Government’s job is not to stimulate the economy, but to protect the freedoms that allow individual entrepreneurs and employees to improve their own lives. When politicians and their appointed bureaucrats pick and choose which companies are worthy of public dollars through a program that serves not as a catalyst to economic growth but as a catalyst to crony capitalism, the favored few special interests win and the rest of us, the typical taxpayers and business owners, lose.

When the solar startup Solyndra first received its government handout of $535 million, government officials praised the company and said it would create thousands of jobs. Then-U.S. Secretary of Energy Steven Chu even claimed the handout would “start the second industrial revolution.”

The problem is that by the time most publicly subsidized ventures fail — like the Reno Aces ballpark, Abound Solar, Fiskar and ThromboVision — the politicians who hosted the initial press conference have moved on to another political office, leaving citizens (i.e. taxpayers) to pick up the pieces.

If a company needs a $500,000 or $1 million government handout to open, it often times can only compete with companies that are succeeding entirely on their own by continuing to rely on government handouts.

As NPRI has detailed, the path to sustainable prosperity is to allow businesses to compete with each other under a uniform and low tax and regulatory structure. If Catalyst Fund supporters would like to grow the economy, they should focus their efforts on removing onerous regulations that keep businesses from starting in Nevada and work to ensure that job- and business-killing taxes like the proposed margin tax are never implemented.

And those are actions that are constitutional.

Thanks for reading and have a great weekend.

Andy Matthews
NPRI President

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