By Michael Schaus

Private hands in taxpayers’ pockets

It might be illegal under the Nevada Constitution for the government to give any private business a direct “gift” or subsidy — but since when does the ruling class let little things like constitutional intentions get in their way?

The purpose of the constitutional ban on giveaways and subsidies to private corporations makes sense. Such handouts further an environment that rewards politically-connected firms at the expense of taxpayers and consumers.

For lawmakers looking to cash in on the crony rewards of taxpayer-funded handouts, however, there’s a way around Nevada’s prohibition:

Transferable tax credits.

Not to be confused with normal tax credits or tax abatements, transferable tax credits are a more complex instrument that essentially acts as a coupon — a coupon that can be bought and sold between private companies, and cashed in by any entity.

Take for example the $20 million in tax credits handed out so far to Tesla Motors as part of Nevada’s “incentive package” for the electric car manufacturer.

The credits were given to Tesla — but since the company has a very limited tax liability in Nevada due to the broad and generous tax abatements included in the agreement, Tesla decided instead to “transfer” the credits.

As it turns out, MGM bought the $20 million in tax credits for a discounted amount, and applied the credits to its own tax bill.

It was a good deal for MGM, since it bought the credits for less than face value. And clearly Tesla enjoyed the setup, as it received cash for selling credits on a tax liability it didn’t even owe.

The State of Nevada, however, didn’t fare so well. As a result of the transfer, the Silver State didn’t receive $20 million in gaming fees and taxes when MGM used the credits to offset its liability.

It’s this ability to buy and sell transferable tax credits that sets them apart from other tax incentives.

And as such, transferable tax credits have been used as an underhanded way to give cash to politically-favored firms — without actually handing over a check signed by an officer from state government.

Long before Tesla sold its $20 million in credits, other firms were already taking advantage of this relatively unknown crony handout.

Passed in 2013, “Nevada’s New Market Jobs Act” sounds like a benign piece of job-creating legislation on the surface.

The goal of the legislation seemed simple enough to lawmakers: Nevada would provide over $100 million in transferable tax credits to a small group of firms that would then sell those credits for cash. The cash would be used to “invest” in low-income communities and business — thus creating jobs and revitalizing Nevada’s economy.

Ryan Brennan, a director with Advantage Capital Partners (ACP) who lobbied lawmakers on the Act, selling it as “job creation”, told the Senate that his company would “open an office and immediately staff it with full-time lenders in the communities in which we want to invest.”

Those communities, of course, being “low income.”

Firms such as ACP also insisted that the taxes generated by the resulting economic boom would easily offset any cost to the state. Similar programs had already been employed in other states, and lobbyists insisted that “revenue generated by the tax credits programs far exceeded the cost” to the states.

But lawmakers clearly shouldn’t believe everything they’re told by lobbyists.

As it turns out, the “reports” touted in 2013 weren’t actually state audits or official revenue statements — they were reports generated by the very same firms that were pushing for Nevada to adopt similar tax-credit schemes.

And, while ACP has raked in millions of transferable tax credits — and sold them off as planned — its promise to invest in local communities has fallen quite short. The company only has one office in all of Nevada, and it’s on the ritzy north shore of Lake Tahoe: a $17 million mansion on Lakeshore Blvd, occupied by ACP’s president.

In 2015 the incremental tax revenue generated was less than 2 percent of the 2015 tax credits issued. So much for the tax credits “paying for themselves.”

Letting a company keep more of its own money through traditional credits and abatements is one thing. But Transferable Tax Credits amount to more than just simple tax incentives or regulatory favoritism — they are being used in Nevada as a cash-equivalent handout by lawmakers addicted to the culture of cronyism and indifferent to the bad faith involved. So much for Nevada’s constitutional ban on “gifts.”

This article originally appeared in the Nevada Business Magazine.