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Corporatism Seizes the NV Legislature

| May 30, 2023

Over the past dozen years, Nevada lawmakers have increasingly used their power to pick winners and losers in the economy. They have raised taxes on households and businesses and effectively handed over proceeds to favored competitors.

That trend is reaching a crescendo in the 2023 legislative session.

Back in 2011, Nevada lawmakers created a controversial new fund within state government that the Executive Branch could use to provide financial gifts to private businesses. The so-called Catalyst Fund was the Silver State’s most prolific foray into corporate welfare in a century. It was also a brazen violation of the Nevada Constitution, which expressly prohibits the state from donating or loaning money or its credit or gaining a financial interest in any private company.

Three times in the 1990s, Nevada voters rejected ballot proposals to give the legislature the ability to engage in corporate welfare, but with their 2011 move, lawmakers began to go down this path even though they clearly lacked authority to do so.

(Seeking to enforce the clear language of the Nevada Constitution, Nevada Policy sued the state over Catalyst Fund subsidies. The case was eventually dismissed because a recipient of Catalyst Fund dollars the court directed Nevada Policy to name as a defendant decided to leave the state, rendering the recipient an untimely defendant.)

It has been a dozen years since Nevada lawmakers decided they could pick winners and losers in the economy by raising taxes on all businesses and then doling out subsidies to their favored supplicants. During that time, politicians’ penchant for this wealth transfer from primarily small businesses to primarily large corporations has grown unabated.

In 2013, lawmakers created a new type of subsidy they could shower on their friends called a transferable tax credit. These are basically like tradable coupons that can be applied against Nevada tax liabilities.

Lawmakers can authorize their issuance in one party’s name and then the recipient can sell those credits to a third party in order to generate up-front cash. Buyers of these credits typically purchase them at a discount from their nominal value, which allows them to save money on would-be tax bills.

This new vehicle allowed lawmakers to transfer resources from the general taxpayers to selected friends without technically violating the constitution’s ban on donating or loaning money.

Now, the state could just print coupons that entitled the holder to not pay the taxes their competitors are required to pay. The initial transferable tax credits were available only to film producers, but the concept was soon massively expanded.

In 2014, lawmakers approved a record-setting $1.3 billion package of tax giveaways to attract Tesla Motors to rural Storey County. It was mostly composed of abatements – forgiveness of taxes that would otherwise be due in exchange for making a qualified investment. However, that package also included nearly $200 million worth of transferable tax credits, which Tesla immediately began to sell to large gaming companies.

Although Tesla immediately fell behind on its promised investments and job creation, it at least fared better than another carmaker, Faraday Future, to which lawmakers awarded $38 million in transferable tax credits out of a total $215 million incentive package. That company never opened in Nevada and went bankrupt a few years later.

Despite that lack of market success, lawmakers were emboldened by these results and, in 2016, endorsed Clark County’s proposal to issue $750 million in general obligation bonds to construct the most heavily subsidized professional sports stadium in world history to attract the Oakland Raiders.

That legislation included a tax hike on hotel rooms that would be dedicated toward paying the bonds, but Clark County homeowners would effectively backstop the obligation through their property taxes. Just a few years later when Gov. Sisolak ordered the closure of Nevada’s hotels, room tax revenues fell $16 million below what was needed to service those bonds.

It’s difficult to miss that between all these giveaways, lawmakers enacted the largest tax hike in state history on Nevada businesses. The 2015 legislature hiked sales taxes, payroll taxes, business licensing fees and car registration fees.

They also created a pernicious new business gross receipts tax that looked eerily similar to a proposal voters had just rejected by a 4-to-1 margin in the 2014 election. In other words, Nevada households and businesses were footing a higher bill in order to finance lawmakers’ giveaways to their favored companies.

This corporatist frenzy has reached full blossom in the current legislative session. With just weeks remaining for debate, lawmakers have suddenly proposed nearly $5 billion in new handouts.

One proposal seeks to expand the existing transferable tax credit program for film production from $10 million to $195 million annually and keep it in place for 20 years. The proposal is intended to attract Sony Pictures to build a studio in Southern Nevada essentially by committing Nevada taxpayers to subsidize 30 percent of all production costs.

Unlike many film tax credit programs, this proposal includes no requirement for the subsidized films to include promotional Nevada content.

At the same time, lawmakers are proposing to commit $380 million in public financing toward another stadium to attract the team with the worst record and lowest payroll in Major League Baseball. This would include $180 million in transferable tax credits and another $120 million in bonds for which Clark County homeowners would be ultimately liable.

These deals have both supposedly been in the works for years, but lawmakers chose not to unveil them until only weeks remained in the legislative session. With many outstanding issues on the table, these massive issues will certainly not receive a proper vetting.

Nevada once enjoyed a healthy separation between its public and private sectors that fostered decades of growth. Now, lawmakers are stretching toward peak cronyism.

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Geoffrey Lawrence is director of research at Nevada Policy. Lawrence has broad experience as a financial executive in the public and private sectors and as a think tank analyst. Lawrence has been Chief Financial Officer of several growth-stage and publicly traded manufacturing companies and managed all financial reporting, internal control, and external compliance efforts with regulatory agencies including the U.S. Securities and Exchange Commission.  Lawrence has also served as the senior appointee to the Nevada State Controller’s Office, where he oversaw the state’s external financial reporting, covering nearly $10 billion in annual transactions. During each year of Lawrence’s tenure, the state received the Certificate of Achievement for Excellence in Financial Reporting Award from the Government Finance Officers’ Association. From 2008 to 2014, Lawrence was director of research and legislative affairs at Nevada Policy and helped the institute develop its platform of ideas to advance and defend a free society.  Lawrence has also written for the Cato Institute and the Heritage Foundation, with particular expertise in state budgets and labor economics.  He was delighted at the opportunity to return to Nevada Policy in 2022 while concurrently serving as research director at the Reason Foundation. Lawrence holds an M.A. in international economics from American University in Washington, D.C., an M.S. and a B.S. in accounting from Western Governors University, and a B.A. in international relations from the University of North Carolina at Pembroke.  He lives in Las Vegas with his beautiful wife, Jenna, and their two kids, Carson Hayek and Sage Aynne.

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