Editorial: State agency playing fast and loose with tax incentives

Let’s make a deal. What’ll it take to get you to close the deal? A little wheeling? A little dealing? A little quid pro quo? Pay no attention to the price tag. That’s for the suckers.

After a meeting of the Governor’s Office of Economic Development (GOED) this past week, the agency put out a press release boasting that it had approved “the creation of thousands of new jobs in Nevada through the expansion of existing Nevada companies, and companies that are moving to the state.”

GOED Director Steve Hill positively crowed, “We continue to see extraordinary businesses show interest in Nevada for a myriad of reasons, including location, available incentives, business friendliness and the quality of life. These companies will add to the gaining strength of our economy by creating thousands of jobs for Nevadans and continuing the narrative that Nevada is a great state in which to do business.”

Nowhere in the press release did it ever state what those “incentives” were. The word “tax” was nowhere to be seen.

Yet, in one meeting alone the agency magnanimously doled out a total of more than $6 million in tax abatements over the next 10 years to six different companies — five in Clark County, one in Washoe and none anywhere else in the state.

Apparently based on a strict mathematical calculation commonly known as a whim, the companies had their sales taxes slashed to a mere 2 percent for two years — instead of nearer 8 percent for those not so privileged — and their property and modified business taxes are being cut by either 25 percent or 50 percent for several years — depending on how good a deal each could wrangle.

The biggest tax forgiveness packages went to the multi-billion-dollar Internet marketer Amazon — $1.8 million — and something called TH Foods — $2.2 million.

There seemed to be little rhyme nor reason for the size of the largess in comparison to the relative benefit to the state and those taxpayers still required to pay the going rate. You know, the sticker price.

The numbers crunchers claimed one company would generate more than $68 in additional tax revenue for the state for every dollar of abatement, but another would generate only $2.50 for each tax dollar forgiven. Of course, that is pure speculation and conjecture.

Even though one of the stated reasons in the law creating such tax abatement incentives is to create high-wage jobs, only two of the companies so favored last week said their average hourly wages would exceed the targeted statewide average of $21.35 an hour and two companies reported their wages would be less than $15 an hour — one of those Amazon.

This wheeling and dealing was done despite the fact the Nevada Constitution clearly states, “The Legislature shall provide by law for a uniform and equal rate of assessment and taxation …” It ain’t uniform or equal if a select few get breaks while others don’t.

And pay no never mind to that part of the Constitution known as the Gift Clause, which states, “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.”

Remember, that $6 million in tax breaks was from one single meeting of the ever so generous GEOD, which has already doled out billions of dollars in tax “incentives” to Apple, Tesla Motors, Faraday Future and countless other billionaires.

Hey, no peeking behind the curtain at the fact the 2015 Legislature just raised taxes by $1.5 billion on all of us who are too insignificant or too timid to cut special deals, nor at the fact the state is already running a budget deficit of $400 million.

For that $6 million in tax abatements this past week, the companies claimed they might create as many as 2,000 jobs.

In 2012 alone small businesses in Nevada created 15,000 jobs without asking for any tax abatements or credits. What does that make them? Rubes? Suckers?

A version of this editorial appeared this week in some of the Battle Born Media newspapers — The Ely Times, the Mesquite Local News, the Mineral County Independent-News, the Eureka Sentinel,  Sparks Tribune and the Lincoln County Record.

Amazon plans a warehouse in Nevada like this one in Phoenix. (AP file photo via R-J)

Newspaper column: Lawmakers hand out unconstitutional corporate gift to another billionaire

Gov. Brian Sandoval signs a bill giving public tax money to build a football stadium. (AP photo by John Locher)

Meeting in special session in Carson City this past week Nevada lawmakers opened the windows and threw caution and tax money to the wind, voting to raise the room tax rate in much of Clark County by 0.88 of a percentage point in order to contribute $750 million toward construction of a 65,000-seat domed football stadium estimated to cost $1.9 billion.

The measure, Senate Bill 1, passed by the constitutionally mandated two-thirds majority in both the Senate and Assembly – 16-5 in the Senate and 28-13 in the Assembly.

The stadium is being pushed by billionaire casino and newspaper owner Sheldon Adelson who promises to shell out $650 million from his rather deep pockets to pay for construction. The National Football League and the Oakland Raiders are supposed to contribute $500 million toward construction. The $750 million public sop is the largest ever by any public entity for a sports facility in this country.

All profits from stadium operations accrue strictly to the private investors.

At one point during the Assembly hearings, Assemblyman Ira Hansen of Sparks asked what happens if the stadium comes in under the $1.9 billion estimate. Would the taxpayers still be on the hook for the full $750 million?

Steve Hill of the Governor’s Office of Economic Development, which had touted the project, replied: “Technically that’s correct.”

Before Hill could elaborate, Hansen cut him off with a terse: “Thank you.”

So, if the project comes in closer to the original estimate of $1 billion, the taxpayers will pick up 75 percent of the cost and the billionaires keep their money.

One of those testifying against the public spending for a football stadium for the Raiders was former Las Vegas City Councilman Frank Hawkins, who noted that he played seven seasons for the Raiders, including winning a Super Bowl. Hawkins said billionaires don’t need the public tax money to fund 40 percent of their stadium. He also noted that Raiders owner Mark Davis had called to try to change his mind by agreeing to no television blackouts locally for games that are not sellouts.

SB1 creates a stadium authority to build and operate the stadium, exempts the authority from any legal requirements for competitive bidding and makes just about every financial deal cut by the authority exempt from public records laws.

The bill says “the Stadium Authority shall keep confidential any record or other document provided to the Stadium Authority by a developer partner, the National Football League team or the Stadium Events Company,” if asked to do so. The public will be kept in the dark about whether their “public” stadium is providing valuable public assets to a favored few at below market value.

The Legislature certainly has the power to create exemptions to existing laws.

What it does not have is the power to create exemptions to the state Constitution. That document has a Gift Clause, which states, “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.”

Self-styled economic development advocates have tried three times to amend the Constitution and remove the Gift Clause. The voters rejected those attempts all three times — in 1992, 1996 and again in 2000 by wide majorities.

The state Supreme Court has said that when the state provides something to a private entity without getting adequate compensation for the value, that is a gift and thus a violation of the Constitution.

Nevada’s high court has cited an Arizona Supreme Court ruling on that state’s nearly identical Gift Clause. The Arizona court said its Gift Clause “represents the reaction of public opinion to the orgies of extravagant dissipation of public funds by counties, townships, cities, and towns in aid of the construction of railways, canals, and other like undertakings during the half century preceding 1880, and it was designed primarily to prevent the use of public funds raised by general taxation in aid of enterprises apparently devoted to quasi public purposes, but actually engaged in private business.”

Professional football hardly qualifies as even a quasi public purpose unless you include “bread and circuses.”

This was the third special session in as many years. The previous two handed out billions in tax breaks and abatements to the billionaire owners of electric car companies Tesla and Faraday Future.

Perhaps some public spirited group will ask the courts to take a look at this latest generous gift and determine whether it truly is for a public purpose.

A version of this column appeared this week in many of the Battle Born Media newspapers — The Ely Times, the Mesquite Local News, the Mineral County Independent-News, the Eureka Sentinel and the Lincoln County Record — and the Elko Daily Free Press.

Update: Space was insufficient to provide this quote from a Nebraska court ruling:

“Every new business, manufacturing plant, or industrial plant which may be established in a municipality will be of some benefit to the municipality. A new super market, a new department store, a new meat market, a steel mill, a crate manufacturing plant, a pulp mill, or other establishments which could be named without end, may be of material benefit to the growth, progress, development and prosperity of a municipality. But these considerations do not make the acquisition of land and the erection of buildings, for such purposes, a municipal purpose. Our organic law prohibits the expenditure of public money for a private purpose. It does not matter whether the money is derived by ad valorem taxes, by gift, or otherwise. It is public money and under our organic law public money cannot be appropriated for a private purpose or used for the purpose of acquiring property for the benefit of a private concern. It does not matter what such undertakings may be called or how worthwhile they may appear to be at the passing moment. The financing of private enterprises by means of public funds is entirely foreign to a proper concept of our constitutional system. Experience has shown that such encroachments will lead inevitably to the ultimate destruction of the private enterprise system.”

This and the Arizona court ruling were cited by the the Nevada Policy Research Institute’s Center for Justice and Constitutional Litigation in its case against the Governor’s Office of Economic Development for handing out state gifts to companies such as SolarCity.

 

Editorial: Lawmakers should reject public funding for football stadium

Stadium rendering via RJ

Billionaire casino and newspaper owner Sheldon Adelson is threatening to take his football and go home if Nevada legislators don’t raise room taxes in Clark County to provide $750 million toward construction costs of his proposed $1.9 billion domed football stadium that would become home to the Las Vegas Raiders and UNLV football teams.

To which we reply: Don’t forget your ball on the way out, Sheldon.

At a meeting of the Southern Nevada Tourism Infrastructure Committee this past week, Las Vegas Sands President Rob Goldstein, who indicated he was speaking on behalf of Sands owner Adelson, reportedly said, “Not to be difficult, but we’re not negotiable. If we can’t get 750, we respectfully thank you but we’re going to move on.”

According to press accounts of the meeting, various stadium supporters went out of their way to emphasize that the tax would be paid by tourists and not residents and the room tax would increase by just less than 1 percent, costing most tourists about a dollar a night.

Yes, a dollar a night 750 million times.

Money is fungible. That $750 million could be spent on a stadium or something else. According to a 2014 economic impact study for the Las Vegas Convention and Visitors Authority, $140 million of Clark County’s room tax went into the statewide distributive school account, $130 million for parks, recreation and transportation and nearly $80 million to Clark County schools. Fully 39 percent of the room tax revenues went to fund education.

By comparison, $750 million is about half the tax hike approved by the 2015 Legislature — the largest in history.

Some casino executives have warned that raising the room tax could make Las Vegas less competitive in the lucrative convention business. The Clark County room tax rate currently tops out at 12 percent, while top competitor Orlando’s rate is 12.5 percent. There are already plans to increase the Clark County rate by half a percent to pay for a convention center expansion. Adding another point to that makes the rate nearly 13.5 percent, and might result in reduced visitor volume and thus less revenue. Visitors have budgets, and money spent on rooms is not spent on gambling, dining and merchandise — all of which are taxed by the state.

Strangely enough, stadium backers are now making the pitch that the tax money would not be supporting a privately owned stadium but a publicly owned stadium.

“There’s been a lot of conversation on why are we giving money to billionaires,” Steve Hill, chair of the infrastructure committee and head of the Governor’s Office of Economic Development, was quoted as saying. “The public is not making a contribution to a privately owned stadium.”

Great, the public will be on the hook for capitalizing the project and will take the hit if the stadium operations lose money. What can possibly go wrong?

Even Adelson admitted in an interview with his own paper Sunday that stadiums don’t make a lot of money: “The amount of money that can be made by this stadium is so small that we [Las Vegas Sands], as the largest gaming operator in the world, make that same amount of money in one or two days, maybe three sometimes.”

The stadium proponents want the governor to call a special session of the Legislature in September to pass the tax hike and create a public stadium board of directors, though some lawmakers reportedly want to wait until after the November election.

Not that anyone is trying to sway them, mind you, unless you find nefarious motives in a leaked email from an editor to reporters covering legislative races for the Adelson owned Las Vegas Review-Journal. The email, posted online by political blogger Jon Ralston, reportedly instructs reporters to ask candidates whether they support using room tax money to build a stadium, but also pointedly states that this information will not be published. Then why ask, pray tell? To determine to whom contribution checks should go?

Also, football teams are quite fickle. The Raiders moved to Los Angeles in 1982 and back to Oakland in 1995. Oakland is still paying for the stadium renovations completed to lure the Raiders back. Now the team owners are courting Las Vegas for a new home, at least until the paint on a new stadium begins to fade and before the mortgage is paid off.

“NFL stadiums do not generate significant local economic growth, and the incremental tax revenue is not sufficient to cover any significant financial contribution by the city,” says Roger Noll, an economics professor at Stanford University.

Public funding for football stadiums is a notoriously bad economic investment — creating part-time, minimum wage jobs that are more of a drain on a state than a boost.

Nevada lawmakers should take a pass on this terrible sports bet.

A version of this editorial appeared this week in some of the Battle Born Media newspapers — The Ely Times, the Mesquite Local News, the Mineral County Independent-News, the Eureka Sentinel,  Sparks Tribune and the Lincoln County Record.

Update: An RJ editor now says the paper always intended to publish the answers by lawmakers as to whether they support public money for a stadium.

Editorial: Bets placed on Tesla, Faraday looking like long shots

Rendering of Faraday Future plant at Apex.

There was an interesting quote in the Las Vegas newspaper recently from Steve Hill, executive director of the Governor’s Office of Economic Development (GOED), the office that gives your money to others in hopes that they will create jobs, improve the economy and generate more tax revenues. Sounds a bit like playing roulette.

“Trying to predict whether a company is going to succeed or flourish, or even say what they’re going to do is … you’re going to be wrong at times, maybe as often as you’re right,” Hill was quoted as saying.

Or perhaps you’re going to be wrong every time?

Treasurer Dan Schwartz

Hill’s comment came in response to concerns raised by Nevada Treasurer Dan Schwartz about the ability of Chinese-backed company Faraday Future to actually finance a proposed $1 billion electric car factory in North Las Vegas.

In a special session lawmakers agreed — at the urging of Gov. Brian Sandoval — to dole out $215 million in tax abatements and credits to entice the company to build its factory in Nevada, though at the time it did not even have a prototype vehicle. The state also promised $120 million in infrastructure that includes water, rail and road improvements that may include widening I-15 and improving the freeway interchange near the Apex industrial park.

Schwartz, who had just returned from a trip to China, told the Los Angeles Business Journal that he had doubts about whether Faraday Future’s billionaire backer, Jia Yueting, could raise the money needed. Schwartz said the state is asking the company to put up $70 million to ensure Nevada’s infrastructure investment.

“I spoke with several members of the Chinese corporate and financial communities who are familiar with and know Leshi (Jia’s Chinese company) and Mr. Jia,” Schwartz told the Journal. “What they all agreed on is he doesn’t have the money. … If you look at the financials, (Jia) isn’t making any money. He certainly isn’t making any money to fund a billion-dollar car facility.”

Hill told the Journal Nevada taxpayers should be protected so long as Faraday puts up the $70 million to secure the state’s general obligation bonds to pay for infrastructure.

The Faraday deal was a replay for the special session in which lawmakers agreed with Sandoval’s plan to provide $1.3 billion in tax exemptions and credits to Tesla Motors if it invests $3.5 billion in a new battery factory east of Sparks. The state also agreed to spend $100 million to build a highway linking the site to U.S. Highway 50 in Lyon County.

So far Tesla is coming up short on its projections.

Tesla planned to have the first two phases of construction complete by the end of 2015 and have a third phase underway. Only one phase is complete. It had projected spending $1 billion by now but has spent only $400 million. It also said it would employ 700 workers by the end of 2015 and hire another 1,000 in 2016. Only 300 are employed.

Hill has been quoted in the press as saying the risk for taxpayers is minimal, though he admitted the state could have to pay for the promised Tesla infrastructure improvements.

Tesla has until 2024, to invest its promised $3.5 billion. The company is still losing money on every electric car it sells.

As if those gambles were not risky enough, just this past week the GOED doled out another $400,000 to rooftop solar panel installer SolarCity, even though the company nearly two months ago laid off 550 workers and stopped installation work in Nevada because the Public Utilities Commission changed the rate structure for solar customers, making such installations financially unfeasible.

This brings to $800,000 the amount of tax money handed to the company out of a promised $1.2 million. The company’s stock has fallen from more than $60 a share to less than $20. Both Tesla and SolarCity are helmed by billionaire Elon Musk.

Whenever lawmakers and the governor gamble with our tax money, we are the ones left holding the marker. Perhaps, they should just bet on black. The odds might be better.

A version of this editorial appeared this past week in many of the Battle Born Media newspapers — The Ely Times, the Mesquite Local News, the Mineral County Independent-News, the Eureka Sentinel,  Sparks Tribune and the Lincoln County Record. It ran as a column in the Elko Daily Free Press.

State hands out more money for hiring people to company that is laying off workers

Just open the window and throw money into the wind.

This past week the Governor’s Office of Economic Development gave another $400,000 to SolarCity for creating jobs in Nevada — two months after the company laid off 550 employees and stopped doing its primary function, installing rooftop solar panels, because the Public Utilities Commission so screwed up the rates for solar panels as to make them financially unfeasible.

In March 2013 the GOED promised SolarCity $1.2 million if it would open operations in Nevada — to be paid in $400,000 increments. This past week’s check was the second.

In a press release, in which the company’s name is misspelled through out, the GOED never mentions the PUC action or its resulting consequences.

Steve Hill, the director of the GOED, said, “The grant dollars are exclusive to the hiring of full-time workers at the Company’s financial services division, and are not related to the installation side of the Company’s business.”

Though what they will finance, if they are no longer installing solar panels, is unclear.

The money comes from a $10 million so-called Catalyst Fund.

The Center for Justice and Constitutional Litigation, a division of the Nevada Policy Research Institute, has sued the state, saying such handouts violate the Gift Clause in the state Constitution.

The Nevada Constitution specifically states: “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.”

There were already several tax-paying solar panel installing companies in the state when the state handed tax money to SolarCity to come here and compete with them — until the PUC derailed the gravy train.

Throwing good money after bad?