Nevada’s low taxes not always the best incentive, officials say

By Richard N. Velotta

Monday, Aug. 9, 2010 | 7:20 p.m.

Nevada has built its reputation as a low-tax haven to encourage companies to relocate their businesses here in recent years.

But low taxes alone won’t be enough to lure companies when rival states offset the low-tax advantage with economic incentives to move, a group studying the economic diversification of the state was told Monday.

John Restrepo, head of the Las Vegas-based Restrepo Consulting Group, told members of the New Nevada Taskforce, that despite the state not having a corporate income tax, a personal income tax or an inventory tax, rivals like New Mexico, Utah and Oregon are still more appealing to corporations because of the quantity and quality of the incentives they offer.

Mike Skaggs, director of the Nevada Commission on Economic Development, added that the state is outgunned budget-wise by Georgia, Indiana, Colorado and Utah, among other states.

It was the second meeting for the New Nevada Taskforce, which was formed by Lt. Gov. Brian Krolicki earlier this summer to chart a course for the state’s economic development and diversification efforts. Critics have called the formation of the 28-member task force a political ploy by Krolicki, who is up for re-election in November.

The group now has one fewer member following the death last month of former Nevada Gov. Kenny Guinn, who had told Krolicki the day before the accident that took his life that he was willing to chair the group. Guinn’s name is being left on the roster of committee members in memoriam.

The first two meetings have centered on providing background information to the group, comprised of business, government and education leaders from across the state.

In today’s session, Skaggs explained how the Commission on Economic Development operates with allied organizations and offers incentives – tax abatements and deferrals based on the number of employees hired at wages above state averages, investments in equipment and job-training programs.

Skaggs also compared Nevada’s incentive programs with those of other states. Restrepo offered case-study examples and added detail about how programs offered in Phoenix; Albuquerque; Salt Lake City; Portland and Salem, Ore., offered more to companies than those offered in Clark County and Reno.

Clark County ranked fifth behind Albuquerque, Phoenix, Salt Lake City and Reno in low operating costs and low land and facility costs, and fourth behind all but Reno in the cost of utilities and in a three-way tie for third on payroll and training costs net of incentives. Restrepo made the conclusions based on a hypothetical development of a $25 million solar product manufacturing plant in a one-story, 130,000-square-foot facility built in 2010, growing to 400 employees by 2013 and gross receipts estimated at $212 million a year and net income of 8 percent of gross receipts.

The primary reason Clark County fared so poorly: Nevada has no specific incentives targeting renewable energy manufacturers as the other states have and the Salt Lake City site came out No. 1 on taxes net of incentives.

Restrepo made similar comparisons for standard manufacturing against Oregon and California. While Clark County, Reno and Carson City fared better than Los Angeles, Sacramento, San Diego and San Jose in the analysis, Clark County was behind Salem, Portland, Carson City and Reno.

Restrepo added that incentives aren’t the only reason a company chooses to move.

“Sometimes,” he said, “it’s just a matter of it being a city that the CEO’s wife likes.”

He also mentioned that other factors such as lifestyle, education and perceptions about Las Vegas’ image as a party town can influence decisions.

Skaggs said Nevada was outspent by several states in efforts to recruit business. Georgia, led by the state’s Department of Economic Development, has a $25 million operating budget with $8.5 million dedicated exclusively to business attraction and expansion, $1.5 million for innovation and $2 million for international trade.

Indiana turned its recruitment efforts to the public-private Indiana Economic Development Corp., to replace the state’s Department of Commerce in 2005. The organization has a $37 million budget to focus on growing, retaining and attracting business.

Colorado’s Office of Economic Development and International Trade has a $40 million budget to cover six divisions, including business development, finance and tourism.

The Utah Governor’s Office of Economic Development spends $25 million a year on business, tourism and the film industry.

By comparison, Nevada’s budget is just under $5 million for economic development. Skaggs said Nevada loses most of its recruitment deals because other states have more lucrative incentive packages and companies considering a move can’t because of high real estate and relocation costs, the inability to finance new operations, the inability to attract or retain a sufficient workforce and, in some cases, higher utility costs and the lack of availability of water.

The Commission on Economic Development partners with the Nevada Development Authority in Clark County and the Economic Development Authority of Western Nevada and Northern Nevada Development Authority in Washoe County and rural counties.

The Nevada Development Authority has recruited heavily in California, taking advantage of that state’s high taxes and utility rates. Terry Shonkwiler of Shonkwiler Partners, the NDA’s contracted advertising consultant, showed the group its history of advertising campaigns placed in California.

Over the years, the NDA ads have capitalized on Gov. Arnold Schwarzeneggar’s acting career, asking “Will your business be terminated?” Other campaigns have highlighted a missing California golden bear from the state flag, a plea to “save your business from the giant California tax nut,” “California will be more pro-business when …” with a picture of a pig with wings and “Kiss your assets goodbye.”

Shonkwiler said the strategy of the campaign was to generate leveraged media – turning the ad campaign into a controversy that generates news stories the NDA doesn’t have to pay for.

With news stories generated by the New York Times, USA Today, the Los Angeles Times, CNN, CNBC and the Associated Press, Shonkwiler estimated the NDA campaign captured a TV audience of 42.7 million people, 34.5 million print impressions, 615.4 million monthly online visitors and 2.3 million radio listeners with its efforts.

The New Nevada Taskforce next meets Sept. 13.