Las Vegas Sun

February 6, 2016

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Low taxes or better education system? Study of Nevada’s woes doesn’t take a stand

A new report aimed at guiding Nevada out of its economic abyss delivers the bad news first. And it’s nothing state policymakers haven’t heard before:

Nevada suffers from an underperforming education system and an underperforming health care system. Our energy costs are too high and we rely too heavily on consumption-based industries that tank when people stop spending money during slow economic times.

We lack investment in innovation and spent a decade, during which our economy boomed, neglecting our haphazard economic development efforts.

In the 178-page report presented to the Economic Development Board today, researchers with the Brookings Institution and SRI International offer the beginnings of a road map for changing all that.

“A fairly trenchant to-do list emerges from this analysis,” said Brookings fellow Mark Muro, acknowledging the severity of Nevada’s economic challenges. “This is the worst, most prolonged downturn the state has seen in decades and that creates a sense of urgency. I think the chances are quite good that the state is going to make some helpful and overdue changes.”

The study is one of the first steps in the creation of a new economic development system set in motion by Assembly Bill 449, which passed last session with the backing of Gov. Brian Sandoval and legislative leaders from both parties.

It will form the basis of a plan by Sandoval’s new economic development czar Steve Hill and a board of elected officials and industry representatives created by the new legislation.

Much in the Brookings-SRI study is brass tacks:

• Target seven industries with the best potential for building on the state’s existing strengths — a renewed focus on gaming and tourism, for example — a s well as diversifying beyond the heavy reliance on consumer spending — better developing the private aerospace and defense industry.

• A strategy for best deploying the $10 million Catalyst Fund — to help entice businesses to relocate or expand in Nevada — so that the board doesn’t “blow it.”

• Dividing the state into three regions — northern, southern and rural — and playing to industry strengths in those areas.

• Build a “statewide economic development operating system” that replaces the scattershot approach policymakers have taken in the past.

But while the report puts data behind many of the assumptions legislators made about strong economic development efforts — regionalizing the approach, identifying strategic industries and sectors for growth, better cultivating innovation through research and development — the study does little to settle the more fundamental tug-of-war over how to approach economic development that has sharply divided state leaders in the past year.

Senate Majority Leader Steven Horsford, D-North Las Vegas, has argued that touting Nevada’s low taxes is not enough of a selling point when the state’s education system is broken, and could actually exacerbate the problem by drawing businesses unwilling to invest in strengthening schools and universities.

Sandoval, on the other hand, believes that higher taxes would stymie economic growth and has promised to eliminate regulations that would interfere with business.

The report does little to choose between the two schools of thought. Instead, it tries to play both sides of the fence, recommending that the state continue to stress its low-tax environment while also strategically increasing investment in education.

“This assessment confirms that Nevada’s core strength for economic development has been and will remain its overall business-friendly environment, including low taxes, relatively low costs, light regulation, and ease of business start-up,” the report says.

That’s a finding that appealed to Sandoval, who believes Nevada’s low-tax environment continues to be the state’s best selling point. But he argued it’s not an either-or proposition when it comes to investing in education.

“Its emphasis has to be more collaboration and that’s exactly what we are doing,” Sandoval said, listing the strides his administration has taken to bring higher education officials into economic development activities as well as key reforms he’s initiated in the kindergarten through 12th grade system.

But the study doesn’t pull punches in describing the paucity of Nevada’s skilled workforce and the inability of an underfunded education system to address that problem.

“The weaknesses of Nevada’s workforce are closely associated with Nevada’s relatively low — and falling (based on the last budget) — levels of spending on higher education,” the report says. “It is clear that significantly ramped up investments in education will be needed in order to bring Nevada’s workforce skills to the level required by its most strategic future industries and companies.”

And that raises the question of whether Hill and the board can succeed without Sandoval and the Legislature reversing course on their cuts to education.

“The short story is we think the state has got to make some changes,” Muro said. “The state has begun to make a few adjustments, but this is clearly one of the important areas for further action.”

The report calls for better investments in math and science education in kindergarten through 12th grade, better aligning community college programs with the workforce needs of private industry and better investing in universities to attract key researchers who can fuel innovation in the target industries.

“It’s not about broad-based investment across the whole higher education system,” Muro said. “It’s about picking your places and bringing in particular sorts of researchers.”

Sandoval refused to acknowledge or dispute the study’s assertion that “significantly ramped up investments” are necessary in education.

“Funding is always going to be the issue,” Sandoval said. “One of the challenges was during the budget process that money wasn’t there this time. We’ll do the best we can for the university system moving forward, working very closely with the chancellor and the board of regents.”

Assembly Speaker John Oceguera, D-Las Vegas, said he was pleased the study acknowledged the state has work to do on the education front.

“Yes, we do have low taxes. And yes, we do have a business friendly climate. But (the report) then also goes on to say our workforce skill level is low and K-12 education is underperforming,” Oceguera said. “It’s at least recognizing that there are weaknesses there and we need to work on it.”

It’s not a problem that Sandoval is ignoring, Hill said.

“What the governor has said is as we recover getting more money to education is a great thing,” Hill said.

But for now, the regulatory environment and keeping taxes low continue to frame Sandoval’s approach to bringing businesses to the state.

“Yes, we have low and stable taxes and we have a lower regulatory environment that the governor is trying to make even better,” his chief of staff Heidi Gansert said. “We are also a place where you can get things done. We are small and you have access to people who can make the decisions.”

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