Thursday, Aug. 2, 2012 | 2 a.m.
What is believed to be the largest tax abatement deal in state history that promises to bring an Apple data center to Reno began in a cheese factory.
Gov. Brian Sandoval and his economic development director, Steve Hill, were on a tour at Reno's Pacific Cheese Co. to promote the governor’s economic development plan when Hill received a call that Apple was in town. Company executives were interested in locating in Northern Nevada and wanted to meet.
It was, coincidentally, a few hours after Sandoval presented his plan to diversify Nevada’s economy in February.
The result was what Sandoval described Wednesday as a "win all the way around." But it also highlighted the scant state oversight elected officials and business leaders appointed to oversee the Governor's Office of Economic Development have over the size of tax abatements.
Hill, the director of the Governor’s Office of Economic Development, approved the abatements worth $89 million over 10 years on Wednesday. That was after a separate meeting in which the board unanimously recommended approval of the deal.
But their role was purely advisory — a break from the way Nevada has historically given out tax breaks.
The Reno area will get 35 Apple employees making at least $25 an hour and 200 contractors. The company will also invest $400 million in the first four years and up to $2 billion in 30 years. Nevada governments will get from $16 million to $20 million over the first 10 years in taxes.
Most importantly, according to Hill, Nevada gets the marquee Apple name moving to the state. That name has already led to interest from other companies looking to locate data servers, he said.
In exchange, Apple gets breaks on its sales and property taxes. The state discounted all but 2 percent of the sales tax for at least four years and up to 12 years. The state also discounted 85 percent of property taxes for up to 30 years, depending on the levels of investment Apple makes in Nevada. (A separate deal with local governments in Northern Nevada effectively reduces Apple’s sales tax to 1/2 a percent.)
There are no abatements on construction costs.
The package of tax abatements were negotiated by Hill and highlight just how powerful the director of the Governor’s Office of Economic Development is.
Typically, the state issues tax breaks under a particular section of the law that caps the length of the tax agreements at 10 years.
But those incentives, Hill said, were not generous enough to make Nevada competitive with other potential locations. So, instead, the state used a separate law for tax breaks, which had never been used before.
It gave Hill wide latitude to set the terms of agreement.
Sandoval described the negotiations, which he was briefed on as they were ongoing, as “intense.”
“Apple was very respectful ... but it was firm, on both sides,” Hill said.
Hill said this was the best deal Nevada could have gotten without Apple deciding to locate elsewhere.
“We could have raised the tax rate, but then we would have gotten zero dollars,” he said.
Instead, for example, the company could have moved to a location in rural Oregon, where there’s no sales tax and they offer a 100 percent property tax break for 15 years.
There is still no contract between the state and Apple, Hill said, only a short list of terms laying out the property and sales tax abatements and conditions to which Apple has agreed.
That drew sharp questions from Secretary of State Ross Miller, a member of the board.
“It appears the board is largely ceremonial,” Miller said after the meeting. “This is a significant departure from the past.”
He took issue with the property tax provisions that could last up to 30 years.
“My daughter, who’s in kindergarten, will be my age and still subject to the deal approved today,” Miller noted.
Hill noted that both the Washoe County Commission and Reno City Council had previously endorsed the deal in public meetings.
Sandoval said his office will review possible changes to the board before the Legislature next meets in 2013, but he was not prepared Wednesday to make any recommendations.
“I hope it can be a catalyst for other companies,” Sandoval said at Wednesday’s meeting.