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October 21, 2014

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Catalyst Fund a bad bet for Nevada

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Nevada’s economy is struggling, and families across the state are out-of-work and hurting. The sustainable way to rebuild the economy is to foster a climate where small businesses can create jobs. But expanding the state’s Catalyst Fund, as Nevada lawmakers are considering doing, is the wrong cure for Nevada’s ailments.

Nevada lawmakers established the Catalyst Fund in 2011 as part of a broader package that increased the state government’s role in economic development. The Catalyst Fund is backed by $10 million in taxpayer money, and is intended to “incentivize the expansion or relocation of businesses that will quickly result in the creation of high-quality primary jobs in Nevada.” It places that $10 million in the care of the newly-created Board of Economic Development, which will dole out grants and other “incentives” to whichever companies it sees fit. Now, lawmakers want to expand investment in the fund to $13.5 million.

By placing such great power in the hands of the Board of Economic Development, the fund allows the politicians and unelected bureaucrats who comprise the board to stack the deck in favor of businesses that have donated to their campaigns. Each of the nine members of the board — ranging from elected officials to six bureaucrats appointed by Carson City politicians — have deep ties to the corporate community, and can now use the powers of the fund to steer money to their preferred businesses.

By allowing government officials to use taxpayer money to pick which businesses “win” and “lose,” Nevada’s fund encourages corporate cronyism in its purest form. Unlike capitalism, cronyism eschews the free market and creates an unhealthy partnership between politicians and corporations under which they win, and everyone else pays the bill. Cronyism has wreaked havoc on the economies of other states, and could devastate Nevada’s business climate if the Catalyst Fund is allowed to expand.

Consider the example of Rhode Island, which for 20 years has put taxpayer money into its Economic Development Corporation (RIEDC), which is similar to the Nevada fund. Rhode Island’s largest newspaper blamed the RIEDC for “having left the state with one of the highest jobless rates in the country.”  Recently, the RIEDC made headlines for loaning a local sports hero over $70 million to move his video game company into the state. It was a great plan — until the company went belly-up, jobs disappeared, the loan went unpaid, and taxpayers were stuck with a huge bill.

By gambling with public dollars, Rhode Island politicians drove their state even further into debt in disastrous fashion. Yet they are far from alone: cronyism occurs on a national level as well. Solyndra, the defunct California solar panel manufacturer, received over half a billion dollars in federal stimulus money after its founder donated over $50,000 to President Barack Obama’s campaign. American taxpayers suffered a needless loss of hundreds of millions of dollars that simply would not have occurred had the government allowed the free market to operate, and let companies like Solyndra succeed or fail on their own.

Cronyism is not only risky, irresponsible, and corrupt, it undermines the free-market principles on which successful economies are built. Nevada’s fund is no different: if allowed to expand, Nevada taxpayers will be funding businesses hand-picked by politicians and bureaucrats, instead of allowing the market to determine which businesses succeed and fail. Lawmakers may call this a Catalyst Fund, but let’s call it what it is: a Crony Fund.

By loading the dice in favor of certain businesses, governments take away one of the most vital aspects of a free society: the consumer’s freedom to choose. The free market and the American spirit of ingenuity built Nevada’s economy in the 20th century, and they, not a slush fund for corporate cronies, will sustain it through the 21st.

Kevin Palmer is a senior staff writer at the Franklin Center for Government and Public Integrity.

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  1. The author raises excellent points. In concept, the Fund and Board sound good. But the devil is in the details. The activities of the Board should be subject to strict oversight and controls. Unless and until this is mandated and implemented, strict controlsand oversight, the State should find a better taxpayer usage of the $13 Million of their funds.

    CarmineD

  2. Cronyism is alive and well throughout the USA, and until there is a significant change in the American culture to do otherwise, people will always elevate the saying, "It's not WHAT you know, it's WHO you know, that will get you places".

    Now,more than ever, thanks to the economic crisis of 2008, people cling to their social networks to help them through life. It seems to be quite the pattern that isn't going to change anytime soon.

    Commenter CarmineD made an excellent suggestion with, "The activities of the Board should be subject to strict oversight and controls." Furthermore, "...the State should find a better taxpayer usage of the $13 Million of their funds."
    Let's not be too much in a hurry to spend money in a fund until such oversight is in place.

    Blessings and Peace,
    Star

  3. At 10M or 13.5M it would just be a hobby for the Board. That's nowhere near enough money to be really effective.

  4. Let's foster EMPLOYMENT of AMERICANS, not illegal invaders. Let's have a temporary safety net for Americans, not illegals and anchor babies.