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While incentives and tax abatements are common nationwide, Nevada is one of 17 states that has not adopted a plan to review and evaluate these programs, Pew found in a state-by-state analysis.
Friday, Dec. 27, 2019 | 2 a.m.
A major employer opening shop in Nevada is usually cause for celebration and fanfare. But the way the state lures the new business, and at what cost, rarely receives much of the spotlight.
Nevada doesn’t have a method for regularly reviewing and analyzing the effectiveness of business incentive programs, which annually waive millions of dollars in taxes and fees for businesses moving to Nevada or expanding their footprint here, according to the nonprofit, non-governmental organization Pew Charitable Trusts. Designed to boost the local economy and increase jobs, Nevada’s incentive packages offer businesses reductions on select taxes if they agree to certain requirements, such as a specific number of new jobs.
In Fiscal Year 2018, the Nevada Governor’s Office of Economic Development waived nearly $16.8 million in sales and use taxes, $4.7 million in the state’s modified business tax and nearly $6.7 million in property taxes for new businesses, the office’s biennial report on tax abatements shows. All told, the 34 new businesses that benefited from those incentive packages added 2,925 jobs statewide.
While incentives and tax abatements are common nationwide, Nevada is one of 17 states that has not adopted a plan to review and evaluate these programs, Pew found in a state-by-state analysis last updated in August. Doing so would help Nevada consider program costs—rather than just the benefits touted by politicians—and determine ways to use the state’s limited financial resources strategically, says Greg LeRoy, founder of the policy resource center Good Jobs First.
“There’s a long [national] history of these programs being too loose and increasingly expensive, and we’re trying to help fix that,” LeRoy says of his organization, which promotes government accountability and checks on incentive programs.
Nevada could soon rethink its approach to tax incentive packages under the leadership of a new director of the Office of Economic Development. As the first head of the agency appointed by Gov. Steve Sisolak’s administration, Michael Brown plans to review some of the state’s incentives programs, many of which date back to the Great Recession when unemployment was higher, Brown says.
“The governor has asked me to do a big think on this, to go back to the framework on this and design something that matches Nevada and [the governor’s] goals to help working class families,” says Brown, who was appointed on October 28.
In particular, he says he will assess what Nevada requires of businesses receiving incentive packages when it comes to employee health care and wages. The state encourages businesses receiving tax abatements and other incentives to pay employees a living wage and to sponsor their health insurance, but these aren’t difficult requirements, according to Nevada’s 2019 Comprehensive Annual Financial Report.
To be eligible for partial abatements on select taxes, businesses currently must meet two of three requirements: Create a specified number of full-time jobs (at least 50 in urban areas or 10 in rural areas); commit to a capital investment in equipment of at least $1 million in urban areas or $250,000 in rural areas; and offer a “specified minimum” wage to new employees, along with health insurance coverage “by a specified time period,” per the report.
The economic development office’s biennial reports track some of this information, like average pay for new jobs created by companies receiving incentives (in Fiscal Year 2018, that was $25.37/hour). But they don’t offer information on whether the businesses pay for employees’ health care. That’s one of the gaps in public reporting and evaluation that might have been addressed under Assembly Bill 444, a failed measure from the 2019 Legislative Session to create a legislative committee that would study and make recommendations on tax incentive programs.
Proposed by the Assembly Committee on Taxation, AB444 passed the Nevada Assembly and Senate but was vetoed by Sisolak. Although Brown says the office of economic development ensures that businesses receiving tax breaks are following through on their commitments, AB444’s legislative committee would have taken that evaluation further, says Assemblywoman Dina Neal (D-North Las Vegas), chair of the committee on taxation.
The legislative committee would have considered whether each incentive program was “accomplishing its purpose, intent or goal;” the administrative costs and lost revenue associated with each incentive program; and potential negative side effects of tax abatements, among other factors. The committee would have also had the ability to recommend new incentive programs and to modify or eliminate programs that weren’t showing significant, positive results, according to the bill text.
Gov. Sisolak vetoed AB444 because he felt it duplicated existing efforts undertaken by the Legislature and the office of economic development, according to his veto message. Responding by email, Neal disagrees with that reasoning. “It added to what was being examined.”
The bill would have also seemingly created a more robust system of checks and balances for evaluating tax incentive programs, something LeRoy says would help ensure that government agencies giving out incentives are held accountable.
“We don’t think cheerleaders can also be cops,” LeRoy says. “If you’re in the business of selling the state, giving incentives away to sell the state and to make a happy storyline for the governor or mayor, you’re not the person to evaluate these programs.”
Brown defers to the governor’s veto message when asked whether additional reviews of incentive programs could benefit the state. He adds that the incentive programs are established by state statutes written by the Legislature. “Ultimately, if there are changes, that will have to happen in 2021 legislative session,” he says.
In the meantime, Brown intends to speak to Pew Charitable Trusts about how best to evaluate tax incentives. He also wants to strengthen the state’s methods for determining whether companies benefitting from these programs are “living up to their expectations,” he says.
Especially as Nevada aims to diversify its economy and reduce dependency on gaming and tourism, LeRoy stresses that the state should not only evaluate the effectiveness of incentive programs, but also determine exactly what it hopes to accomplish from them. As far as best practices on incentive programs, he recommends that Nevada consider investing in programs that directly benefit workers, such as measures to help new employers guarantee employee health insurance or workforce training programs. Then, he suggests, those incentives should be offered to a group of companies in one sector in which the state can offer a comparative advantage over other states.
“That way, you’ll know some companies aren’t going to make it, but some will, and the dislocated workers can walk across the street to the places that are succeeding,” LeRoy says.
This story appeared in Las Vegas Weekly.
