Published studies say Nevada state government is providing millions in subsidies and incentives to businesses—and that the state does not do follow-up assessments on whether those subsidies work in improving the state’s economy.
Over a period of 10 months, the New York Times compiled and analyzed a searchable database of individual business incentives granted by all state governments, listing 150,000 grants and awards providing more than $80 billion in various subsidies to companies. In Nevada’s case, it found each state resident paying $12 to support incentives to corporations. Times reporter Louise Story also found states often not getting value for the incentives they offered.
A few days after the Times report ran, the newspaper then editorialized on its findings:
“Many governments don’t know the full value of the subsidies they hand out in the form of tax refunds, rebates, loans, grants and more. And they don’t know if the jobs created would have been created anyway. The fact is, numerous studies show that such incentives result in only a small increase in jobs and that any gains usually come at the expense of other cities and states. Local governments would be much better off investing tax dollars in education and public works that would deliver long-term benefits to both businesses and workers.
“The senseless race to give away billions in subsidies is, of course, hard to stop when elected leaders think a pledge of potential jobs might help in their next election. But even when attracting businesses is a legitimate goal, it has to be done in ways that are fair and transparent. The trouble with targeted incentives is that they are little more than transfers of wealth to a handful of powerful corporations from all other taxpayers, including other businesses. If the problem is excessive tax burdens on businesses in general, then the solution is broad tax reform that also benefits small business owners, who are more likely to stick around if the regional economy weakens and who are unlikely to hopscotch around the country in search of a bigger tax break.”
Among the corporate beneficiaries of Nevada officials’ generosity in the Times list: Apple Inc., Starbucks, Georgia Pacific, Sherwin Williams, R.R. Donnelly, Ford, General Motors, INTUIT, Harley Davidson, TRW Vehicle Safety, Basalite Concrete, Ocean Spray, Overhead Door and dozens of smaller enterprises.
The Times list is likely to provide useful information to Nevada activists who have been critical of governments subsidizing businesses. State and local government websites do not currently provide such logs of Nevada officials’ generosity to corporations.
The Times estimated that incentives account for a cent of every Nevada budget dollar, which means the state is no more generous with corporate welfare than welfare for the poor. This is not necessarily due to restraint by state officials, but by limitations in the state constitution on the incentives that can be offered. Most Nevada incentives are in the form of abatements—taxes that are not collected.
The second study, a report by the Pew Center on the States, found that about half the states have not done the work “to produce and connect policy makers with good evidence of whether these tools deliver a strong return on taxpayer dollars.” Nevada is among those states. The report said Nevada did not measure the economic impact of incentives or draw clear conclusions about their impact.
Pew found that 13 states are doing a good job “in generating much-needed answers about tax incentives’ effectiveness. Twelve states have mixed results. Half the states have not taken the basic steps needed to know whether their incentives are effective.”
Further, the Pew study reported, “Sixteen states … and the District of Columbia did not publish a document between 2007 and 2011 that evaluated the effectiveness of a tax incentive.”
Pew also reported that incentives are often offered not because they serve a state’s interest but because they keep a state competitive with other states.
“Frequently, [incentives] are used as part of a bidding war between states over firms seeking to relocate or expand. If one state offers a tax credit, others often feel compelled to match it or risk being left behind.”
It praised some states.
“Oregon, for example, gives its incentives expiration dates, or ‘sunsets,’ which force lawmakers to examine them periodically. Arizona, Iowa and Washington also are trying to ensure their evaluations become part of the policy-making process.”
Nevada incentives are not sunsetted.
The Pew report went on, “In Connecticut, a study of the Job Creation Tax Credit provided evidence that the investment had benefited the state. … Louisiana’s economic development agency discovered that one tax incentive it previously credited with creating more than 9,000 jobs had produced a third of that number.”
Lt. Gov. Brian Krolicki, a member of the state Board of Economic Development, said the state does do follow-up work on making sure that incentives are used as intended.
“Those companies that receive tax abatements are subject to audit procedures and actually claw-back procedures if they do not fulfill the terms under which they were approved,” he said.
He said the state also looks beyond individual abatements and uses economic modeling for a broader look at incentives to make sure they are effective. He acknowledged that the incentives the state offers are driven by the fact that other states are offering incentives, and said that process has to be watched carefully.
“We’re in competition with just about every other state and certainly those in the Western United States because, you know, a company’s decision often entails geographic positioning and then distance to customers and providers, often in a regional standpoint,” he said. “But … there’s absolutely a break point when incentives outweigh the benefits and I’m not sure if that clear line is apparent to some in this business.”
State economic development director Steve Hill said of the Pew study, “They’re kind of partially correct, and we are changing that. Some of their findings were based on 2010 information. Some of that analysis is done, but it has not been published. So if you want to go look to see if any analysis is performed, you can’t find it. That will be changed.”
He said that traditionally, the state has not measured its abatements against effectiveness goals, and that too will be changing. In addition, a log of all abatements awarded by the state will be created where they can be found by the public.
“That is a part of that reporting process.” he said. “We will post that information and then track it effectively.”
Chuck Alvey, now a consultant who previously headed Economic Development of Western Nevada, which tries to lure businesses to the state, said his experience has been that incentives are closely watched.
“If you give someone an abatement, it means that they’re going to be watched based on how fast you generate new tax money, that you have a certain pay level and a certain number of employees,” he said.
There were instances when, if a business did not reach those thresholds, they would have to “pay that abatement back.” Nor is it all that easy to qualify.
“It wasn’t just a matter of handing out abatements,” he said. “It was a very arduous process of qualifying.”