Economic development costs Nevada $30,000 per job in tax incentives

By Anjeanette Damon

Thursday, Jan. 17, 2013 | 2 a.m.

Nevada officials approved $87.6 million in tax incentives to create nearly 2,900 jobs in the past two years, according to data obtained by the Las Vegas Sun.

That’s about $30,000 in forgone tax revenue per job.

Some state economic development officials argue that figure shouldn’t be looked at as a cost to taxpayers. Instead, they say, it’s a $30,000 per job enticement — a temporary cessation in tax collection — that brings with it jobs, additional tax revenue and a broader economic effect, such as construction jobs and bumps in consumer spending.

“You need to be very careful how you use metrics,” said Lt. Gov. Brian Krolicki, who oversaw the state’s economic development efforts before the Legislature handed the task to Gov. Brian Sandoval, who has made it a centerpiece of his administration.

“The idea here is to bring jobs certainly, but also capital investment and strategy to Nevada’s economic development efforts,” he said.

But one member of the 11-person Economic Development Board, which now oversees the tax incentives given to expanding and relocating businesses, said the focus should almost exclusively be jobs if the state and local governments are giving up future tax collections.

“I’m surprised by the $30,000-a-job figure,” said Secretary of State Ross Miller, who sits on the board. “Clearly, I think moving forward we should heavily scrutinize those decisions and make sure we are only giving abatements and incentives when it results in legitimate job creation.”

On average, the companies that expanded in or relocated to Nevada over the past two years — as Nevada transitioned to its new economic development program — created 52 jobs with an average wage of $21 an hour and made an average $16 million capital investment in the state, either by building facilities or purchasing equipment.

That investment in Nevada was enticed by an average $1.6 million tax incentive award.

But the list includes a few outliers.

Throwing off the numbers from the past two years is the historic incentive package awarded to Apple, which is building a data storage center near Reno. The company received an unprecedented $55 million tax abatement from the state, mostly in the personal property taxes the company would have otherwise paid on the expected $400 million worth of computer servers it will need for the center.

That award is nearly nine times what the next highest tax incentive earner brought in Quail Hollow, a farm in Moapa Valley, was awarded $6.2 million for an expansion creating 44 jobs.

Apple is expected to create 35 permanent jobs at its data center.

But some incentive awards stood out for the sheer dearth of jobs the companies earning the tax breaks expected to create.

Olin Corporation — the third highest incentive earner — was approved for $2.7 million in tax incentives. Operators of the Henderson chemical manufacturing plant expected to created just five jobs with the plant expansion.

A company that built a methane power plant at a Las Vegas-area landfill owned by Republic Services received $1.2 million for creating just two jobs.

“That’s very surprising and I think alarming,” Miller said. “The biggest factor we should look at in terms of giving any abatements or incentives is job creation. The state doesn’t have a lot of resources to begin with.”

Steve Hill, Sandoval’s economic development director, said job creation is an important element in diversifying the economy, but isn’t necessarily the single most important one. Hill has much of the authority to approve tax incentives under the new structure, which was created by the 2011 Legislature to streamline the state's economic development efforts and give it more gravitas by adding the governor to the helm.

“The capital investment, the economic impact and the taxes that those projects generate are pretty substantial, and I imagine that is what drove those decisions when they were made,” Hill said. “We tend to look at, and our measurement system tends to reinforce, just one side of the thought process, that being the taxes abated and not the taxes actually generated.”

Olin’s plant expansion was expected to generate $4.6 million in new tax revenue over 10 years and produce an estimated economic impact of $30.9 million — numbers economic development officials took into consideration in approving the deal.

The incentives for both CC Landfill Energy and Olin Corporation were approved in 2011, before Hill took over.

In Apple's case, the technology giant is expected to employ 35 people permanently. But the project is expected to generate 580 short-term construction jobs and add $7.1 million to state coffers over the next decade — money that wouldn't be coming in if the company decided to build elsewhere, officials note.

Hill acknowledged that his office does a poor job of tracking those ancillary benefits, including tax revenue that will be generated by the new businesses. He said that will change.

By law, to qualify for a tax abatement, a company must meet two of three criteria: produce at least 75 full-time jobs, make a capital investment of at least $1 million, or pay a higher-than-average wage scale.

“Companies need to satisfy two out of three legs on the stool to qualify,” Krolicki said. “After that, our discretion is limited.”

A state-by-state comparison of tax incentives per job wasn’t available. But an investigation recently published by The New York Times found Nevada spends comparatively less on economic development than other states.

By one comparison, Nevada spent $12 per capita on tax incentives in the past decade compared with Texas, which spent $752 per capita, according to the Times.

The tax incentive war has created an intense competition among states that offer higher and higher tax incentive packages to attract companies.

In a recent editorial board meeting with the Sun, Sandoval described competing with states that offered companies not only tax incentives, but cash and free land to draw their business. Nevada has lost out on several companies after states offered cash or higher tax incentives, he said.

Hill said the board is looking at creating better criteria by which to judge companies applying for incentives, including looking at the health insurance they provide employees.

Some of that will be revisited by the Legislature this year.

Still, as the state moves forward, don’t necessarily expect that $30,000 per job figure to drop.

Typically, Nevada approves about $10 million a year in tax incentives — not all of which are actually used. Planned expansions sometimes fizzle or the relocation doesn’t work out.

But Sandoval has banked both the future of the state’s economy and the government’s ability to generate enough revenue to pay for education and other services on his economic development plan.

Both Hill and the board plan to continue to be more aggressive in wooing companies to Nevada.

“What we are seeing on the lead and prospect side is a 35 percent to 40 percent increase over the past five quarters and that is accelerating,” Hill said of the businesses expressing interest in coming to Nevada. “We think we’ve made progress (in the past year), but we would like these numbers to be a good deal higher than they are right now. And we are working hard to make happen.”