Is low-taxes sales pitch enough to bring businesses to Nevada?

By David McGrath Schwartz (contact)
Friday, Feb. 11, 2011 | 2 a.m.

CARSON CITY — Creating jobs, elected leaders said Thursday, is the No. 1 priority for the legislative session. But although they were unanimous in their goal, there is sharp disagreement over how to accomplish it.

This debate over the state’s approach to economic development has evolved into a proxy fight over the state budget, and whether to cut spending on education or increase taxes.

It can be summarized like this: Does Nevada continue to try to poach out-of-state businesses with a low-/no-tax pitch? Or should the state make a broader appeal to businesses, emphasizing potential partnerships with education, planned improvements to infrastructure and quality of life?

Gov. Brian Sandoval’s budget policy puts him firmly on the anti-tax side of the debate. In it he calls for deep cuts in K-12 schools and higher education, as well as cuts to social services. Raising taxes, he has repeatedly argued, “would be the worst thing we could do.”

At the same time, he wants to overhaul the state’s economic development agencies and make them a cabinet-level position. He proposed creating a $10 million “catalyst fund” to attract businesses here.

While agreeing that the structure of economic development needs to change, Democrats have criticized the well-worn low-tax sales pitch Sandoval favors. Nevada can still be business-friendly in its taxes and regulatory policy, but also expect businesses that relocate here to contribute to the education system.

At a recent budget hearing, state Senate Majority Leader Steven Horsford, D-North Las Vegas, called out the Nevada Development Authority — a nonprofit organization that gets $1 million a year in state funding to recruit companies — for boasting that Nevada has no business tax in ads placed in California publications.

“I’m very disappointed in the NDA,” Horsford said. “I’m not going to fund any money for economic development that uses that approach ... We can’t market ourselves as a place to come for free while gutting education.”

The Nevada Development Authority has for decades run offbeat, controversial campaigns targeting Southern California businesses and boasting of Nevada’s low-tax status. Its approach is most succinctly summarized by its telephone number: 1-888-4-NO-TAXES.

Somer Hollingsworth, the authority’s president and CEO, said the $1 million the state allocates each year for marketing isn’t enough. It should be “a minimum of $1 million a month,” he said.

The authority’s latest campaign uses talking primates to knock California’s legislature for tax and “anti-business” policies. Hollingsworth said with limited funding, the ads are meant to get attention from news outlets.

“We didn’t go out and do this with any form of malice,” he said. “It was the only way we knew. We had to do it with monkeys — we had to use monkeys for God’s sake!”

Responding to critics of the agency’s ad campaign, Hollingsworth wonders what else Nevada can sell?

“I certainly can’t sell our education system, can I? I have to have something,” he said.

He noted that the Nevada Commission on Tourism and the Secretary of State’s website also emphasize Nevada’s tax-friendly policies.

But Horsford, in an interview, said he believes that pitch ignores other advantages the state has to offer.

“It’s not just no-new-taxes. It’s friendly regulation. It’s the ability of business leaders to meet with high-level officials,” he said. “I don’t feel the strategy used in the past will work for the future.”

Sandoval, in an interview last week, implicitly criticized Nevada’s economic development agencies.

“They will tell you they have been successful,” he said. “I think we need to set a high bar.”

The governor’s bar may be higher, and he has promised to be personally involved in recruiting businesses. But the strategy still sounds like the status quo.

“It’s going to be a combination of factors that are going to attract business to Nevada,” Sandoval said. “Primarily of which, I believe, is we’re a business-friendly and low-tax state.”

This tension over how the state sells itself and, to a degree sees itself, follows closely the current debate about the state’s budget.

Democrats are loath to admit publicly that they will try to raise taxes to undo the cuts Sandoval has proposed in his budget. Instead, they have argued that cutting K-12 and higher education would make the state’s workforce less attractive to businesses looking at Nevada.

“Just low taxes alone are not the thing businesses are looking for,” Assembly Speaker John Oceguera, D-Las Vegas, said. “It’s an educated workforce, quality of life, affordable housing. They look at a number of things.”

Horsford and Oceguera spent last year met several times with a group of high-level executives from gaming, mining and the Las Vegas Chamber of Commerce. They brainstormed about what changes are needed to the state government and its education system, as well as possible tax increases to better fund it.

Their arguments are that cuts to education would irreparably harm schools, colleges and universities — and ultimately the overall economic health of the state.

Sandoval maintains he will fight any tax increase. When Republican lawmakers have expressed a willingness to raise taxes, he has met with them and convinced them to support his cuts-only approach.

He called all the cuts “tough decisions,” but said raising taxes would send the wrong message to businesses and ultimately lead to higher unemployment.

Hollingsworth said Nevada’s economic problems could be solved with more money directed at marketing the state across the country. Nevada could, he said, sell itself as the “best business climate in the U.S.”

“I’m sold on this state. We’re simply the best,” he said. “Other states simply out-market us.”