Voters can learn a lot from each session of the Nevada Legislature; unfortunately, this usually involves learning what not to do. One lesson from the recently concluded 2007 session is that it’s dangerous for government to stick its nose into things it knows little about. However, this is really nothing new.
For example, during the 1999 session, legislators were convinced by State Sen. Ray Rawson and his associates at the university system that Nevada was woefully short of dentists and needed to build a dental school as quickly as possible. Lawmakers, who wanted to seem like “the good guys,” voted money to build a dental school at UNLV, which now costs taxpayers $8 million a year to support. A recent report showed that most of the graduates move out of state because we don’t need them here.
We all remember the doom-and-gloom “experts” who convinced the governor and Legislature in 2003 that we were facing a budget shortfall of epic proportions if a business tax wasn’t passed immediately. We ended up with so much extra tax money that in 2005 lawmakers had to give everybody a rebate.
Politicians try to jump on the latest trends so they can get credit for supporting whatever is “hot news” that month. It might be climate change, immigration reform, gasoline prices, “reducing your carbon footprint” or whatever else is making headlines while political candidates are making speeches.
One cause generating publicity in 2005 was “green building,” a movement to make buildings more efficient in their use of energy, water and materials. Green buildings may use recycled materials, reclaim water, have solar panels on their roofs, etc. As you might imagine, it usually costs more to design and build a green building than a conventional one.
Assembly Bill 3, passed in the 2005 Special Session, proposed to give green projects relief from sales tax on building materials and property tax reductions of up to 50 percent for up to 10 years. It was hoped this would generate interest among private developers, because the only green buildings then underway were public works projects. In other words, legislators wanted to do a little social engineering at taxpayers’ expense, instead of letting market forces determine what people wanted to build.
The bill was intended to “sunset” on December 31, 2005, so developers would have only about three months to gain approval for their projects before the bill expired. At the time, bill sponsor Chris Giunchigliani estimated the tax incentives might cost $250,000, but nobody had a clear idea of what costs would actually be. Nevertheless, the appeal of looking like “the good guys” was apparently too much to resist, and the bill was passed.
Once the genie was out of the bottle, the government bureaucracy took over with a vengeance.
After the 2005 session, the director of the Tax Commission notified those interested in the tax breaks that if they submitted a letter of intent before the deadline they could still qualify, even if they hadn’t broken ground. In July 2006, seven months after the legislative sunset date, the commission decided to honor any project already on the drawing board.
Once the 2007 legislative session got underway, somebody did some number crunching and realized that the law, for all intents and purposes, had not expired at all, and several huge projects were planning on getting multi-million dollar tax breaks. Included were MGM Mirage’s $7.4 billion CityCenter complex, Boyd Gaming’s $4 billion Echelon, Wynn Encore, Palazzo Resort and the W Hotel. Clark County School District estimated tax breaks would cost the district up to $900 million over the next 10 years, which would have to be made up from the state’s general fund.
The resulting round of finger-pointing had lawmakers blaming bureaucrats and bureaucrats blaming lawmakers. When the dust settled, AB621 limited tax breaks to those projects with a signed contract dated prior to the original December 2005 sunset date and an opinion letter from the Department of Taxation dated prior to February 1, 2007. An estimated 75 projects that had started after those dates would get no sales tax abatement and reduced property tax breaks, causing outrage among developers who felt (correctly) that the state was breaking its promises.
What lesson can we learn from this fiasco? Politicians should avoid passing “feel-good” legislation, especially when they have no idea of the fiscal consequences. Taxpayers will be picking up the tab for this lesson for years to come.