Another 'economic development' scheme concocted behind closed doors
Contrary to what lobbyists, corporate cheerleaders and large swaths of elected representatives seem to believe, handing out hundreds of millions of taxpayer dollars to wealthy companies isn’t a responsible form of “economic development.”
And yet, here we are again — with lawmakers considering a proposal to do exactly that.
Last week, lawmakers introduced a last-minute bill (SB496) to expand the state’s film tax credit program — something proponents say will help diversify and grow southern Nevada’s economy. Years of negotiations reportedly took place behind closed doors between lawmakers and corporate interests from Hollywood and Las Vegas to bring the bill forward, representing renewed efforts to court more movie magic to the Silver State.
The fact that it is being introduced just as the legislative session is coming to a close, however, illustrates the absurdly opaque nature of Nevada’s lawmaking process. Given the years of groundwork invested to ensure the $190 million proposal is favorable to the Hollywood insiders pushing for it, one has to wonder why it took until sine die is right around the corner to finally be introduced.
The answer, of course, is obvious. Like the yet-to-be-formalized plan to give the Oakland A’s public financing for a new stadium, there’s good reason for the last-minute rush: The lawlessness of the session’s final weeks create a favorable environment for avoiding the type of public scrutiny that can often dismantle carefully crafted legislative proposals.
The bill’s proponents argue that such tax credits are necessary to make Nevada competitive with other states vying for Hollywood productions. States such as Georgia, for example, have gone to great lengths to attract moviemakers with virtually limitless credits and “incentives.”
However, Georgia now seems to be rethinking its heavy investment in film tax credits. Indeed, many states have reconsidered such tax-credit programs as it has become obvious the economic benefits promised by proponents aren’t always worth the cost — something economists from all along the political spectrum have been warning about for decades.
From conservative groups to progressive organizations — and pretty much everyone in between — film tax credit schemes have been routinely admonished as an intrinsically “bad deal” for taxpayers. Over a decade ago, the progressive-leaning Center on Budget and Policy Priorities argued in a study that “State governments cannot afford to fritter away scarce public funds on film subsidies.” And a more recent look into Georgia’s tax credit program from Reason Magazine uncovered the way proponents of such subsidies often rely on fuzzy math to concoct economic justifications for such proposals.
Indeed, like most other forms of corporate welfare, film tax subsidies are rooted in little more than political favoritism. They’re merely handouts given to an extraordinarily profitable and high profile industry by lawmakers who are all too eager to ingratiate themselves with certain lobbyists.
Predictably, SB496 does little to rebut such concerns. Indeed, it actually doubles down on some of the worst types of “economic development” practices. Its plan to rely on transferable tax credits, for example, is roughly equivalent to handing corporate interests a check from the public treasury made out to “cash.”
Unlike tax abatements, which simply reduce a company’s tax liability, transferable tax credits can be sold from the recipient to another corporation or entity. In practice, this means even corporations that don’t have any tax liability in the state can benefit from such credits by selling them to another taxpayer who actually owes legitimate taxes to state coffers. Indeed, that is precisely what Tesla did in 2016 when the company realized the credits it received as part of its sweetheart Gigafactory deal exceeded what it owed to the state.
Making matters even more costly, is SB496’s promise to make such credits refundable, meaning companies with credits that exceed their tax liability don’t even have to go hunting for someone to purchase them — they can just trade them in for cash from the government.
No wonder Sony Pictures is so on board with the plan. It’s only natural for wealthy, deep-pocketed, corporate interests to cheer the idea of governments blindly handing them hundreds of millions of dollars — regardless of what impact such expenditures might have on the state’s broader economic health.
In much the same way lawmakers and lobbyists dress up other forms of “economic development” as being necessary expenditures for the “common good” (rather than handouts to narrow corporate interests) the film tax credit will be sold as a groundbreaking effort to diversify the state’s economy. Lawmakers will be lobbied relentlessly in coming weeks to ignore the economic arguments against such handouts — not to mention a growing number of states scaling back such film tax credits elsewhere.
And given the rushed schedule with which lawmakers must contend, it might not be a tough sell for those corporate interests poised to benefit from the proposal. Indeed, the mere fact that such a proposal has been brought forward in the waning days of the legislative session indicates a deliberate attempt to avoid the kind of public scrutiny that might otherwise give legislators pause.
That alone should be reason for skepticism. After all, lawmakers and lobbyists colluding behind closed doors before announcing a last-minute bill that would give tax dollars to major corporate interests doesn’t look much like sound economic policy.
It looks a whole lot more like good old fashioned cronyism.
Michael Schaus is a communications and branding expert based in Las Vegas, Nevada, and founder of Schaus Creative LLC — an agency dedicated to helping organizations, businesses and activists tell their story and motivate change. He has more than a decade of experience in public affairs commentary, having worked as a news director, columnist, political humorist, and most recently as the director of communications for a public policy think tank. Follow him at SchausCreative.com or on Twitter at @schausmichael.