Diversification’s unhappy history: Part II

Some of the state’s most powerful interests have long fought broadening Nevada’s job base

For decades, a key opponent of economic-diversification measures in Nevada has been the powerful Nevada Resort Association, an advocacy organization funded by most of the state's largest hotel-casinos.

"Many times during recent years the gaming lobby has proposed changes in the basic tax structure of the state," noted a 1999 research paper from the state Commission on Economic Development. "The gaming lobby [has] attempted to prove diversification of the economy strains the resources of the state rather than strengthens them."

Formed in the era when organized-crime figures dominated the Southern Nevada resort industry, the NRA today candidly acknowledges that it exists to influence elected policymakers.

On its website, it describes its mission and purpose:

Established in 1965, NRA represents the state's largest industry and provides information, perspective and industry insight for decision makers throughout the state.

The Nevada Resort Association (NRA) monitors government and regulatory activities in Nevada. It adopts and advocates policies regarding state gaming issues.

The NRA's interpretation of "state gaming issues" is quite broad — so broad as to include all significant tax and spending decisions by legislators. Regularly, over the last three decades, the association has recommended tax-and-spending policies consciously designed to make Nevada less attractive to any non-gaming business that might contemplate moving into the state.

As Part I of this series noted, a large segment, perhaps most, of the gaming industry has long been hostile to the prospect of non-gaming economic development in Nevada. Although this opposition is often explained — by sources within and without the industry — with reference to economic factors, some economists have spotlighted another likely motivation: a fear of decreased political power.

A significant diversification of Nevada businesses beyond gaming would diminish the industry's relative political power and thus endanger the de facto control the industry often exercises over state legislation and state gaming regulation.

The NRA has sponsored many tax proposals and policies that appear intended to discourage the entrance of other industries into Nevada. A generation ago, two organizations, Citizens for Private Enterprise and the Retail Association of Nevada, began efforts to place on the 1988 ballot a constitutional amendment prohibiting an income tax in Nevada. Gamers then launched a competing campaign. While their substitute ballot provision also barred an income tax on individuals, it explicitly allowed income taxes on businesses.

While both ballot initiatives were approved by voters in southern and rural Nevada, the CPE-RAN initiative did not qualify in Washoe County. As a result, only the gamers' version of the ballot question went onto the 1988 fall ballot. Passing by a heavy majority, the measure was again approved by voters in 1990 and is now part of the state constitution.

At the same time, gaming's top lobbyists were working hand-in-glove during the 1987 legislative session with then-chairman of the Assembly Ways & Means Committee, Assemblyman Marvin Sedway, to lay a foundation for higher taxes on the rest of the business community. The lobbyists were backing AB 397, a Sedway-sponsored bill to appropriate half a million dollars for the hiring of consultants. Their job:  to advise lawmakers on how to change the state's tax structure and levy new taxes for more revenue.

Four heavy-hitting gaming lobbyists sat in the witness chair on the first day of hearings. The late, legendary über-lobbyist Jim Joyce represented the Howard Hughes Estate companies, Sam McMullen appeared for Harrah's, Jerry Higgins was there for the Gaming Industry Association of (Northern) Nevada, and Harvey Whittemore, for the Nevada Resort Association, batted clean-up.

All made it clear their employers wanted AB 397 to pass. McMullen, however, also had a suggestion. He wanted to ensure that the study was "practical," meaning it would be "utilized" in the upcoming 1989 legislative session. According to legislative minutes:

He felt that a sales job would be required to change the revenue structure of the state. For purposes of credibility, practicality and of understanding, the recommendations [of the study] would [require] selling and explaining which might require an independent type of commission where people who represented a broad range of interest could evaluate the recommendations. That would provide a better product to present to the 1989 legislature. [Emphasis added]

Sedway embraced the commission idea and added it to AB 397. The committee ultimately became known as "The Governor's Commission to Study the Fiscal Affairs of State and Local Governments in Nevada."

Sedway candidly admitted that the purpose of this bogus "citizen panel" was to get tax hikes "recommended." Several times during the 1987 legislature, according to legislative transcripts, he told other lawmakers the commission was "intended to be used as a lobbying arm to support tax increases."

Then-governor Richard Bryan appointed future governor Kenny Guinn as commission chairman. Guinn then endeared himself to the gaming industry by lobbying vigorously throughout the state for higher taxes on non-gaming businesses.

To reinforce its campaign for higher taxes, in 1991, the NRA gave lawmakers a report it had commissioned from the now-defunct — and still infamous — Arthur Andersen accounting and consulting firm. Titled "The Fiscal Impact of Population Growth in Nevada: A Report to the Nevada Resort Association," the NRA distributed the white paper to Nevada lawmakers but did not make it available to the general public. The study argued that people moving to the Silver State were not paying their "fair share" of taxes and that, therefore, Nevada needed to increase its take from state taxpayers.

Throughout much of the 1990s, NRA officials regularly cited the paper as authoritative. In 1999, the Nevada Policy Research Institute procured a copy and asked economist Glen Tenney, one of its senior research fellows, to evaluate it.

Tenney's analysis revealed fundamental, even comic, self-contradictions in the Andersen arguments, including equivocating use of economic terms, which appeared intended to give non-economic assertions the cover of economic theory.

Revealingly, the resort association had already again turned to Arthur Andersen in 1998. This time the NRA hostility to diversification of the Nevada economy was demonstrated even more overtly, as Andersen was commissioned to "prove" that economic diversification itself would be bad for the Silver State.

We'll explore that remarkable episode in Part III of this series, which will be released next Wednesday, Feb. 16, 2011.

Steven Miller is vice president for policy at the Nevada Policy Research Institute. For more visit http://npri.org.

Read more:

• Diversification's unhappy history: Part I
• Diversification's unhappy history: Part III
• Diversification's unhappy history: Part IV
• Diversification's unhappy history: Part V

Tags: Fiscal, Taxes, Other issues