Proposed economic development overhaul calls for affordable housing investment, limits on abatements

Assembly Majority Floor Leader Teresa Benitez-Thompson, right, speaks with Deputy Minority Whip Robin Titus, on Friday, July 31, 2020 during the first day of the 32nd Special Session of the Legislature in Carson City.

Economic development authorities pushed back against a bill Thursday that would limit the Governor's Office of Economic Development's suite of tax incentives and shift the office’s focus to addressing development inequalities.

AB449, sponsored by Assemblywoman Teresa Benitez-Thompson (D-Reno), would place the office under stricter oversight, shift the focus of the office to championing “mom and pop” businesses and generate more funding for affordable housing by requiring that businesses receiving tax incentives make payments into a state fund for affordable housing.

"We have to talk about housing at the same time that we talk about economic development," Benitez-Thompson said during a presentation to the Assembly Committee on Revenue.

It’s the latest effort by Benitez-Thompson and other legislative Democrats to improve the state’s at-times criticized collection of incentives and abatements on sales and use taxes, property taxes and payroll taxes to businesses that meet certain capital investment, job creation or minimum hourly wage targets. Most of the incentive programs were set up under former Gov. Brian Sandoval, but some Democrats (and at times, Gov. Steve Sisolak) have criticized the office for being too generous with abatements.

If economic development is working, out-of-state companies relocating to Nevada will attract more people to the state, Benitez-Thompson said. But by bringing additional workers to the state, the companies also are causing “growing pains” and contributing to a housing shortage that needs to be addressed, she added.

"It makes the most sense to me to say ‘let's land some dollars [in our affordable housing trust fund] to show the world ... that Nevada has a commitment to not only grow, but to grow well,’” she said.

The bill proposes an overhaul of existing law and would:

  • Make extending tax credits and incentives permissive, not mandatory for businesses that meet certain baseline qualifications
  • Require the GOED board to consider the number of employees a company has that are on Medicaid before awarding tax incentives
  • Require approval from the GOED board for all tax incentives; currently, the director can unilaterally approve incentives up to $250,000
  • Require that businesses receiving abatements pay 10 percent of the dollar amount of the abatement for each year it is in effect toward the Housing Division's Account for Affordable Housing, which supports the preservation and construction of affordable housing in the state and is funded through a real estate transfer tax that generates anywhere from $8 to $10 million a year (but advocates say that amount barely makes a dent in the affordable housing market)

Under the legislation, money deposited into the Account for Affordable Housing would have to be used in the county where the business is located. A business that fails to make payments to the fund would have to repay the abatement it received.

Current law holds that to be eligible for a partial abatement of personal property taxes, businesses must either make a capital investment of at least $1 million in a program at UNR, UNLV or the Desert Research Institute or invest at least $500,000 in schools within the Nevada System of Higher Education (NSHE), along with other stipulations.

The proposed legislation also would reduce the amount of capital investment needed to be eligible for an abatement to $500,000. It also would increase the average hourly wage that must be paid to employees from at least 100 percent of the statewide average hourly wage rates, about $24.41 for all occupations in the state, to at least 110 percent — and would remove the requirement to employ a certain number of full-time employees for the duration of the abatement. 

Benitez-Thompson said she was still adjusting and workshopping the proposal in regard to capital investments.

Critics of the bill said it would make Nevada less competitive for business relocations and expansion and worried that it would benefit neighboring states such as Arizona and Utah if passed.

"The level of competition among states for new jobs right now is very high, and compared to other states, our current incentives are minimal," said Jonas Peterson, president and CEO of Las Vegas Global Economic Alliance. "We do lose deals — deals that we should win —  because our incentives are simply not competitive enough. With Southern Nevada's high unemployment, now is simply not the time to reduce any of our job creation tools."

Supporters said the bill would help balance out the billions of dollars offered to corporations as abatements or subsidies and establish a more equitable economic development policy.

"Without a significant increase in available resources, it would take our state nearly a century to catch up to the current need for affordable housing," wrote J.D. Klippenstein, the state director of the nonprofit advocacy organization Faith in Action Nevada. "We cannot continue to subsidize corporate welfare while ignoring the welfare of every day Nevadans."

The Department of Business and Industry already offers tax credits for affordable housing that are not widely utilized, countered Lynn O'Mara, spokeswoman for the Northern Nevada Development Authority. She added that the affordable housing provision is redundant and would not accomplish much.

Development authorities also fought against the inclusion of Medicaid as a factor for offering abatements to companies looking to come to the state.

"When we're talking about Medicaid, my biggest complaint is that we're not treating businesses fairly," said Derek Armstrong, Henderson's director of economic development.

Thousands of Nevada workers and their dependents receive health insurance benefits through Medicaid; an analysis by The Nevada Independent found that many of those employers were awarded tax incentives or abatements by the state prior to expanding in the state.

Benitez-Thompson said that companies with more than 500 employees on Medicaid are fobbing off high costs on the state. The bill does not set any numbers or say GOED has to follow any protocols; it only says that the office should consider Medicaid usage.

"There's concern that the sky will fall and everything will dry up and go away," she said. "I don't think that's true."

The bill was heard for the first time on Thursday, but the committee did not take any action on the legislation. Friday marks the deadline for bills to pass out of their first committee.

Nevada gave millions in tax incentives to businesses with many employees on Medicaid

A sign for an Amazon distribution center, including the company's logo

Gov. Brian Sandoval called it a “major boost for Southern Nevada.” Las Vegas Global Economic Alliance CEO Jonas Peterson said it marked a “reflection of our friendly business climate, favorable workforce, and aggressive approach in recruiting companies.”

News of Sutherland Global Services’ 2016 expansion into Las Vegas was met with wide acclaim by state leaders and economic development officials, who touted the company’s decision to build and expand a business center that came with the promise of 2,163 full-time jobs. Sutherland’s decision was aided by roughly three-quarters of a million dollars in tax abatements approved for the company by the Governor’s Office of Economic Development.

Since then, the company has indeed created thousands of jobs — but it’s still costing the state today.

In 2018, the state reported that 1,024 of the company’s employees earning full-time wages and 1,116 of their dependents were on Medicaid — the state-run health insurance program for low-income Nevadans — at a cost of upwards of $5.7 million a year to taxpayers. (Those numbers include any employees who worked full-time for Sutherland as well as those who made the equivalent of full-time wages but may have split their time between Sutherland and another company.)

Sutherland, which didn’t respond to a request for comment, isn’t alone. According to an analysis by The Nevada Independent, more than 60 businesses given tax incentives by the state over the past four fiscal years had about 13,000 employees — and their dependents — enrolled in Medicaid in 2018, with the government spending upwards of $34.5 million to care for them.

Those funds aren’t all state dollars — the federal government pays about 65 percent of costs for the traditional Medicaid program and 93 percent for those covered under Medicaid expansion — but it still represents a sizeable hit to the state’s general fund budget.

Data showing that thousands of companies have shifted at least some of the burden of providing health insurance to their employees to Medicaid, compiled as a result of 2017 legislation from Democratic state Sen. Yvanna Cancela, comes as lawmakers and national groups debate the effectiveness of tax incentive programs, as well as structural issues that make employer-sponsored health insurance more expensive and less accessible than it was in the past.

“I would have concerns that we're giving a company a privilege of a tax abatement but yet we're picking up the cost of health care for their employees,” Democratic Assemblywoman Maggie Carlton said. “That's just not a good deal for the state.”

Economic incentives

Since its major overhaul in 2011, the Governor’s Office of Economic Development (GOED) has been active in granting tax incentives and a variety of abatements on property, sales and real estate taxes to businesses that meet certain qualifications of job growth, wages and capital investment.

In total, the state has granted more than $395 million in tax abatements and “Catalyst Fund” grants from the state to incentivize nearly 170 companies over the past four fiscal years, many of which have few or no employees receiving government-backed health insurance. That total doesn't even include a $1.25 billion special tax incentive, abatement and credit package approved by lawmakers for Tesla in 2014.

To receive economic incentives, companies are required to pay at least 65 percent of health insurance costs and meet requirements set out by the Affordable Care Act for large employers, including offering a health insurance plan with an employee premium no more than 9.86 percent of their household income. Even so, those plans can be pricey for minimum wage workers trying to make ends meet, especially if they have high deductibles, copays and coinsurance.

Many of the more than 60 employers who received tax incentives and were listed as having a large number of full-time equivalent employees on Medicaid have large-scale warehouses or logistics and distribution centers in the state.

A prime example is Amazon, the employer with the third highest number of people on Medicaid in the state, which received a $1.8 million tax incentive in 2016 for construction of a logistics center in Clark County.

According to the application, the company planned to employ 1,000 full-time employees at the center at an average hourly wage of $14.64. Although Amazon met GOED’s required standards for annual out-of-pocket maximums — $4,000, beneath the $6,000 threshold at the time — and covered 78 percent of employee health insurance costs, the company’s average annual wage was just a little more than $30,400 a year. If that was the sole income source for a family of four, they would be considered below the poverty level and eligible for Medicaid.

Amazon did not respond to a request for comment for this story.

A similar situation occurred for customer service company Sitel, which in 2016 received $136,000 in tax incentives to expand operations in Las Vegas by hiring an additional 153 employees at an average wage of $15.49. But the company — which also didn’t return a request for comment — pays for only 65 percent of employee health insurance costs, with out-of-pocket maximums for employees running up to $6,350 per year and premiums costing 8.6 percent of annual wages. As with Amazon, a family of four would be considered to be eligible for Medicaid if that $15.49 an hour wage was the household’s sole source of income.

Even Tesla, which received a record-breaking $1.25 billion mix of tax incentives, abatements and credits from the state in 2014, is high on the list of employers with workers on Medicaid. In 2018, the company had 426 employees and 439 dependents on Medicaid — the 13th highest total for any employer in the state.

Derek Armstrong, deputy director of the Governor’s Office of Economic Development, said that the office does not directly track any relation between companies receiving incentives and the number of employees on Medicaid. But he said that the number of companies receiving tax breaks with employees on government health insurance was concerning.

“If they're hiring one person, and it's the sole income for a family, is it possible that somebody making $15 or $16 an hour could then qualify if they have a family of five or more?” he said. “I think it might be possible. I wouldn't rule out that possibility.”

Armstrong said the agency can’t pick winners and losers, noting that it’s required to approve any applications that meet standards laid out in state law, regardless of how close to the cutoff line they are in terms of average wage or size of investment.

Republican state Sen. Ben Kieckhefer said the initial creation of the tax incentive menu offered by the state came during a period of such high unemployment that “we needed jobs, period.”

“We have since made changes to our incentives structure to increase wage thresholds and things like that based on various unemployment rates. So we've tried to make it more difficult to qualify for incentives as the labor market has tightened,” he said.

Trends in employer-sponsored health insurance

For companies, the cost of providing health insurance to employees has become an increasing burden as premium increases outpace wage growth. According to a recent Kaiser Family Foundation report, the average employer-sponsored health insurance premium in 2018 was $6,896 for a single person, a 3 percent increase over the prior year, and $19,616 for family coverage, a 5 percent bump. In the same time period, wages grew about 2.6 percent.

In Nevada, those premiums are only a little lower: $5,756 for a single person and $17,221 for family coverage, according to a 2017 fact sheet from the State Health Access Data Assistance Center.

Employers have long offered health insurance as a benefit in order to keep their employees happy. But Gary Claxton, a vice president at the health policy non-profit Kaiser Family Foundation, said that companies may make the cost-benefit analysis that higher wages are going to make their workers happier than better health benefits.

“If they can go on Medicaid and it doesn’t cost you anything, why would you take some of their compensation that could go to wages and turn it into health benefits they can’t appreciate anyway because they’re not very good?” Claxton said.

Last year, nearly 230,000 full-time workers in Nevada and their children received care through Medicaid, which provides health insurance to families making up to 138 percent of the federal poverty level, and Nevada Check Up, the equivalent program for children in families that make up to 205 percent of the federal poverty level. A family of four needs to make $35,535 a year or less to qualify for Medicaid and $52,788 or less for Nevada Check Up.

With Medicaid caseload sitting at about 670,000, that means that roughly a third of Nevadans covered by the state’s health-insurance program for low-income individuals were either adults working full time or their children. (Medicaid also covers pregnant women, the elderly and people with disabilities.)

The state’s latest report on Medicaid recipients working full time concluded that caring for these full-time workers and their children cost the state $638.5 million in 2018. The average company with 50 or more employees had 26 employees and 30 dependents on Medicaid.

Suzanne Bierman, the state’s Medicaid administrator, said the data speaks to some of the challenges of rising insurance premiums for workers, and the way that Medicaid, which was expanded in 2014 to fill in historical eligibility gaps for adults, has stepped in.

“It really shows the importance of expansion, especially when you look at some of the affordability issues that go hand in hand with employer-sponsored insurance,” Bierman said.

Nationwide, a shrinking number of working-age adults are covered under health insurance plans offered by their employers. A little less than three in five nonelderly adults were covered under employer-sponsored health plans in 2017, down nine percentage points from the turn of the millennium, according to the Peterson-Kaiser Health System Tracker.

Kieckhefer noted that businesses have to juggle other labor costs — including federal and state taxes — beyond just the hourly wage paid to workers.

“Mandates for health insurance on top of that add significant cost,” he said. “So when someone's making $10 an hour, the cost to that employer is a lot more than just $10.”

The situation is worse for the lowest-income workers, whose wages put them beneath the federal poverty line. Only 33.2 percent of people below the poverty line are covered by employer-sponsored health coverage.

The Affordable Care Act, by requiring large employers to offer affordable health insurance to their full-time employees and dependents, provided a small boost to the employer-sponsored insurance market. But rising premiums with high employee contributions have left those plans out of reach for some of the lowest-paid workers, with the average employee contribution to health insurance in Nevada for individual coverage at $1,255 a year and family coverage at $5,528.

For context, someone working full time at a $7.25 an hour minimum wage would only make about $15,000 total in an entire year.

To address those concerns, the ACA defined “affordable plans” as those that don’t exceed 9.86 percent of the employee’s household income for individual coverage. But those plans, while required to cover all of the ACA’s essential health benefits, can be less protective of catastrophic expenses, and come with high deductibles, coinsurance and copays that low-income workers can’t afford.

Given a choice between a high deductible employer-sponsored plan they have to pay for and Medicaid, which they don’t, many workers are going to choose Medicaid.

“Everyone would like to have health insurance, but you’d also like to eat and you’d also like to have a place to live. That’s not going to be their first choice,” Claxton said. “They need to feed their kids and get them to school and all those things.”

Looking forward

After several sessions of expanding and creating new tax incentives, lawmakers in 2019 appear eager to see the pendulum swing back and take a more critical look toward how the state offers tax breaks.

In addition to two bills reducing abatements or adding oversight, legislators said they were eager to take a more critical look at the overall effectiveness of abatements. Democratic Assemblywoman Dina Neal is sponsoring AB444, which would create a legislative committee to regularly review and oversee existing tax abatement programs offered by the state.

“Instead of this report … that we see every two years, it’s going to create a committee to do a deeper dive,” she said.

Although a similar concept backed by former Assemblywoman Irene Bustamante Adams failed to make headway last session, Neal said she thought the 2019 version had more support among legislative leadership. She said she was still reviewing the connection between companies granted incentives and employees on Medicaid, but said her initial reaction was concern.

“We want to know if the wage that is being paid to those employees is pretty much keeping them in poverty,” she said.

In 2017, Nevada’s oversight of tax abatements was described as “trailing” by the Pew Charitable Trust, which identified 31 other states that have some structure in place to regularly review tax incentives. Chaaron Pearson, a Pew researcher who helped compile the report, said state budgets generally benefited by the regular review, especially as economies change over time.

“A lot of times, these incentives get baked into the tax code and so they're there in perpetuity,” she said.

Additionally, Democratic Assemblywoman Teresa Benitez Thompson is sponsoring AB400, which would prevent GOED from approving any new abatements reducing the local school support tax, and prohibit any double-dipping from companies applying more than once for abatements related to a business expansion or initial move to the state.

Carlton, chair of the powerful Assembly Ways and Means Committee, said that there isn’t any appetite at this point for additional tax abatements. If there ever were in the future, she said that “there would be much stronger language in there about making sure that the state didn’t pick up the tab.”

“I would hope that we would stop this race to the bottom on tax abatements,” Carlton said. “We don't necessarily want everybody in our state. If they're not a good corporate citizen and they're not going to take care of the citizens of the state, if you're going to be more of a burden than an asset, then we need to re-evaluate.”

Cancela, sponsor of the bill that created the report on employers and Medicaid, said it’s a different conversation when talking about small businesses and startups trying to make ends meet than it is for the “Walmarts of the world.” Walmart has the most workers and dependents on Medicaid in Nevada — 6,464 in total — which cost the state $18.6 million in 2018, although the company has not received any recent tax abatements.

But she said that the state shouldn’t be sacrificing Nevadans’ financial stability or ability to access affordable health care when it decides to bring new companies and jobs here.

“It should be about quality economic development and not just quantity,” Cancela said.

Derek Armstrong

Derek Armstrong

Job: Lawyer and accountant
Party: Republican
In current office: None
Birth year: 1980
University of Nevada, Las Vegas (B.A.)
University of Nevada, Las Vegas (J.D.)
Other public offices held:
Assemblyman, District 21 (2104-2016)