The biggest government giveaway in Nevada history will also be the silliest
The film tax credit bill whizzing through the legislature doesn’t give tax breaks to film companies. It publicly subsidizes them. (Getty images)
Poor Elon Musk. Count all the tax breaks, cash and other prizes Nevada has given him, and they’ll total less than $2 billion.
The film tax credit scheme currently whizzing through the Nevada Legislature is estimated to total just shy of $5 billion.
Under the original 2014 deal, the vast majority of benefits the state bestowed on Tesla were tax breaks on sales and other taxes that Tesla would have otherwise paid. One could argue – area economic development officials invariably do – that if Tesla didn’t come, then Tesla wouldn’t have been paying any taxes anyway.
None of the $5 billion in the film tax credit scheme gives sales, use, or any other kind of tax break to Sony or any other corporate film giant. Instead, it publicly subsidizes them, at the state’s expense, by giving film companies tax credits they can sell to other taxpayers.
The companies that buy the tax credits, which sell for less than face value, are the companies that will get the tax breaks.
To reiterate an example I’ve used before, if a casino or insurance company (two industries the film bill declares eligible to purchase the tax credits) buys $50 million worth of state-issued tax credits for $37.5 million, the state will then accept the credits against $50 million of the gaming or insurance company’s tax bill, effectively granting the company a $12.5 million tax break.
The film company, meanwhile, is $37.5 million richer.
And the state, which otherwise would have received $50 million in tax revenue, gets nothing at all.
The example above assumes tax credits sell for 75 cents on the dollar. But transferable tax credits have reportedly been sold for less, and sometimes quite a bit more, perhaps as much as 95 cents on the dollar. At that price, $50 million worth of tax credits would be purchased for $47.5 million, and buyers would get a $2.5 million tax break.
Whatever the purchase price of the credits, money that would have gone to fund public services gets converted into public subsidies for film companies.
Multiply the example a hundredfold to match the roughly $5 billion estimated value of the tax credits, combine that value with historically prevailing prices of transferable tax credits, and over the next 20 years:
- Public subsidies to film companies would total around $3.75 billion to $4.75 billion;
- Tax breaks for companies buying tax credits would total $250 million to $1.25 billion;
- And the state of Nevada would lose $5 billion in tax revenue that it might have spent on, oh, schools or something.
Unlike the money lost to the state by giving Tesla tax breaks, there is nothing hypothetical or conditional about the “negative revenue,” as a legislative staffer dryly described it, that would be incurred by the state.
Gambling and insurance taxes, along with modified business taxes (the other category of taxpayer that could buy credits under the bill, assuming they had enough of a tax burden to warrant doing so) aren’t hypothetical. Those are taxes that already exist, that are being paid now, and will continue to be paid over the next 20 years. The state just won’t collect as much of them as it otherwise would, because big chunks of that tax revenue will be converted into a commodity and freely handed over to film companies to sell for the best price they can get.
Why are we doing this?
Economic impacts of subsidizing the film industry are notoriously overstated. “Despite the positive anecdotal evidence that accompanies big film projects, such programs do not provide a substantial return on investment and, if economic development is the goal, other policy avenues might be more productive,” reads a 2022 analysis from the National Conference of State Legislatures.
So why are we doing this?
Well, for one thing, Howard Hughes Corp. owns the land where Sony will go, and all the land around it besides, and appears to have sugar plum visions of creating a proper super high-end LA suburb on the western edge of Summerlin with multi-million-dollar palaces fit for movie stars in a heavily gated high-security community that most of us will probably never, ever be allowed to enter except as help.
And who’s going to say no to Howard Hughes Corp.? Not mere Nevada state legislators, that’s for sure. So that’s one reason we’re doing this.
For another thing, ever since Northern Nevada got Tesla, there’s been a sentiment in Southern Nevada that it should get something too. Something big. Evidently the football field didn’t hit the spot.
That would be understandable. Tesla and the associated development in Storey County – as economic development officials will invariably assert – have had a somewhat transformative effect on the greater Reno area economy.
By contrast, more tourists coming to Las Vegas to see concerts and sports, even in a new stadium, is still more of the same.
Would SB 496 bring more of something different?
It’s hard to see why or how.
Sponsors and supporters of SB 496 contend Nevada should give public money to Sony and at least one other multi-billion-dollar media conglomerate because it will diversify the economy.
The economic projections – and economic projections prepared by boosters of publicly financed enterprises are routinely overstated – estimate SB 496 would lead to 6,800 permanent jobs, and 10,000 indirect jobs, many of them involving food service, accommodations and retail occupations – already the three most common jobs in the state.
The project is also estimated to create 10,000 construction jobs. Again, these estimates are always overstated, and sometimes wildly so – the number of construction jobs at Allegiant stadium never came anywhere near the projections. And construction is another employment sector that has always been historically outsized in Nevada. (In fact, after the housing crash and subsequent Great Recession, state officials said they wanted the economy to diversify away from construction).
But ok, let’s say the job projections are right (this time) – 10,000 construction jobs, 6,800 permanent direct film jobs, and 10,000 indirect jobs (many if not most of the latter in the aforementioned already large service sector).
The Southern Nevada labor force currently totals nearly 1.2 million people. Fewer than 7,000 film industry jobs (which may or may not be stable or even full time, judging from the writers’ strike) are not going to notably enrich the texture of Southern Nevada’s economy.
And in a video supporters showed at the start of a legislative hearing this week, one of the points made over and again was how great it would be to have all that multi-platform content out in the world with pictures and images of Las Vegas, because that would really boost … tourism.
Granted, tourism is an excellent and very desirable form of economic diversification. In the Corn Belt.
The biggest government giveaway in the state’s history will cost the state $5 billion, will bring more of the same than more of something different, and do a whole lot of not much in terms of creating and expanding broadly shared prosperity.
Why is Nevada doing this? Oh sure, because a handful of people who are already rich are going to make a fair amount of money. The Nevada way and all that.
But the main reason we’re doing this is because Nevada will do or try anything, no matter how “out of the box” or outdated or even daft, in the name of economic development. Anything. Except sincerely investing in the people who every day in every way are the backbone of the economy Nevada already has.
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