Las Vegas Sun

August 1, 2014

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SUNDAY CONVERSATION:

Brass tacks: Looking for someone to tax

Teachers want to raise the gaming tax by 3 percentage points, triggering a fight that could change the way public services are funded.

The teachers' initiative campaign also has reignited a great tax debate. During the 2003 Legislature, then- Gov. Kenny Guinn proposed a tax on a variety of businesses. Though he prevailed on some fronts, the state's tax structure remained fundamentally unchanged. Since then, teachers, transportation advocates and others have wondered how to raise money.

The Nevada State Education Association, frustrated by politicians' anti-tax sentiments, wants voters to raise the gaming tax by 3 percentage points. The teachers' argument? The state needs more money to improve education. Who has the money? Casinos.

They're an easy target. The gaming industry's response: Don't jeopardize the economic engine that drives Nevada. Spread the tax burden.

Economists agree that a broad-based tax system is the most stable way of paying for public services. But Nevada is one of only a few states that doesn't have a broad-based income tax on corporations or individuals.

So is it right to further lean on casinos to help schoolteachers?

The Sun brought together four players for a conversation about the tax (the Greater Las Vegas Chamber of Commerce declined because of scheduling conflicts);

They sat down and got into it among themselves Thursday at the Sun. We asked a couple of questions but mostly just stayed out of their way. Here's a summary of the 64-minute discussion:

Could everyone at least agree that schools need more money?

Jones (Harrah's): We're 49th in the nation in per pupil funding. We are underfunded.

Rogers (chancellor): But there's a broader issue, about taking care of other needs, including health care.

My biggest concern is that we solve problems one at a time. It's necessary to take a broad look at taxing. And I'm kind of sticking up for the gaming industry in this spot. Every time we have a problem, we shouldn't sit down and say, "OK, let gaming solve this problem." It's a problem all of society in this state should solve.

A lot of us have done very well because of gaming. So I'm very reluctant to just say the answer to all this is let's raise the taxes on gaming 3 (percentage points), and keep raising it more every few years.

Everybody needs to pay their fair share of community rent.

Jones: Teachers are certainly to be commended for raising the issue, but to Jim's point, if we don't look at all of the state's funding needs and come up with a broad-based solution, are we going to solve every problem one initiative at a time? Or are we going to enact responsible and accountable legislation that takes us there?

Uffelman (banker): Legislating by initiative isn't good policy. Try to condense all messages into three- or four-word sound bites. It doesn't work.

In Nevada, what's an appropriate level of spending on anything? This notion that a first-year teacher can't afford a home in this state - I don't know a lot of people who graduate from college who can afford a home on their first year salary in any occupation, whether it's as a new lawyer or anyone else.

Is the money being spent on education being spent appropriately? I would argue in many ways that it's not being spent in the best way.

A lot of folks think gaming is the right source of revenue. I don't know that. This idea that here's an industry that can afford to pay so we'll stick it to them, that's not good public policy.

That said, I don't know that there's a banker in the state that wouldn't sign the teachers' petition.

Warne (union): I'm glad you all acknowledge that we've got a problem with education funding. We've sat session after session waiting for the Legislature to do the right thing and fund education adequately.

But we still sit at the bottom of the heap. We're still 49th in the country in per-pupil expenditures, we have some of the largest class sizes in the country, our salaries rank low, and most of our folks that we can hire, particularly in Clark County, will leave within the first five years.

So there certainly is a problem. And we've got class sizes so large we don't have enough furniture for those kids to sit in and you've got standing-room only sciences classes. We've got a problem.

We certainly weren't satisfied with education funding after this year's legislative session. So we began looking at what our options were.

We did some polling, asking how to fix education funding. And there was overwhelming support to increase the gaming tax. Gaming taxes have not gone up more than only 1.25 percent in 52 years. The citizenry's sales tax has gone up more than that in that time.

We believe that a 3 (percentage point) tax on the largest casinos that gross a $1 million or more a month is certainly fair. The average gaming tax outside Nevada is around 15 and 20 percent. The top casinos in this state pay 6.75 percent. The public has told us it's time to increase it. We believe that another 3 (percentage points) from the largest casinos is fair.

Jones (Harrah's): I really have to speak. I've run for governor twice, campaigning on how to properly fund social services. The first time, I did a whole blueprint for Nevada that told how to fund education. So I'm passionate ...

Warne (union): We know. We endorsed you.

Jones: I know you did, so I am so with you on the public policy side. Where I get frustrated is that any poll will say, "Don't tax me. Tax somebody big." You know that. We're an easy target.

But nongaming businesses have the fourth-lowest taxing environment in the country. It's because of gaming. We're an industry that's driving the job growth that's driving the business growth that's driving the growth in housing.

Warne: That's driving the overcrowded classrooms.

Jones: Gaming has never said it doesn't want to be part of the solution. All we have said is that we don't want to be the only solution. If we're going to bring 45 million visitors to sustain this state or this county as the No. 1 resort destination, No. 1 convention city in the country, you better fix the roads and somebody better get that monorail running. You better be able to widen the beltways not only for the people coming here, but the people who are living here.

You need a comprehensive 10-year transportation plan that ties in with your education plan, that ties in with your health care funding, before you even begin looking for a funding solution. It's a balance, and you can't do it with a single vision. And you can't do it with just one industry.

Go back to Gov. Kenny Guinn's valiant effort in the 2003 Legislature. He brought all of the businesses to the table and he said we need to come up with a better way to tax everyone. Everybody pays for it, it's fair and it's reasonable and it doesn't upset a system that has made this the fastest-growing community and a model for the rest of the country.

Rogers (chancellor): Let me talk about my industry for a minute. We have these tremendous profit centers in the local television industry, with out-of-state owners paying nothing in this state because there's no corporate tax here.

And let me just add, the Review-Journal - I don't know what the Review-Journal makes, but I can guess it makes more money than all the TV stations put together - has very little investment in the state. Here's a company that takes all that profit and ships it to Arkansas.

The people of the state of Nevada buy newspapers, or watch TV or both, and rather than that money staying here for education, it all goes out of state.

Jones: You even look at gaming. Just for the privilege of having a gaming license in Massachusetts, they're talking about $300 to $500 million per license. And yet we let businesses locate here, be extraordinarily successful and they get to do it for free - at the expense of teachers and education and health care and transportation. That's socially and practically irresponsible.

Rogers: If you're in a state that has a tax rate of 12 percent on something, we tell them to move here to avoid the tax. Nevada is like the Ford dealer who says, "I lose $400 on this car, but I make it up in volume."

We keep bringing more and more people in here who use our services and don't pay for it. We should be competitive. We don't have to have a zero tax. We could be half of what, say, California's is.

We can be competitive without having to have no corporate tax.

Jones: And the teachers are put in a position like this, whether it's because of the Review-Journal or the Legislature, or a governor who says absolutely no new taxes in a state that's ranked 49th in almost all of their general services.

Warne: The legislative process may be the best way to make tax policy, but in this state and in terms of education funding, it's obviously proven not to be true. We need to turn to the initiative process.

Rogers: If you look at California, though, and what initiatives have done to them, I think about 90 percent of their budgets now are controlled by initiatives and you have no flexibility there. God, I hate to get into the initiative business.

I'd like to see a graduated corporate income tax, where we don't tax a marginal company. But a guy making $200 million a year ought to pay some substantial amount of taxes. You've got to pay your share of the community rent. Period.

Jones: We have 100,000 employees, more or less, in the gaming industry. They want good schools for their children and their employees' children. Why would you ever want anything less? Right now gaming funds about 50 percent of the budget in Nevada. If we have 100,000 employees and we want good education, what about the other million and a half people living in Nevada who are employed by businesses who aren't contributing anything?

Uffelman (banker): Bull. If you recall the payroll tax outcome in 2003, banks paid. Banks - not credit unions, not brokers, but banks - paid over $1 billion in wages that are taxed at 2 percent.

Rogers: Be very careful with this argument. I've been a banker. I've been a chairman of two banks in this state. Be very careful where you go with this.

Uffelman: The 2 percent payroll tax is roughly $24 million a year. And I don't know of any bank that doesn't make health care insurance and the like available to their employees. So, in terms of the social responsibility, banks are generally good places to work.

Jones: Just a minute. Payroll tax is $24 million a year, right?

Uffelman: $24 million a year.

Jones: Wait a minute, the gaming industry pays half of the general fund of the state of Nevada, which is what?

Rogers: Well, it's $7 billion total over two years. So, $3.5 billion.

Jones: So you're getting close.

(Laughter)

Uffelman: State chartered banks, generally a community bank, pay about $6 million in fees to the state. But the agency that regulates those state chartered banks only gets about $2 million back for regulation. The rest of it just falls into the general fund.

To say that this entity or that entity isn't paying compared to other businesses in the state isn't fair. Bankers pay a higher payroll tax, which is effectively an income tax.

Rogers: That's just ridiculous.

Uffelman: It's not an income tax?

Rogers: No, it's not.

Jones: Even in 2003, who ended up at the table? The banks, gaming, some of the big businesses. Who wasn't at the table? Car dealers, slot route operators, who make a gazillion dollars. Home builders, manu- facturers. The other businesses fade into the background and let the visible industries slug it out.

Quite frankly you need all businesses there. You have got to have all businesses there.

Rogers: Let me ask you, Uffelman, a question. Let's assume that a bank made $75 million in net profits last year in Nevada. It's owned by a banking company in Utah. So $75 million gets shipped to Utah.

None of that money stays here, not one nickel stays here.

Uffelman: Money gets paid as dividends to shareholders. Somebody in between made bonuses, salaries got paid.

Rogers: Somebody here in Las Vegas wrote a check for 75 million in one year and sent every stinking nickel of that money to Utah. In Utah they say, 'God, the bank made $75 million last year. Let's tax that at about 10 percent.' They get $7.5 million, dump it in their state's general fund.

Nevada is providing for education in another state. That makes no sense to me.

Uffelman: But is that any different from any business in this state?

Rogers: Yeah, it's different than gaming.

Uffelman: Excuse me. Is that different from any nonpriviledged business?

Rogers: That is my point. You cannot continue to say we should put all the burden on gaming's back. Other businesses have a moral obligation.

My wife any I would have no problem to paying a reasonable tax.

All the other TV stations should pay a tax. I think the Review Journal should pay a tax.

Warne: Can I jump in here for just one sec?

I appreciate that everyone understands we have a problem with education funding in this state. But this is so very often how often the debate goes.

I listened to 2003 legislative session, and it sounds very much like it does here. While everyone is talking, teachers walked out of the session with a 2 percent raise in the first year and a 4 percent raise in the second year. The cost of living rose by 3.5 percent. Those folks are not even keeping up with the cost of living.

Meanwhile, kids are sitting in overcrowded classrooms and being taught by substitute teachers, because you cannot hire enough full-time teachers. It's not right.

We were frustrated at the end of last legislative session. The governor said no new taxes, but the infrastructure around the state is failing. The problem never seems to ever get fixed. It falls down to infighting.

So a move needed to happen. At one point, we finally had to say, enough.

Jones: But you have to do the solution the right way. You can't just address one problem.

Even if you have better schools, it does you no good if the mother spends hours stuck in traffic getting her children to school because the roads are inadequate. And you can't get any quality health care for that child, because the quality of health care is so substandard.

It's great to fix a problem, but if you fix it with the wrong answer, you haven't fixed anything. I understand your frustration, but they're all related.

I really do feel your pain.

The question is how do you get there without your having to wait another three or four years to upgrade?

Warne: Or longer.

Rogers: You've got so much clout because you've got all the voters with you. You need to go out there, and say look, we want not only a better education system, but we want a better culture here.

I always say to people, we have a first-class economy here, and a third-class culture.

And eventually the third-class culture will bring down the first-class economy.

You need to get together as a group and say we want to have a good culture. We want a performing arts center, good roads, good health care. Just trying to solve just one of those things ain't ever going to improve us.

Frankly, I don't know what the hell you're asking for, but don't think it's for my professors.

Warne: We're focusing on K-12.

Rogers: I don't blame you there. But it seems to me that if you aligned yourself with a broader base you could amass so many damn voters. I'll tell you, a lot fewer people have $10 million than don't, so you can probably pick on the wealthy pretty easily. You can vote this stuff right through if you all stick to it.

But you don't. You give up.

The guy that's making the $50 million a year is sitting back saying: 'I did it to them again. All my money is safe. I can have all these little trinkets and these things. I convinced them we can't have any more taxes.'

We don't need to tax everyone. We've got to tax those businesses and people who can afford to p ay the freight. I don't know any state I'm involved in where there's so much private wealth.

Jones: You can't just assume that gaming can pay. We're the economic engine that drives all the prosperity, and to say, "See, they're building all these beautiful things." Well, thank God they're building all of those beautiful buildings.

When they were talking about Atlantic City and other states legalizing gambling, and Indian tribal casinos, they were all going to kill Las Vegas. Well it didn't.

That's because every time there was a new product, we built bigger and better and different, so no matter what anyone else was doing, Las Vegas was still an experience nobody else could replicate. That's why we're the No. 1 destination, No. 1 convention city.

So you can't make the assumption that since gaming can pay, doesn't mean they should be the only ones to pay.

Warne: It was the public, through polling, who pointed to the fact that we believe gaming needs to pay more of their fair share for education.

Jones: I can ask the public anything in a poll, and you know as well as I do, it's all how you pose the question. That's an easy question. "Do you want to tax gaming?" "Yes."

Warne: Jan, we looked at other taxes.

Jones: You don't go to the public to thoughtfully consider tax policy. You elect representatives to thoughtfully consider tax policies.

Rogers: What other industries did you look take at taxing?

Warne: Cigarettes, alcohol, live entertainment.

Jones: People don't want to tax that. They know they're going to pay for it.

Rogers: Take a look at what a company like mine has done. We started out as the 129th television market in the country. Now we're 43rd in size, and 29th in revenue.

All my income in that time is not because Jim Rogers is so smart. It's just that I sell more eyeballs every day. I benefited from the area's growth that was driven by gaming.

Even if it's 1 percent or 2 percent or 3 percent, look at other businesses that have benefited. If you had a 4 or 5 percent incremental tax on all businesses in state, I bet you have no idea how much money is out there, because it flows.

Uffelman: Are you talking about a personal income tax or business income tax?

Rogers: Business income tax.

Jones: I don't think anyone here is talking about a personal income tax.

Rogers: Constitutionally, you can't do a personal income tax. But you can sure as hell take a look at a business tax, a corporate tax.

I'm in the process of organizing my fourth bank, so I know where you are on all that stuff. We don't pay our community rent. We really don't.

Uffelman: Look at the charitable contributions of Wells Fargo in the state, there's a lot of money that comes out of banking.

Rogers: I'll bet you that my wife and I every year give away five times as much in this community as your bank does.

Jones: What was the last major gift from Wells Fargo?

Uffelman: A building at UNLV which has its name on it, which of course doesn't compete with the $30 million Harrah's gave to the hospitality school. But there are substantial sums coming out of banking ...

Jones: Harrah's gives a million and a half a week in charitable contributions, nationwide.

Uffelman: Nationally.

Jones: But I really don't want to get into 'we're more charitable than you are.'

Uffelman: I'm not trying to.

Jones: Teachers are asking for $250 million, but what is the amount needed to fix the culture - transportation, schools, education, in a reasonable way?

Warne: I can answer for education. The legislature paid for an adequacy study that put it at a $1 billion price tag. That confirmed what superintendents and school board associations have said over the past three legislative sessions.

Jones: The problem is we don't bring all the businesses to the table to come up with taxation mechanism to fund all the programs.

So maybe we can fix teachers - and then investment slows down in resort districts. What do we do when we need transportation? Do you come back tax them another 3 (percentage points), then tax them another 3 (percentage points) because the public says it wants to tax them? Pretty soon what you've done is killed the whole structure. Then everybody loses. Nobody wins. Everybody loses.

Rogers: If you said to gaming, "Look, we need $250 million, and we'd like you to put up half of it, and the business community puts up half of it," I don't think there would be a problem.

I think your economic analysis has been rather shortsighted.

Sun: Uffelman said there's not a banker in the state, despite this elegant discussion, who wouldn't sign the petition to tax gaming. Jones, when you heard him say that, did you swallow hard?

Jones: It's not about the next five years. It's about the next 15 years. We're not going to be able to fix the system with initiatives. That just solves a problem, albeit a legitimate one, in the short term.

And that's what we're doing in this state, because everybody's walking away, including the press, who, quite frankly, will drive whether elected officials enact responsible public policy.

And that's what's required: a group of people who care about this state sitting down. It's not that tough. It really isn't. The money's there. The businesses are there. We haven't taken the responsibility to do it.

Uffelman: I think that's what I said in the beginning.

Warne: So why did that conversation break down and fail in 2003? You admired former Gov. Kenny Guinn's effort, and we did, too. We had great hopes.

Jones: I think a lot of it was Review-Journal and their editorial stance, and pressure that was brought to bear on elected officials from the Chamber of Commerce who just came in and blew up legislation.

They did it for their own interest, not in the interest of this community. They walked away from a sitting Republican governor who had put all his political capital on the line to do the right thing.

In 2003, businesses went phew. We dodged the bullet. Now, gaming's back in the cross hairs, it's not right.

I'm trying to get run out of state.

Rogers: No, it's not right. I'm a little goosey about their suggestion to nail it on gaming. It's a short-term fix. We'll be back in a couple years, asking for more and more. And those of us who are pretty well off will be saying, 'Wow, we beat them again.'

Sun: Thank you all.

Rogers: Do you provide people to start our cars when the story comes out?

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