Friday, April 4, 2008 | 2 a.m.
The applause for Gov. Jim Gibbons inside a conference room at the Rio could be called tepid only if the Colorado River runs tepid this time of year. No, this applause was downright cold, made all the more so by the makeup of the audience — a Las Vegas business community as friendly as the governor will ever see outside of Sparks.
Gibbons’ performance Thursday at a breakfast event on the state of the Las Vegas economy was predictably maddening for opponents, delightful for low-tax advocates.
Even as conditions in Nevada keep changing, one might even say worsening, Gibbons hits the same note — pleasing for libertarians, earsplitting for Democrats and even some moderate Republicans.
With criticism from all sides during his 15-month tenure, a $900 million budget deficit that will require tough cuts, fears of a hepatitis C outbreak and the continued sluggishness of the job and housing markets, Gibbons turned his face into this bitter wind and saluted the wonders of the free market.
It was a speech worthy of a reelection campaign, not just extolling the virtues of the free market and Nevada’s laissez-faire attitudes but also trashing those who would espouse more government.
All Nevadans want a strong economy, good schools and protected natural resources, he said.
“Where we differ is on fundamental ideology,” he said.
Government isn’t the cause of Nevada’s remarkable growth and rise from gambling backwater to economic powerhouse.
“Just the opposite,” he said. “It is the private sector, not the public sector, upon which the economy is built.”
Then the cognitive dissonance set in. Gibbons discussed the future — with an agenda laden with public-sector projects: the Ivanpah airport, a water supply less dependent on the Colorado River, development with a smaller ecological footprint, improved education, restored trust in the health care system.
He left to polite applause.
A. Somer Hollingsworth, the head of the Nevada Development Authority, then gave the same message, if with more gusto and wit. There was much giggling about the foolish Californians, they with the 10th-largest economy in the world but burdensome taxes.
The ridicule of government regulation and taxes continued, until it was time to introduce all the government projects that most people in Nevada want and know are necessary if the community is to mature.
Again, the airport but also projects such the performing arts center and exciting developments at UNLV that are substantially publicly funded but with significant private support.
And there’s the rub: Gibbons and Hollingsworth — and probably many at the Thursday event — realize, at least unconsciously, that low taxes and a permissive regulatory regime alone won’t deliver the Nevada they want.
There’s plenty of data on this score: In a dense paper he published a few years back, Federal Reserve economist Robert Tannenwald wrote that state and local taxes are but a minor factor in business investment decisions.
And there’s Peter Fisher, an expert on taxation at the Iowa Policy Project, who noted in an interview that state and local taxes make up a minimal share of business expenses, so they’re not much of a factor in deciding where to set up shop.
(The title of his paper: “The Failure of Economic Development Incentives.”)
Instead, businesses consider the productivity and skill level of the workers, transportation and energy costs, and whether they want to live there.
People leave Iowa because of the tough winters, not the high taxes, he snarked.
What he means is that quality of life plays a bigger role in people’s decisions than a couple of pennies a year on the dollar in taxes. No doubt some Iowans like living in a low-tax state such as Nevada, but consider hedge fund managers, many of whom are based in high-tax Greenwich, Conn., and not low-tax South Dakota or Las Vegas. High taxes are fine with them because they want to live near other hedge fund managers and send their kids to good schools, which are filled with kids of hedge fund managers. Also, there are fewer hepatitis outbreaks.
These money handlers love visiting Las Vegas, but don’t expect them to move here unless something drastic happens with our SAT scores.
The same goes for Silicon Valley, Boston’s biotech, and Seattle’s Microsoft — all high-tax and very prosperous.
The crowd at the Thursday breakfast may be catching on to this rather obvious fact, which might account for the cool applause afforded Gibbons.