The Economy and Nevada, Part Two

On Tuesday I laid the historical background behind the motives for Nevada's more libertarian solutions to economic hardship. While many of these solutions had their roots in the "old West" days, traditions which never fully died off, it was the Great Depression which brought about legislation allowing activities shunned by many to become industrialized, including gaming, leaving tourism to thrive, keeping taxes relatively low.

The relatively low tax rate, aside from benefiting the citizenry of the State, was a huge boon to growth. In fact, as that article will show, the State's population had been shrinking drastically in the closing years of the 19th century, posing a significant revenue problem at the state level. As Nevada has always been considered a "small state" (total state population being under 500,000 into the 1970s), relying upon one primary industry for the bulk of state revenue could be considered adequate (as had been done with mining previously), as became with Gaming. However, as population increases in the fantastic sums Nevada has seen (nearly 50% or above each decade for the past fifty years), sustaining a barely diversified economy becomes difficult.

This is what we see in Nevada today: the growth of the tourism industry is unable to compete with the accelerating growth of residents and the inherent social programs for which that larger population will clamor. Here-to-fore, a balance for a large part of the dividend has been by way of property taxes, a revenue source which becomes fickle between current housing trends as well as a growing need for more "mass housing," i.e. apartments, condominiums, &c, in the larger, metropolitan areas of the state (Washoe County, Carson City, Clark County, and, to a somewhat lesser extent, parts of Elko, Lyon, and Douglas Counties). The tax crisis faced by the legislature in 2003 (to say nothing about current budget shortfalls approaching the $900,000,000 mark) underscores the need to diversify.

But, back to the task at hand, the role of gaming in all of this. The current situation is not pretty, but given what we have to work with, an economy which can be described as sluggish does not lend itself to tax increases, least of all increases in tax rates for the proverbial hand that feeds us. Reverting back to an "old friend" (see Part Two of Historical Musing #1 from March), the Revenue Act of 1932 proves this fact. The question begs to be asked, just what would happen in the event of a tax increase for the gaming industry in particular.

The first to feel the bite would be the smaller casinos. The "little guy" simply would be unable to compete, especially given the current state of the economy, with their larger neighbors. Aside from the distressing number of layoffs created by the closure of several "little guys," the larger neighbors, rather than driving down many of their own rates, would see their product at a premium, actually increasing their rates for room and board, food, and even the gambling activities themselves. For a huge (yet ever dwindling) number of weekend gamers from California this would provide a huge obstacle, and with an increasing number of Indian casinos much closer to home offering the same products (and perceptions of opportunity) far closer to home, a significant portion of the tourists who drive the Nevada economy will simply be far less willing to make the drive across state lines for their excursions. Indian gaming as already had a profound effect upon the Nevada economy (with the Comstock, Sundowner, and Old Reno Club, among others, closing since 2000 in Reno alone; these properties were able to benefit by the housing boom of recent years, a topic to which I will address in a bit more depth shortly), and the state simply cannot afford to wage an all-out war over gaming in the west at this juncture. Less business for the small Nevada casinos translates to more business for the Indian casinos, filling their coffers rather than ours, leaving them to create larger, more truly Nevada-style establishments, further decimating this source of state revenue in the decades down the road.

With the closures comes the unsightly and unfortunate prospect of vacant property. As I began above, several operations were forced to close in recent years. Yet a booming housing market (at the time) salvaged the majority of the physical properties as developers snatched up the not insignificant buildings for conversion into apartments and condos. With housing in a remarkable slump, properties in the immediate future would not be able to benefit from the same types of speculation, and it is far more likely that these buildings would fall into litigation nightmares and left to rot for years upon end, as has happened in the past. The city of Reno here becomes my model. The fabulous Hotel Mapes sat in a state of vacant decay for sixteen painful years before the City of Reno exercised eminent domain and finally demolished the beautiful yet dilapidated structure in January of 2000. The older Riverside Hotel in Reno, likewise, sat vacant for well over a decade before the City was finally able to rejuvenate the sad structure. Currently there is one significant, grotesque monument to this in the form of the old Kings Inn, which operated only from 1975 into 1982. Many others, including the not insignificant in stature Fitzgerald's building downtown, could easily meet similar fates, leaving the downtown a hideous, pockmarked mess, further driving away the all too valuable tourism market. Reno would, unfortunately, not be alone in this disaster, however.

In my opinion, the problems faced today are exacerbated by Nevada's industrial distribution. As of 2006, "Leisure and Hospitality" took the largest share at 27%, followed by "Trade, Transportation, and Utilities" at 17%. Tied for third, at 12% were "Professional and Business Services" and "Government." An industrial distribution where government and the bureaucracy it inherently creates is the third largest chunk is an enormous hurdle not only for solvency, but for the State in general.

Government is where special attention should be aimed, not at thinly veiled attempts at slapping the hand that feeds you...with a hatchet.