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 And in the view of Kazmierski, president of the Economic Development
Authority of Western Nevada (EDAWN), the impressive numbers were
“just the start.”
Once known primarily for its casinos and quickie divorces, the Reno
area has made impressive strides in its attempt to transform itself
into a technology hub in the high-desert of Nevada. In the last few
years, it has attracted big Silicon Valley names, including Tesla,
Apple, and Amazon.
But now a new challenge has arisen for Reno: managing its success.
Even as the region celebrates its economic wins, it is struggling to
cope with the additional demands that the new businesses -- and the
new residents they draw -- will place on Reno’s infrastructure,
schools, and city services.
“Our revenues lag the demand,” said Robert Chisel, Reno’s finance
director. As newcomers are drawn to the area, he noted, “I need to
provide fire services, police services, parks services.”
Part of the problem, observers say, is Nevada’s tax structure. The
state doesn’t tax corporate or personal income, instead relying
primarily on sales, property, gaming and mining taxes. That tax
system – along with millions of dollars in additional tax incentives
– was helpful in luring new companies. But the system has also left
the region with few resources to cope with the influx of new
businesses and residents.
“The tax structure isn’t based on the economy of the future. It’s
based on the economy of the past,” said Stephen Brown, economics
professor at University of Nevada, Las Vegas. “If Reno is going to
become another Silicon Valley, then it’s going need a tax structure
that keeps up with providing services for that type of economy. It’s
not going to be gaming and mining.”
CHALLENGING TIMES
Reno’s play to attract high-tech business grew out of desperation.
Just four years ago in 2011, the city was on the state’s watch list
for potential insolvency following a rapid revenue decline. Hit hard
by the recession, Reno lost 30,000 construction jobs, and the city
had to cut 500 positions, a third of its workforce. Home prices
tumbled by 58 percent, and gambling revenues fell dramatically
across the state.
One of the first successes came in 2012, when Apple announced it
would invest $400 million to build a data center. Soon after, tech
companies Zulily and eBay and retailers Urban Outfitters and Petco [PETC.UL]
followed. Amazon relocated a distribution center to the area. Then,
in September 2014, came the region's biggest score: Tesla Motors
announced it would open a battery manufacturing plant in the area,
eventually creating 6,500 jobs.
But attracting the companies wasn’t cheap. Since 2011, the state has
agreed to $1.4 billion in tax abatements for 38 companies within a
25 mile radius of Reno. In two of the largest deals, Nevada gave
Apple a tax break over 10 years that will save the company some $55
million in taxes – this in exchange for the promise from Apple of 35
jobs paying an average $25 per hour.
For Tesla, the state agreed to forgive 40 percent of the company’s
taxes for 20 years, a gift expected to ultimately cost the state
$1.3 billion in lost revenues. But Nevada estimates the company will
directly and indirectly spur 22,500 additional jobs and $955 million
in annual income for local businesses.
“I think at some point, the state of Nevada is going to have to look
at how it is going to pay for services,” Brown said. “When you bring
in businesses that are big, you generate jobs, but if you then
exempt them from taxes, all those people who came with the company
are going to demand schools for their children and police for their
neighborhoods.”
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STRUGGLING SCHOOLS
In Reno’s Washoe County, the school district is already at a
breaking point. Over-capacity and utilizing 228 temporary portable
classrooms, the district added 562 kids last year – enough to fill
an additional elementary school. If, as conservative estimates
suggest, 30,000 new residents were to move to the Reno area over the
next five years, the district would need five more elementary
schools, three middle schools, and 1.5 high schools.
“Right now, we have severe funding issues,” said Pete Etchart, the
district’s chief operating officer. “If we don’t find relief, we’re
going to go to some uncomfortable solutions.” Options under
consideration are year-round schools, or double high school sessions
- one early morning, another late afternoon.
The district says that it has no money for building and is able to
make only emergency repairs to its existing schools. A property
value cap limits the district’s annual bonding capacity to $20
million, far short of what it would take to embark on a building
campaign.
The wear and tear is noticeable, said Andrea Hughs-Baird, a 20-year
Reno resident and mother of three. She says her children’s schools
have fraying carpets, broken sinks and aging heating systems.
“The needs are real,” said Hughs-Baird, who co-founded a parent
group called, Parent Leaders for Education. “If we were a business,
we would never let our schools get into these conditions. We are in
dire need.”
In January, Governor Brian Sandoval highlighted Nevada as the
second-fastest growing state in the nation but said it also had the
lowest preschool attendance and high school graduation rates. Almost
one of four children lives in poverty.
There are signs that the state’s education failings are hindering
its attempts to attract new business. When the Las Vegas Global
Economic Alliance polled companies that had decided against
relocating, the most common reason, cited by 35 percent of
respondents, was concern about the quality of workforce education.
Infrastructure is another issue, starting with the sewer system.
Last fall, Reno and neighboring Sparks were fined for dumping too
much nitrogen-rich discharge into the Truckee River, a problem they
say they have fixed. The cities are now investing $25 million in
sewer upgrades.
Money for infrastructure and other needs isn't easy to find,
however. Reno is currently facing a $226 million unfunded liability
for retiree health benefits, a $40 million workers compensation
liability, and $534 million in long-term debt.
But city boosters like Kazmierski think investing in Reno makes
sense. “We need to make some changes,” he said. “If we want to
depend on gaming, that’s ok. But if we want science, technology, and
engineering, we need to put more in the process. I think we have a
community that wants to do that.”
(Editing by Sue Horton)
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