EDITORIAL: Nevada PERS counting on unrealistic investment assumptions

Las Vegas Review-Journal

August 10, 2019

The current stock market volatility is another reminder of the precarious position of public pension systems, including Nevada’s plan for state workers. That’s because public pensions invest heavily in volatile assets, like stocks.

Across the country, state and local pension plans are only 73 percent funded, according to a review of 180 plans by the Center for Retirement Research at Boston College. The Public Employees’ Retirement System of Nevada does slightly better, coming in at around 75 percent funded. But neither statistic is encouraging.

“State and local pension plans have about $4.4 trillion in assets according to the Federal Reserve,” The Wall Street Journal reported last week, “$4.2 trillion less than they need to pay for promised future benefits.”

Imagine the uproar if pension plan officials announced they were going to pay out only 75 percent of promised benefits. Yet that’s all the assets most of these pension plans currently have — assuming they hit their investment assumptions.

This is especially concerning, because pension systems are riding a 10-year-wave of positive investment returns. The S&P 500 has more than tripled in value since the beginning of 2009. If pension systems are only 75 percent funded after a decade of healthy growth, what happens to the unfunded liability during the next downturn?

Pension managers, however, assure the public that there’s nothing to worry about. To make up for the deficits and growing obligations, they assume pension plans will earn a 7.4 percent return, on average. Nevada PERS assumes annual returns of 7.5 percent.

In fact, these projections disguise the real problem by likely underinflating long-term obligations by overestimating portfolio performance. Thirty years ago, a level of return of around 8 percent may have been realistic. As the Wall Street Journal reported last month, a 30-year U.S. Treasury bond had a return rate of almost 9 percent in 1987. This week, the yield on a 30-year U.S. Treasury bond was 2.25 percent.

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"When returns fall short, however, the amount the government must contribute increases,” the Journal noted, “potentially diverting money from other public services.” Or leading to tax hikes on the private sector taxpayers who are ultimately responsible for funding these generous retirement plans."

Las Vegas Review-Journal

NEVADA SHOULD END TAX BREAKS FOR THE SELECT FEW

Thomas Mitchell
Lincoln County Record

August 8, 2019

For the past decade Nevada’s Governor’s Office of Economic Development (GOED) has doled out billions of dollars worth of tax breaks to select companies in order to entice them to make capital investments here and create jobs. The companies getting the tax breaks include giants such as Tesla Motors, Apple, Amazon, eBay and Switch.

The office has done this despite the fact the state Constitution declares, “The Legislature shall provide by law for a uniform and equal rate of assessment and taxation …” It’s not uniform or equal if a select few get breaks while others don’t.

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It’s time for GOED to go

Robert Fellner
Nevada Policy Research Institute

July 31, 2019

The RGJ’s recent report, Nevada got a fraction of the jobs, investment promised by Tesla-style tax breaks, confirms what experts have been warning about for years: Nevada’s corporate welfare program is a bad deal for taxpayers.

The Governor’s Office of Economic Development (GOED) provides billions of dollars in tax breaks to large corporations like Apple and Tesla, based on the idea that the added jobs and investments they bring to Nevada will more than offset the cost.

But that claim has been repeatedly debunked by academic research, which finds that programs like GOED tend to be a wash or, in some cases, a net negative. A study published in the peer-reviewed Journal of Regional Science, for example, found that tax incentives actually reduced job growth and business expansion. The study also found that businesses who received the incentives consistently overestimated the economic benefits they would deliver, just like what has happened here in Nevada.

Unfortunately, while the promised benefits have failed to fully materialize, the costs imposed on taxpayers are here to stay. In an effort to quantify that cost, experts at the Mercatus Center recently estimated that eliminating corporate incentives would yield enough savings to reduce Nevada’s sales tax by 7 percent.

That bears repeating: Nevadans are effectively paying more in sales tax just so some of the world’s richest companies can receive a tax break, like the $13.6 million tax abatement given to eBay for a project which created a grand total of two new jobs.

While free markets require that businesses serve the needs of consumers in order to profit, politics rewards insiders who can afford to hire the best lobbyists. This explains why so many legislators support giving tax breaks to giant corporations rather than ordinary Nevadans: the former tends to spend much more on lobbying efforts than the latter.

There is also the issue of concentrated benefits and dispersed costs. Jobs created through GOED give politicians a great opportunity for free press, while the costs are widely dispersed and thus unseen.

Speaking of that which is unseen, it was quite troubling to read that GOED refused to answer the RGJ’s questions “about whether or how it pushed companies to meet the state’s performance measures,” particularly given the tax-funded agency routinely claims it does just that when responding to reports of underperformance.

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Quote of
the week

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“That bears repeating: Nevadans are effectively paying more in sales tax just so some of the world’s richest companies can receive a tax break, like the $13.6 million tax abatement given to eBay for a project which created a grand total of two new jobs.”

Robert Fellner
Nevada Policy Research Institute

LETTER: No such thing as a ‘temporary’ tax in Nevada

Daniel Honchariw
to the Las Vegas Review-Journal

August 3, 2019

Kudos to state Senate Republicans for challenging the unconstitutional modified business tax extension. The voter-approved, two-thirds constitutional requirement for any tax increase is too vital a taxpayer protection to diminish.

But on the heels of this legal challenge, one may be inclined to ask: Do taxes ever actually sunset as planned? There’s plenty of recent evidence to suggest “temporary” taxes, in practice, are about as rare as unicorns. Besides the MBT extension, here are a few other “temporary” taxes that have already been, or are likely soon to be, extended into perpetuity:

— DMV technology fee — This $1 fee was supposed to expire in June 2020, but Senate Bill 542 of the 2019 session extended the fee for at least two years. This extension is also being challenged in the pending litigation, having been approved with less than two-thirds support in the Senate.

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