A Tale of Two States, CA and NV: Part III

This is Part III in a series of stories about Nevada’s economic strategy. To read the first two installments, click here and here.

Nevada’s aggressive pro-business policies, and the agencies charged with selling the state, have produced decidedly mixed results. While the state has made some gains in reducing unemployment, challenges lie ahead.

As described in Part II, several businesses — such as Starbucks and Apple — have expanded operations in Nevada as a result of direct lobbying from different business development agencies.

Smaller firms have moved to Nevada, as well. Orange County-based Kareo, an online back office service provider for health care offices, recently announced plans to expand 112 jobs to Southern Nevada. Altogether, thousands of jobs have left California for Nevada.  In fact, California lost 5.2 percent of its businesses in 2012 (though some were closed and did not move).

Bureau of Labor Statistics data shows an improving Nevada. Down from a high of 14 percent two years ago, unemployment stands at 9.5 percent. There are more jobs in 10 out of 11 sectors of the economy than there were 12 months ago, or even two years ago. Government, manufacturing, business services, education and mining are all doing well, for example.

But there is more than just businesses and jobs coming to Nevada from California — people are too.

Population growth

While California’s population is flat-lining, Nevada’s is projected to grow. At least part of that reason is the new taxes enacted last year in California.

From a Fox News report describing the effects of Proposition 30:

Nevada tax accountant George Ashley said he's received more than 100 inquiries from higher-earning Californians about the possible tax advantages and feasibility of relocating to a state with lower taxes.

“We have had a 10-fold increase from various parts of California, particularly Los Angeles and the Bay Area where many people are seeking a way to leave the state,” said Ashley, who lives just over the California state line in Lake Tahoe, Nev. “They are fed up with the situation and they feel like they are being unfairly treated.”

This trend has real impacts: Between 1999 and 2009, California lost $27 billion in tax revenue because residents moved to other states. In that same time period, Nevada’s added $12.4 billion to its coffers from residents of other states that moved to the Silver State.

Challenges remain

Nevada has made tremendous progress, but it also fell further than most. For instance, its unemployment rate dropped 4.5 percentage points in the past two years — but it’s still the highest in the nation. And the state’s recovery isn’t going as fast as some would hope. Analysis from the Wall Street Journal suggested that Nevada wouldn’t return to its pre-recession employment peak until 2018.

Experts told CalWatchdog that Nevada still has to overcome serious deficiencies to reach its full potential.

University of Nevada, Las Vegas political science professor David Damore noted that, while Nevada ranks well in surveys about taxes and regulations, the state does much worse in other places like education, health care and infrastructure.  He said that Nevada will have to have a more educated and better trained workforce before it can reasonably expect more major companies to move to the state.

Eric Herzik, a political science professor at the University of Nevada, warned CalWatchdog that job poaching was limited in scope. He said Nevada will have to create its own industries within the state — relying on improvements in some of the areas that Damore highlighted — instead of just relying on taking jobs from California.

“There is no academic evidence that says [poaching] is an effective strategy to bring down the unemployment rate,” Herzik said, adding that states would have to consistently poach from dozens of businesses on a regular basis to achieve sustained unemployment decreases.

(Some Nevadans, such as those being hired by Kareo, might argue that every job counts.)

Looking up

The worst of the recession is behind Nevada. The state continues to add jobs and aggressively pursue California’s weaknesses as an overtaxed and overregulated state. Though Nevada has its own weaknesses too, virtually every person interviewed for this series was optimistic that the Silver State would continue to improve. The same can’t be said for California.