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

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.

This is Part II in a series of stories about Nevada’s economic strategy. To read the first installment, click here.

In September, Nevada Gov. Brian Sandoval delivered the Republican Party’s weekly address. In the video, which lasted less than six minutes, Sandoval blasted the Obama administration’s handling of the economic recovery and touted Nevada’s approach.

Sandoval, elaborating on how dire the economic situation in Nevada was when he took office in early 2011, said that “mere survival” was not good enough for his state. He said that he ordered all new regulations be frozen until they could be reviewed; cut spending by hundreds of millions of dollars; balanced Nevada’s budget; merged and eliminated state agencies; and extended tax exemptions for businesses. (Sandoval, working with a Democrat-controlled state legislature, later agreed to extend some taxes that had been set to expire.)

In the video, Sandoval pointed out that Nevada had experienced 31 months of economic growth and had the second strongest decline in unemployment in the nation. He also claimed that a wide array of businesses now had plans to move to Nevada.

“When it comes to growing jobs, it is my responsibility to leave no stone unturned when it comes to getting Nevada working again,” he added.

So what exactly are those plans?

Selling Nevada

Nevada’s pitch to firms interested in expanding or relocating to the state is simple. The state has some of the lowest taxes in America. California's top income tax rate is 13.3 percent; Nevada has no state income tax.

Nevada's regulations are limited. Given the state’s size, working with government is quick and easy (California businesses often complain about how long routine approvals take). Some firms — though certainly not all — are coaxed with even more tax incentives. And Las Vegas — known for its tourism, as well as the benefits that come with being a large metropolitan area — has always been a major selling point.

A patchwork assortment of agencies remains tasked with selling that message to firms that might want to expand or grow in Nevada.

At the top is the Governor’s Office of Economic Development. Historically, the lieutenant governor was tasked with running economic development in Nevada, but 2011 legislation centralized power in the governor’s office by creating the OED.

Sandoval has aggressively courted major companies since. In early 2012, he announced the state would attempt to create 50,000 jobs by 2014. Apple and Starbucks have both moved parts of their business to Nevada as a result of negotiations handled primarily through the OED. (Apple received a large tax break.)

In addition to attracting outside states, the OED focuses on attracting workers to some of Nevada’s core industries like gaming and tourism, as well as mining. The office is also pushing to expand the small tech industry in southern Nevada, along with logistics and transportation industries.

“They’re making a big push for drones as a way to diversify,” University of Nevada, Las Vegas political science professor David Damore told CalWatchdog. (The U.S. military currently has a major drone base located outside of Las Vegas.)

But the OED is only part of the economic strategy. Nevada also relies on regional agencies to draw businesses on a smaller scale. Their efforts, though less individually significant, add up.

“You have the local agencies that are able to make connections with smaller firms who are looking at a specific area,” added Eric Herzik, a political science professor at the University of Nevada.

This system — the OED focusing on major companies and regional agencies drawing smaller firms — is generally effective. Damore noted, however, rural agencies in Northern Nevada often compete among themselves and can have trouble attracting business.

“The problem they really have is just scale. There are so few people out there; it’s hard to get people to say they’ll invest in a county with 700 people,” Damore explained.

But others, such as the Las Vegas Global Economic Alliance, have had more success. Earlier this year, for example, they approved a set of incentives that could bring more than 1,000 jobs to southern Nevada. For a state with less than 3 million residents, the numbers could have an impact.

Leaving California

The array of agencies pitching the Silver State’s benefits has an unexpected ally: California.

The Golden State has long maintained a tougher climate for businesses, relying on its natural benefits to justify the expense of doing business in the state. Nevada has long tried to capitalize on that fact.

But late last year, Nevada’s advantages became significantly clearer. California voters approved a series of measures that raised taxes throughout the state. Proposition 30 raises about $6 billion in annual revenues through a regressive sales tax hike and a progressive tax hike on the wealthiest Californians. Proposition 39 closed tax loopholes for multi-state businesses that operate in California, raising taxes about $1 billion a year.

Though a majority of Californians supported the propositions, not all did — particularly businesses and some of the state’s wealthier residents.

Despite its welcoming tax and regulatory climates, Nevada still faces many deficiencies in quality of life that make it a hard sell. It lags in education, health care and — though it’s a subjective measure — weather.

Which begs the question: Just how effective has Nevada’s economic campaign been?

Check back tomorrow for third and final part of the series, where CalWatchdog investigates some of the results of the changes implemented in Nevada — and what that means for California.