Californians have gone down in history as leading a nationwide charge to legalize the recreational use of marijuana.

“Voters on Tuesday approved Proposition 64, making California the most populous state in the nation to legalize the recreational use of marijuana,” the Los Angeles Times confirmed. “The approval of the ballot measure creates the largest market for marijuana products in the U.S. It comes six years after California voters narrowly rejected a similar measure. Activists said passage would be an important moment in a fight for marijuana legalization across the U.S.”

Among California ballot issues, Prop. 64 took shape as one of the most straightforward and likeliest to pass. While others boasted dramatic political expenditures, shared space with contradictory measures, or brought in high-profile outside officials to rally for their passage, Prop. 64 simply gathered support as Election Day neared. 

Laboratories of democracy

Nor was the Golden State alone in the trend. Massachusetts and Nevada voters followed the same path, opting to embrace legal weed. “Leading up to the election, recreational marijuana use was legal in four states: Alaska, Colorado, Oregon and Washington, along with Washington, D.C.,” the New York Times recalled. “With the addition of California, Massachusetts and Nevada, the percentage of Americans living in states where marijuana use is legal for adults rose above 20 percent, from 5 percent.”

“The federal government’s ban on the drug precludes the interstate sale of cannabis, even among the states that have approved its use. But Tuesday’s votes created a marijuana bloc stretching down the West Coast, and Gavin Newsom, the lieutenant governor of California, said he saw an opportunity for the states where recreational marijuana is now legal to ‘coordinate and collaborate’ on the issue, including applying pressure in Washington to relax the federal ban.”

And while pot advocates in a few states considering similar moves faced a higher hurdle, still other states took smaller strides toward looser regulation: “Local outlets in Maine are declaring victory for that state’s legalization measure, but with 91 percent of precincts reporting just a few thousand votes separate the ‘Yes’ and ‘No’ columns,” the Washington Post noted. “A similar legalization measure in Arizona did not gain sufficient support to pass, with 52 percent of voters rejecting it. On the medical side, voters in Florida, North Dakota and Arkansas have approved medical marijuana initiatives. Voters in in Montana also rolled back restrictions on an existing medical pot law.”

Culture shift

A complex combination of factors has contributed toward growing uncertainty over the status quo around marijuana regulations. “Public opinion about marijuana has been steadily shifting during the past decade, and the laws have been steadily changing,” as the Christian Science Monitor observed. “One concern is that too many Americans were serving prison terms for a drug many consider less harmful than alcohol or tobacco. Legalizing the drug, they say, can also provide tax revenue and reduce black-market crime.” Concerns around legalization have centered around its potential impact on children, public health and smaller, traditional growers and merchants. “The number of calls to poison control centers involving Colorado children has gone up, as has the number of children who’ve been taken to the hospital for treatment due to unintentional marijuana exposure,” CNN noted. “There have also been more school suspensions, marijuana-related traffic deaths, pet poisonings and lab explosions.”

But although attitudes toward marijuana use have gradually relaxed over the decades since modern-day pot culture arose during the 1960s, the drug’s popularity and mainstream positioning emerged late in the game. “The number of adults who have smoked weed has nearly doubled in three years,” CNN added, citing an August Gallup survey. “It is the No. 1 illicit drug of choice for Americans, according to the 2014 National Survey on Drug Use, although only one-third of users reported an addiction to the substance, unlike most all the other illicit drugs used.”

“The state Assembly voted overwhelmingly in favor of the deal Saturday, after a four-day special session in Carson City,” the Associated Press reported. “Lawmakers learned last week that Chinese billionaire Jia Yueting was backing the secretive California-based company, which employs some former Tesla Motors executives, and that Faraday plans to bring 4,500 direct jobs to Nevada.”

High hopes

Four bills cementing the deal headed to Gov. Brian Sandoval — a booster of the plan — who swiftly signed them at a short Capitol ceremony. “The Republican governor said he’s excited about the prospect of young Nevadans getting well-paid jobs at the $1 billion plant in North Las Vegas,” the Sacramento Bee reported. “The factory is expected to employ 4,500 workers and create another 9,000 indirect jobs. Sandoval said Nevada’s proud of its casino and mining industry, but wants to keep up with the industries of the future.”

A package deal

Although Nevada’s package of incentives helped the state’s candidacy, Faraday officials — including former Tesla heavyweights — cautioned that other factors combined to put it ahead of the pack. Dag Reckhorn, the company’s vice president of global manufacturing and ex-manufacturing director for the Tesla Model S, told the Los Angeles Times that “Nevada gave us the best overall deal. It’s still close to the West Coast, we have Highway 15. It’s good for our supply chain — getting parts in and out of the plant.”

Reinforcing Faraday’s reputation for closely-guarded confidentiality, neither Reckhorn nor any other representative let slip any details on California’s losing bid — if any. “Company officials declined to say whether California offered similar incentives or where they were considering building, citing a nondisclosure agreement,” noted the Times. “A spokesman for Gov. Jerry Brown’s Office of Business and Economic Development declined to comment.”

Winning on water

But one detail of the delicate negotiations carried out during the Legislature’s special session could hint at what took place behind the scenes. Of the four bills it took to smooth the way for Faraday, fully half involved the company’s access to Nevada water. In what was characterized by Reno Public Radio as a “compromise,” legislators agreed that the state would “supply Faraday with groundwater quickly without tampering with existing water law.” The deal bringing Tesla to northern Nevada — at a site distant from Faraday’s southern Nevada location — wound its way through the Nevada Legislature in half the time as the current raft of agreements, according to the network.

Some lawmakers cautioned against placing too much faith in Faraday’s viability. Expectations have been anchored around promises by the company to field electric cars on American roads by 2020, with construction beginning on the North Las Vegas plant next month, according to Jalopnik.

Speculation has swirled around the debut of another entrant into California’s crowded, cutting-edge automotive industry. The company, known as Faraday Future, “has been hunting for a place to build what it says will be a $1 billion manufacturing plant for a new line of cars,” reported the San Francisco Chronicle. “Four states are contenders and the company says to expect an announcement within weeks.”

Contenders for the site included not only California but Georgia, Nevada and Louisiana, Faraday Future Product Development Chief Nick Sampson said, according to the Wall Street Journal. “Mr. Sampson is one of a team of former Tesla executives now leading Faraday Future. Like Tesla, Faraday Future is named after an inventor from the 19th century.”

High hopes, low profile

The company has responded to the media spotlight by cultivating an air of mystery from its Gardena headquarters south of Los Angeles — the former home to Nissan’s sales HQ, noted the Journal. Reporters have had to wade through obscure documents to collect details about Faraday’s origins. “Though it won’t confirm the source of its funds, documents filed in California point to a parent company run by a Chinese billionaire who styles himself after Apple’s late Steve Jobs,” the Chronicle observed.

That billionaire has been identified as Jia Yueting, the chairman of Chinese tech company LeTV, short for Leshi Internet Information & Television — one of the largest online video companies in China. “He recently launched a line of smartphones and acquired a 70 percent stake in Yidao Yongche, an Uber-like car service in China,” reported the Los Angeles Times.

In a press conference late last year, Leshi spokesperson Jiang Dongge said the company has “already organized a research and development team based in Silicon Valley about a year ago, with experts poached from traditional car companies including Tesla Motors, Mercedes-Benz and Ford Motor Company working on the forthcoming model. Leshi is also in touch with Google as well as other technology firms based in Silicon Valley,” he claimed, according to Forbes Asia.

Close competition

Although some Californians may bristle at the thought of a Chinese company pouring billions into competition with homegrown Silicon Valley products, analysts have linked up Faraday’s relative secrecy to its interest in foreign, not American, markets. “A lot of the evidence to support Faraday Future’s backing from the Chinese tech conglomerate is of public record. So why all the dodging from Faraday? It may have something to do with the way the company plans to market its vehicles,” Techcrunch speculated. “According to a source familiar with the matter, Faraday Future needs to be seen as a U.S.-based Tesla rival. ‘Chinese people don’t want to buy Chinese products,'” said the source.

But the dizzying costs of launching a high-end electric car company have ensured that any additional player in the marketplace will squeeze relatively more established firms. And Faraday has already been preceded in California by another Chinese concern. “Karma Automotive, formerly Fisker Automotive, which is based in Southern California, has revived its hopes after China’s Wanxiang Group Corp. bought the failed hybrid-electric supercar maker out of bankruptcy in 2014,” the Journal reported. “The company has secured a manufacturing facility in Southern California and is planning to sell a new car in 2016.”

Cross-border competition

For their part, California officials faced a fresh possibility of losing out to neighboring Nevada on big-ticket electric car construction. “If North Las Vegas lands the factory,” Bloomberg noted of Faraday’s future plant, “it would be the second major coup for Nevada as it attempts to diversify its economy and promote itself as a center of electric-car manufacturing. Tesla is building the world’s largest lithium-ion battery factory east of Reno after Gov. Brian Sandoval last year signed off on tax breaks worth as much as $1.3 billion for a plant on which Tesla expects to spend $10 billion over 15 years.”

Buying brown

Although it was once unthinkable for Nevadans to give up on green grass, a combination of incentives eventually succeeded in changing attitudes. “Using community outreach and cash incentives,” the Los Angeles Times reported, the Water Smart Landscaping Program created in Nevada “has removed nearly 4,000 acres — 173 million square feet — of lawn space.”

It took years to get East Coast transplants in and around Las Vegas to accustom themselves to the notion of desert-style yardscaping, but cash incentives helped. “The Southern Nevada Water Authority pays $1.50 per square foot of lawn replaced with desert landscaping, up to 5,000 square feet. After that, it’s $1 per square foot,” according to the Times.

Amid the current drought, in an effort to get Californians on board with a similar transformation over much less time, Gov. Jerry Brown urged residents to brown their lawns, and water agencies ratcheted up payouts:

“Even before Brown’s order, some of California’s 411 water districts offered rebates — now as much as $3.75 per square foot — to persuade homeowners to give up on grass.”

A synthetic boom

But the loss of California’s natural lawns hasn’t yet inspired a wholesale embrace of cacti and stylish rock formations. Especially in Southern California, where artifice hasn’t always been seen as tacky, artificial turf has started catching on.

“Comprehensive numbers are hard to come by, but makers and installers of synthetic turf say they are experiencing an unprecedented spike in residential business in California,” the Washington Post reported. “From middle-class families who don’t want to forfeit the patch-of-green part of the American dream to megawatt celebrities who are mortified by TV coverage of their sprawling water-hog lawns, homeowners across the Golden State are ripping up sod and replacing it with plastic.”

According to the Post, a “vast majority” of Californians cashing in on lawn rebates have opted for the low-thirst foliage prevalent in desert cities. “But a growing number of homeowners are rejecting spiky deer grass and scratchy sagebrush and paying up to $10 per square foot to luxuriate in plastic’s convincing lushness.”

Turf battles

Homeowner associations, however, have long viewed permissiveness toward turf as an invitation to neighborhood eyesores. Sometimes, the attitude trickled up to the municipal level. In Glendale, for instance, artificial turf was banished to the backyard. But now, the stigma has begun to slip away. “Glendale officials said the idea of lifting the ban is about the drought as well as improvements in the look of the fake grass,” the Times noted.

Meanwhile, in cities across the Southland, residents have begun reconsidering their own regulations, which sometimes impose greater restrictions on turf than on landscape watering. “Both Anaheim and Tustin held public hearings Tuesday evening to discuss options,” according to Southern California Public Radio. “Santa Ana officials are also wrestling with options.”

In Sacramento, the shift in priorities has given a boost to new legislation designed to give homeowners the option to replace real lawns with green turf. AB349, introduced by Assemblywoman Lorena Gonzalez, D-San Diego, sailed through committee on a 7-0 vote; that bill would require homeowner associations to grant homeowners the option to reduce water usage by laying down turf.

“Water conservation is no longer just the responsible thing to do, but a legal requirement,” said Gonzalez in a press release touting the vote. “We need to make sure homeowners are able to replace their lawns if that’s how they choose to comply.”

But another trend in Sacramento has underscored just how far some homeowners will go to keep the look and feel of all-American lawns: spray-on green. One flourishing lawn painter, David Bartlett, told USA Today that orders have spiked as residents look for alternatives to dropping thousands on low-water yardscapes. “The procedure takes Bartlett and his team about an hour to complete,” according to the newspaper. “He said the dye is an all natural earth pigment and is not harmful to people or pets.”

But Sandoval sought to temper worries with his announcement, according to the Las Vegas Review-Journal:

“This is not California,” Sandoval said, adding that as the driest state in the nation, Nevada is familiar with drought and has taken steps to curb water use and encourage conservation.

He said he feels “really good about what we’re doing” but added the state needs to plan for the future because no one can predict how long the drought will continue.

Through an executive order, the San Francisco Chronicle reported, Sandoval created “a seven-member panel of administrators, scientists and water officials to study the state’s long-term water plan.” Drawing from information provided by state and water agencies, the panel will set up a special Drought Summit scheduled for September of this year, filing biweekly summaries and a master report, according to the Chronicle. “The forum will rely on a soon-to-be-released report on states’ drought policies commissioned by the Western Governors Association, which Sandoval chairs.”

Cross-border relations

Sandoval’s moves build on an awareness of California’s challenges that reaches back to a collaborative initiative launched with Gov. Jerry Brown late last year. As chairman of the Western Governors’ Association, Sandoval organized a yearlong summit series with Brown that included “senior water, energy and agriculture policy leaders from government and the private sector,” the Associated Press reported.

“I think the drought will test our imagination and our science, our technology and our political capacity to collaborate,” Brown said at the time.

This year, both California and Nevada residents found their states plunged into nearly 100 percent drought conditions. Large stretches of both states suffered from “extreme” and “exceptional” drought, the most severe categories of water scarcity, Capital Public Radio observed.

Shared sources

The Golden State and the Silver State have long shared major sources of drinking water, including Lake Mead. While Gov. Sandoval indicated that the Nevada Drought Forum would be restricted to studying and recommending policy options, the proposal had no immediate effect on water rationing. At the start of this month, Southern Nevada Water Authority Bronson Mack had waved off concerns over additional water restrictions.

Lake Mead

“We believe the programs that we have and the tools that are available to our customers throughout the valley are sufficient,” he said, although he admitted that Nevada’s supply of water from Lake Mead ranked below the other five states relying on that source, according to Reuters.

“Lake Mead is one of at least four major sources for California’s water supply. The state draws 1.4 trillion gallons from the reservoir. By comparison, Clark County gets 90 percent of its water — or 97.8 billion gallons — from Lake Mead.”

John Entsminger, general manager of the Southern Nevada Water Authority, told the Review-Journal that Nevada’s current levels of water use reflected a sustainable conservation trajectory. Clark County, for instance, “which receives most of its water from the Colorado River feeding into Lake Mead, has been under drought conditions for 15 years.”

“Still, he said, the region, home to about 2 million residents and 40 million visitors annually, has managed to cut water usage through efficient landscaping, low-flow appliances and recycling gray water. Entsminger said Southern Nevada uses 40 percent less water than it did 15 years ago despite a growing population.”

New proposals

The Nevada Legislature, for its part, has several new water-related bills to consider this year. According to the Associated Press, one piece of legislation would tap half a million dollars for so-called “cloud seeding,” a process whereby precipitation-inducing chemicals are dispersed into cloud cover; others would increase groundwater regulation during periods of drought and battle water loss caused by flooding.

Reported the Sacramento Bee, “Hyatt, who moved from Southern California to Las Vegas after obtaining his patent, won a nearly $500 million judgment seven years ago over how he’s been treated by investigators from the California Franchise Tax Board.”

The FTB has been relentless in pursuing him into the desert. The latest: U.S. District Judge Garland Burrell Jr. said the FTB can continue its pursuit of the $50 million it says Hyatt owes the state.

Harassed in and out of court

The origins of the dispute go back another 20 years even before that — to the early 1970s. As AllGov described the race to patent the first microchip:

“Intel claimed victory in 1971, patented its creation and was generally regarded as the inventor of the microprocessor upon which the desktop computer industry was built. But in 1990, the U.S. Patent and Trademark Office reversed its decision and awarded that recognition to Gilbert Hyatt of La Palma, California, who had submitted a microprocessor patent application in 1970.

“In anticipation of earning millions for his invention, Hyatt moved to Nevada, where the tax laws were more favorable, and in 1991 he received a $40 million payment for licensing his patent. The Franchise Tax Board (FTB), which claimed Hyatt had been a citizen of California at the time of his windfall, audited him and in 1995 said he owed substantial taxes and a huge penalty payment for fraud.”

So began a series of claims, counterclaims and appeals that ensnared not only the FTB but the Board of Equalization, the agency roped in when taxpayers challenge the FTB’s determinations.

Hyatt alleged the FTB engaged in a campaign of harassment and abuse to muscle him into paying what they believed he owed. The FTB argued it couldn’t be sued in Nevada court, but federal and state courts disagreed. On remand from the U.S. Supreme Court, a Nevada district court awarded Hyatt some $400 million in damages.

As Steven Greenhut reported at Reason, the FTB appealed, leading Hyatt to claim in court the case against him should be dropped because of its extraordinary length and harassing nature:

“‘Specifically, because of the 20 year delay Hyatt can no longer obtain a fair and full adjudication of whether he owes state taxes to California,’ according to his lawsuit. ‘During this time, material witnesses have passed away, memories of witnesses have faded, and documents relevant and important to Hyatt are no longer available.’ The board keeps assessing penalties, so he says it has every reason to keep delaying. He suspects the tax board is waiting for him to die so that it can go after his estate.”

Unprecedented delays

The fight over Hyatt’s $50 million bill isn’t the only part of his epic legal battle. According to Bloomberg, Hyatt has been waiting 43 years for the U.S. Patent and Trademark Office to decide “whether his electronic signal to control machinery should be granted a patent. The patent-approval process takes 28.3 months on average. His idea for liquid crystal displays? That’s been sitting in the Patent and Trademark Office for 35 years.”

With his life already upended by the Franchise Tax Board, Hyatt decided, why not sue the PTO as well? In January, he did. USA Today reported, “[S]eeking a final decision on the applications he submitted in 1971 and 1972 for a device he calls a square-wave signal processor. He said the device converts analog and digital signals in control systems on machines, including those that make circuit boards and integrated circuits.”

Since the patents have been in process for so long, patent law places the PTO under a virtual gag order. With the cases confidential, they can’t be discussed by the government.

But Hyatt, 76 years old this month, has no interest in keeping quiet. The longer his saga drags on, the more attention seems to gather around it. Even if the FTB and PTO prevail, they face the prospect of an adverse ruling in the court of public opinion active in a place Hyatt’s invention made possible: the Internet.

But Tesla demanded — and won — so many breaks from the state of Nevada that the deal is an affront to any true believer in free-market economics. This is from the Chronicle:

Nevada won the fierce, five-state competition to host Tesla Motors’ planned $5 billion battery factory by offering a package of tax breaks and credits that could be worth $1.2 billion over the next 20 years, according to terms released by state officials Thursday. … Tesla won’t have to pay sales tax for 20 years. The company also won’t have to pay real property, personal property and modified business taxes for 10 years.

The size of the deal and the scope of the tax breaks makes this feel more like South Korean crony capitalism — the government in Seoul is a de facto partner of conglomerates like Samsung and Hyundai — then American capitalism.

But as Dan Morain points out in his Sac Bee column, this is increasingly common:

Nevada is simply following a trend. The Washington, D.C.-based nonprofit organization, Good Jobs First, tracks such giveaways. Tennessee gave Volkswagen $554 million in incentives. Mississippi gave a $1.3 billion package to Nissan in 2000. Oregon gave $2 billion in incentives to Intel.

“Unfortunately, it is common to see subsidies of this size,” Leigh McIlvaine, a research analyst for Good Jobs First. “There seems to be a perception on behalf of companies that they should be paid by the public sector to finance that growth. It is looking like an entitlement.”

California lawmakers are not shy about opening the treasury to help companies. They approved $420 million in tax breaks this summer for Northrop Grumman and Lockheed Martin, on condition that they build new bombers in California.

Milton Friedman: Big biz a foe of free market

I get the argument that Tesla is a unique company, and that Northrop and Lockheed are fairly unique as well, so the argument that these government gifts are hugely unfair to their rivals isn’t as apt as it when it’s made about tax breaks given to specific companies in more competitive industries. But at some point, I share Milton Friedman’s concerns, as noted by the Heartland Institute in 2012, about government and industry acting in synch.

Friedman exemplified the generous spirit behind the desire for free markets: they benefit the less-wealthy by leveling the playing field, allowing people to succeed on their merits instead of through political power bought with big money. Friedman had nothing but contempt for crony capitalism and the use of government to suppress market competition, although he was too polite and good-natured to express that feeling in any way but through sound economic arguments.

Friedman himself put this sentiment another way in a 1977 article for Reason magazine:

The two greatest enemies of free enterprise in the United States … have been, on the one hand, my fellow intellectuals and, on the other hand, the business corporations of this country.

Maybe it’s pointless to worry about this six years after the federal takeover of the banking system, General Motors and Chrysler during the financial crisis, but there’s something really ominous about big government partnering with and/or propping up certain favored big businesses.

The initiatives they work on then become, in the lexicon of 2008, “too big to fail.” It’s not hard to imagine Nevada moving from tax breaks to direct subsidies if the Tesla “gigafactory” struggles to live up to its billing and needs help to survive — taxpayer help.

That is, much, much more taxpayer help.

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.

/calwatchdog.com/wp-content/uploads/2013/10/viva-las-vegas-poster.jpg”>Recently, Gov. Jerry Brown signed into law a new pact with Nevada, effectively conceding to Nevada Gov. Brian Sandoval’s demands that California be more open to economic development along the beautiful Lake Tahoe shoreline. It was a rare moment of agreement — created through deft political maneuvering on Nevada’s behalf — between two states that have taken different approaches to taxes, regulations, environmentalism and development.

For Californians, the moment should also be a teachable lesson about the differences between the two states — and how those differences will ultimately affect the quality of each state. But to understand how California will be affected, it’s important to first look at where Nevada was, where it is now, and where it’s headed.

It begins with the Great Recession.

Collapse

In the fall of 2008, just five years ago, the global economic slide that began in late 2007 took a turn for the worse. Millions of jobs were lost, the United States’ GDP shrunk, major financial institutions collapsed, the housing bubble burst, and unemployment rose to record levels.

The Great Recession hit America hard, but it hit some states harder. Nevada may have been hit harder than any other state — probably because it was doing so well before the recession struck.

Nevada experienced tremendous economic growth leading up to the recession. Between 2000 and 2010, Nevada’s population grew 35 percent. Housing prices skyrocketed, and new homes were being built at record numbers. Anyone walking down the Las Vegas strip would see constant, tremendous change. But the boom times ended with the national economic collapse — and Nevada, the brightest star, burned the fastest.

Nevada’s housing market remained in terrible condition well into 2012, though signs of improvement have since emerged. A January 2012 CNN Money piece laid out just how badly the housing market had become in Nevada:

A staggering 1 in 16 homes have been hit with a foreclosure filing, versus the national rate of 1 in 69 homes. And more than half of borrowers owe more on their mortgages than their homes are worth, compared to just over a fifth nationwide.

Meanwhile, home prices continue to plummet. S&P/Case Shiller recently reported that Las Vegas home prices fell by 9.1% over the 12 months ending in November, the second-worst performance among the 20 cities surveyed. The reason: a high number of foreclosure sales.

The myriad foreclosure prevention programs rolled out by the Obama administration have done little to stabilize housing and the economy in this hard-hit state, housing counselors say.

Unemployment skyrocketed after the housing market collapsed. In February of 2007, Nevada’s unemployment rate stood at 4.2 percent. California was at 5.0 percent. By September 2010, 14 percent of the people who were actively seeking employment in Nevada could not find a job; 12.4 percent of Californians were in the same predicament. As of August of this year, for when the most recent data is available, Nevada’s unemployment rate is down, but it’s still the highest in the nation, according to the Bureau of Labor Statistics. California isn’t far off.

Downfall

The downfall of Las Vegas didn’t help either. The desert destination, essentially the lifeblood of Nevada’s economy, felt something it hadn’t before: failure. A 2009 Guardian report captured just how bad the situation had become:

After a quarter of a century of phenomenal growth, Las Vegas has come to a shuddering halt. The seemingly endless supply of gamblers has dried up. So has the conference trade, hardly helped by a warning from President Barack Obama that bailed-out Wall Street banks should avoid “taking junkets to Las Vegas” on the taxpayers' dime.

Always good value, Vegas hotels have had to slash their room rates by 30% to fill beds. Downtown casinos are offering rates of barely $20 a night, while the four-star Las Vegas Hilton, where Barry Manilow is a resident performer, is offering rooms for as little as $39.

Unemployment in Vegas has reached 11.1%, compared with a national average of 9.4%. And a spectacular collapse in the local housing market has left seven out of 10 homeowners nursing negative equity.

On the city's world-famous Strip, two huge building sites are eerily quiet. Fontainebleau, a half-finished $3.9bn casino which intended to offer perks such as an Apple iMac computer in every room, went bust this month. Echelon, a $4.8bn resort bankrolled by Boyd Gaming, ceased construction last year.

Change of Plans

The Great Recession — and its distinct impact on life in Nevada — transformed the state from a booming region to one of the worst off in America. It also changed the way Nevada operated. Check back tomorrow for Part II of the series, where CalWatchdog investigates some of the changes that Nevada's governor, economic development agencies and private-public partnerships have embraced recently to fix the way the state operates.

Beyond comparisons, those differences also lead to outright competition. Perhaps the most memorable example of this was when Republican Texas Gov. Rick Perry visited California businesses earlier this year to market Texas for growth and expansion.

But Texas isn’t the only state that has been outmaneuvering California lately.

Earlier this week, the Los Angeles Times reported that Nevada, through deft political maneuvering, has moved California to the right on environmental policy:

“Almost as long as California and Nevada have shared Lake Tahoe's pricey shoreline, the two states have harbored competing visions of how best to prosper from the region's stunning natural beauty while preserving the lake's deep-azure color and remarkable clarity.

“At times, the disputes have flared into what Joanne Marchetta, executive director of the Tahoe Regional Planning Agency, describes as a 'red-hot crucible for debate and dissonance.'”

Although California and Nevada have different ideas for how to develop the lake — Nevada being more open to commercial development — the two states have maintained a development pact for more than 45 years.

The pact was simple. California and Nevada, both states with partial control over the lake, will negotiate on how to develop the land. That way, any development would be consistent throughout the lake. The Tahoe Regional Planning Agency, a joint effort between the states that received an overwhelming majority of its funding from California, made decisions about how to develop the lake.

Impatience

However, as time passed, officials in Nevada grew impatient with California’s approach to the pact. Nevada wasn’t angry about a specific incident; rather, the problem was about broader issues surrounding development. Nevada officials, who were inherently more skeptical of overregulation than officials in California, wanted the interstate agency that makes decisions about development to take economic considerations into account. California didn’t.

This caused a major rift between the two states, and Nevada threatened to pull out of the agreement with its more liberal neighbor. In fact, Nevada threatened to do so over half a dozen times. In 2010, the frustration reached a boiling point, and it appeared that Nevada was finally going to walk away from the agency—and develop its side of Tahoe however it wanted.

For Nevada, the threat was perfectly timed.

As the Times put it, “The maneuver was political brinkmanship, playing on California's fears about what would happen on the Nevada side of the lake without the planning compact. It worked.”

In fact, it worked well enough to produce a very rare bipartisan consensus in the California Legislature. The state Senate approved the bill with a 37-0 vote. Likewise, the Assembly approved the measure, 74-0.

One prominent environmentalist told the Times, “We got rolled.”

Others, however, see the move as a legitimate compromise. Development will remain limited, but instead of maintaining a myopic focus solely on environmental protection, the state will also consider economic factors.

The Times summed up the situation:

“Critics of the plan have warned that it will lead to pell-mell development and a Reno-ization of the picturesque lake. Public officials on both sides of the lake say that is an exaggeration.

“But everyone agrees that Lake Tahoe's foreshore will take on a new look: denser and taller development squeezed into town centers and fewer of the region's dowdy but affordable mom-and-pop '60-s era motels.”

Gov. Jerry Brown has yet to comment on whether or not he will sign the bill. But one thing is certain: there is now a bipartisan consensus against dowdy motels.