I was quite surprised when I got up last Tuesday to find that all of my utilities were working, including TV; my trash had been picked up; and, when I drove to work, the traffic lights were operating, the schools were open and I even spotted a couple of local police patrol cars.
It appeared to be a normal Tuesday morning.Well, I wasn’t really surprised. But I would have been if I believed the media’s vision, which had built to a crescendo on Monday, that the so-called “shutdown” was going to be an unmitigated disaster.
By Wednesday, as far as I could tell, the national parks had closed, as had some museums and monuments in Washington, D.C. I am also informed that some data releases (like September’s unemployment rate) will be delayed. But, all in all, there hasn’t been much impact on my daily life and probably not on yours, either.
Now, I am not making light of the issue, as it will definitely have an impact if prolonged. (Actually, the upcoming debt ceiling issue has much more potential to do damage.) But the fact that there was no real immediate impact on most Americans’ lives makes one realize that state and local government services play a much larger role in our daily lives than federal government services do.
Government approaches
Since the financial crisis, governments at all levels have struggled either because they cannot control spending or, more likely, have made future commitments that they simply cannot meet.
During such times of financial stress, state and local governments typically take one of two approaches, or even a combination:
• The preferred approach is for government to work with the private sector to promote business and employment growth. In the long run, a healthy and growing private sector generates more tax revenue. You don’t have to raise the rates to accomplish this.
• The second way, which is simply wrongheaded, is to increase taxes and fees on the current citizenry. In the long run, this drives business away and the revenue issues remain or even get worse.
CNBC survey
Every year, CNBC and others such as Forbes do surveys of which states are best for private-sector businesses.The accompanying table shows the results of the 2013 CNBC survey for the Western states with which Nevada competes for business relocations (Arizona, Utah, Texas). I also threw in California because many relocations originate there. Nevada’s overall ranking is 46th out of 50. Nevada has been ranked between 45 and 47 at least since ’08.
Looking at the table, Nevada generally ranks poorly in every category, most notably economy, education, quality of life and technology and innovation.
Nevada’s lackluster record
To its credit, the governor and the Nevada Legislature approved a $10 million fund that targets cutting-edge technologies, modeled after a similar and successful effort in Utah.
But state and local governments can do much more. Economic growth in the state would improve if officials reduced the cost of being in business and improved business friendliness via a reduction in fees and regulations. I estimate that if such improvements were made, the state could move up significantly in the CNBC survey.
Some would think this impossible. Not so. Despite the Detroit bankruptcy, over the last four years, state and local governments in Michigan have moved that state from a rank of 41st (’09) to a rank of 29th in the latest survey. There, governments aggressively go after business relocations and become partners, not antagonists.
The record in Nevada is not good. Except for the cutting-edge technology fund, state and local legislators have opted for raising fees and taxes. Here are some examples:
• Since the financial crisis, the state has doubled the business license fee, and most of the local governments have followed suit.
• Assembly Bill 46, passed by the recent “no new taxes” Legislature, permits the local governments to raise taxes without the constitutional requirement of a two-thirds vote of the Legislature. While its constitutionality has yet to be tested, AB46 is an example of how government works today — by sleight of hand.
• In Reno, it costs more than $50,000 in permit fees to build a 3,000-square-foot building.
• Anyone who owns a small business in Northern Nevada can attest to the significant increase in fees and regulations since the crisis.
Conclusion
We are lucky that California is our neighbor, as it ranks last in the cost of doing business, is 48th out of 50 in business friendliness and 45th in cost of living. Overall, it is ranked 47th, one place lower than Nevada. And, while businesses are leaving California in droves and some are relocating to Nevada, the state could be getting a much larger share if it was more business-friendly.
Robert Barone (Ph.D., economics, Georgetown University) is a principal of Universal Value Advisors, Reno, a registered investment adviser. Barone is a former director of the Federal Home Loan Bank of San Francisco and is currently a director of Allied Mineral Products, Columbus, Ohio, AAA Northern California, Nevada, Utah Auto Club, and the associated AAA Insurance Co., where he chairs the investment committee.
Contact Robert Barone or the professionals at UVA (Joshua Barone and Andrea Knapp) who are available to discuss client investment needs. Call them at 775-284-7778.
Statistics and other information have been compiled from various sources. Universal Value Advisors believes the facts and information to be accurate and credible but makes no guarantee to the complete accuracy of this information.