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‘Structural changes’ urged to boost state economy

CARSON CITY — Nevada should strive to secure federal grants and venture capital to bolster its sagging economy, according to a draft report prepared for a group appointed by legislators to look at the state’s future.

It does not make any mention of a need to increase taxes.

The report, prepared by the economic research group Moody’s Analytics, will be approved, rejected or amended Friday by the 20-member Nevada Vision Stakeholders Group.

There was speculation that the Vision Stakeholders Group, appointed by legislators, would propose tax increases such as a corporate income tax or propose expanding the sales tax to include now-untaxed services. The Legislature faces a potential $3 billion revenue shortfall when it convenes next February.

Senate Majority Leader Steven Horsford, D-Las Vegas, said after this year’s special session in February that he planned to use recommendations from the Vision Stakeholders group and Moody’s Analytics as a blueprint at the 2011 Legislature.

But there is scant mention of taxes in the draft proposal.

"Tight state and local budgets notwithstanding, now is the time to make the structural changes and investments Nevada needs, lest its obstacles become insurmountable in the years ahead," the "Facing the Future" draft report said in its introduction.

The term "structural changes" has become a code phrase for increasing taxes. But the report does not go on to mention any specific taxes or assert that taxes should be increased.

Instead it stresses the need for improving education, such as increasing the number of high school and college graduates, and for building freeways connecting Las Vegas with Phoenix and Reno.

"They are proposing broad areas of spending without revenues to back it up," said Geoff Lawrence, a fiscal analyst with the conservative Nevada Policy Research Institute. "It is implying a large tax increase."

Lawrence noted the report recommends a freeway to Phoenix, a step that would cost hundreds of million in federal money, but Nevada lacks the ability to compel the U.S. government to give it necessary construction funding.

The report, he said, also wants Nevada to drive less and use alternative forms of transportation when at the same time it is calling for construction of new freeways.

"There are no specifics," he added. "They just name the goals but offer no clues on how to get there."

Lawrence doubts the Vision Stakeholders Group will propose tax increases when it meets on Friday.

"If you increase the tax burden, you hamper the private sector’s ability to engage in a recovery," he said. "It’s a Catch-22."

Lorne Malkiewich, the Legislature’s chief administrator, said the report was developed by Moody’s Analytics staff members, who have served as advisers at all Vision Stakeholder’s meetings.

Moody’s was hired by the Legislature for $253,000 last year to work with the group and to carry out a tax analysis and propose recommendations for changes to the state’s tax structure.

But the group failed to make a June deadline for completing the tax report or to reach agreement with legislative leaders for extra time and money.

As the result, Moody’s will be paid $99,000 for its work with the Vision Stakeholders Group.

Assembly Majority Leader John Oceguera, D-Las Vegas, said the report offers a good way to open discussions on what Nevada needs to do to make a better future for citizens.

"We need to improve education and to diversify the economy," he said. "We have a great business climate. Improving the quality of life is important."

He added it was a "shame" that Moody’s did not finish its look at the tax structure.

Key to improving Nevada over the next 20 years, according to the draft report, is diversifying the economy and attracting clean-energy producers.

Nevada’s dependence on tourism is over, the report said.

But the state’s long-term growth still is expected to exceed the national average.

"Nevada’s relative cost advantage, its hospitable culture, and its vast natural beauty will continue to attract migrants, mitigating shifts in demand for its core industries. Yet population gains, while still significant, will not match the trend of the last 30 years. Residential, retail and hotel construction will therefore no longer be a primary driver of regional growth."

A key recommendation calls for the state to pick up more federal grants. The report said Nevada in fiscal 2009 ranked last in the nation in per capita federal spending on specific grants at $973. The national average was $1,672.

"This is not to suggest that Nevada should depend entirely on federal resources, only that it should take advantage of available resources whenever appropriate."

Moody’s proposed Nevada set a goal to acquire at least $300 million a year in venture capital investments by 2030, which would be half of the average for Western states in 2000.

"By increasing venture capital and expanding the use of federal grant money, Nevada can expand private-public research and technology transfer, helping the state to attract high-growth industries."

Contact Capital Bureau Chief Ed Vogel at evogel@reviewjournal.com or 775-687-3900.

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