State-of-the-art stadium can be built without a tax increase

What can $422 million get you these days?

In Nevada, it can buy 50 data center jobs that pay about $30 per hour. It can also buy a state-of-the-art stadium or a light rail system to strengthen the Las Vegas tourism industry.

One does not have the same return on investment as the others.

Let us explain.

A November 2011 report by the Brookings Institution changed how Nevada manages its economy. "Unify, Regionalize, Diversify: An Economic Development Agenda for Nevada" provided Nevada with a roadmap to invest state resources in several targeted industry sectors.

The report's first sector — and this was no accident — focused on tourism. It explicitly noted that tourism — especially in greater Las Vegas, home to nearly three-quarters of Nevada's population — formed the state's core economy and thus needed to be both fortified and leveraged.

Other sectors were targeted to help diversify Nevada's economy, including green energy, aerospace and what Brookings called "Business Information Technology Ecosystems." The report highlighted data centers, one especially promising IT sector, and noted that Las Vegas (at the time) maintained a strong competitive advantage in data hosting because it has little risk of natural disasters such as floods, tornadoes and pulverizing earthquakes. Such factors led Enron and then Switch to develop a massive Internet juncture in Southern Nevada.

Now fast-forward four years and observe that state officials have acted on many of the report's recommendations. For example, Nevada now provides economic incentives to lure and retain data hosting companies. In 2015, the Nevada Legislature passed Senate Bill 170. The bill allows firms that invest $100 million in capital expenditures and employ 50 workers to exempt 75 percent of personal property taxes and all sales and use taxes, except the 2 percent that supports state schools.

Multiple firms are beginning to access the exemption. Consider San Antonio-based RackSpace, a cloud computing company that has proposed building a data center in the Tahoe-Reno Industrial Park. RackSpace seeks $422 million in exemptions and would employ 50 workers at $29.75 per hour.

Again: 50 jobs for $422 million in tax exemptions.

Now turn to Southern Nevada's core economy: Tourism. The most essential industry in all Nevada is woefully lacking infrastructure assets for large events that attract at least 40,000 people, and their related transportation needs. Recognizing this deficit, Gov. Brian Sandoval created the Southern Nevada Tourism Infrastructure Committee. The committee's charge focuses on identifying and prioritizing tourism-related infrastructure projects. Two key projects are emerging: a large stadium and a light rail system.

We are pleased to offer our recommendation for a creative and sound method to finance both projects — and in the process not raise taxes. The answer is a strategic tax "carve out" exemption akin to SB170.

So how much does $422 million in tax exemptions get you in tourism-related infrastructure? It allows you to finance a "giga" stadium worthy of Las Vegas' global entertainment capacity. Or it can underwrite a street-level light rail system that runs from McCarran International Airport to downtown via the Las Vegas Strip.

For our purposes, let's examine the stadium. Las Vegas' unique events economy should be fully leveraged, as many other hospitality infrastructure assets are in place: hotel rooms, global airport links, a massive convention center and world-class gaming and dining venues. Nevada legislators missed an opportunity to "carve out" tourist infrastructure funds in the 2015 session when expanding live entertainment taxes. Legislators failed to dedicate a share of those revenues to re-invest in tourist assets such as a stadium. Our legislators can easily remedy this in a special session or at the 2017 legislative session.

In addition, legislators should incorporate a stadium-dedicated revenue "carve out" from the Las Vegas bed tax, most of which is now sent to the state. Finally, legislators should apply a modest share of a data center-style sales tax revenue exemption to the stadium fund. These actions, packaged together to total, say, $422 million, would provide a revenue stream adequate to bond for a serious stadium that would be the envy of the world.

How much will this cost the taxpayers of Nevada or add to the state budget? Not one penny.

A new stadium with 20 events per year would generate more than $800 million per year in added economic activity. Over a 20-year cycle, the billions of dollars added to the Southern Nevada economy could stimulate sufficient additional state revenue to essentially pay for the facility and its maintenance.

Now that is a solid return on an investment of $422 million in tax incentives.

And yes, we expect this would add more than 50 jobs to our economy — a lot more.

— Robert E. Lang is executive director of Brookings Mountain West. William E. Brown Jr. is UNLV director of Brookings Mountain West.