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Changing the lure

When lawmakers and economic development officials created the Catalyst Fund in 2011, the idea was to help lure business to Nevada or help existing businesses expand their operations and hire more employees.

Now it’s time for a refresh to what state officials see as a program that delivers.

The fund was originally backed by $10 million in taxpayer money. But over the course of the fund’s brief life, more than $11.5 million in taxpayer money has been allocated to supporting business in Nevada.

As of Oct. 30, $8.85 million in grants and loans have been awarded from the Catalyst Fund, according to the most recent annual report. But recent legislative changes to the fund have replace cash payments with a transferable tax.

“The catalyst fund is basically a deal-closing fund,” said Steve Hill, executive director of the Governor’s Office of Economic Development. “It’s a tool to help (us) get deals done that need the help. It was implemented in 2011, because it was necessary.”

The GOED produced report also found 3,440 jobs have been created or saved as a result of these investments. Hill told the Las Vegas Business Press that since the report was issued, there has been an additional deal approved, bringing the total to 14, creating or saving some 4,000 jobs statewide.

The 14th deal was in January when GOED awarded Scientific Games and Scientific Games Productions an incentive package that included $1.4 million from the state’s catalyst fund. The deal came after Scientific Games announced it was moving its headquarters to Las Vegas as part of its merger with Bally’s last year. The relocation decision brings 202 jobs to Southern Nevada.

But do these incentives really work, or is it just a never-ending competition between states to see who can make the best deal to attract new businesses? Stephen Miller, director of the Center of Business and Economic Research at UNLV, wasn’t familiar with the specifics of the Catalyst Fund but questioned the use of incentives to attract businesses.

“The motive is good,” Miller said. “The problem is states are competing with each other. If the states all agree not to do it, then it might be a different story.”

Miller said it was simply about giving away various benefits to attract business to Nevada. He said Tesla Motors Inc. was the same story, except “we won that one.”

The original Catalyst Fund allowed companies to apply for funding through a city or regional development authority. The applicant must meet a series of strict requirements and commit to providing a significant quantity of well-paying jobs with benefits to the state.

Once an application is approved, the city releases the state funds to the company. The city or county monitors the company to insure it uses the funds for the intended purpose.

So, who is using state Catalyst Fund money to move their operations to Southern Nevada or expand their businesses? GOED found 13 companies statewide have been approved for Catalyst Fund grants, ranging from $75,000 to $1.87 million.

Elon Musk’s SolarCity Corp. received $1.2 million over three years in return for creating 1,500 jobs with an average wage of $21.31 per hour. In Henderson, Barclays PLC was approved for $1.87 million over four years in return for creating 1,866 jobs with an average wage of $14.25 per hour.

Miller cautioned that when comparing incentives to the number of jobs created and what each job pays, it’s not that simple, “these people who are hired have a secondary effect” on the economy.

No Catalyst funds were used to lobby Musk to build a $5 billion battery plant in Storey County, east of Reno. But that deal included more than a $1 billion in other state incentives. The factory, which is on track to begin production next year, will supply batteries for Tesla’s Model S sedans and Model X crossovers electric vehicles.

Kareo Inc., a company founded in 204 by CEO Dan Rodriguez that provides cloud-based medical software, recently accepted $242,500 in Catalyst funds. Kareo did not return calls or emails seeking comment.

Although Kareo is headquartered in Irvine, Calif., its second-largest office is in Summerlin, where it operates a medical billing division. The office, which employs about 100 people, helps small medical practices outsource billing.

According to the company’s application, Kareo expects to create between 200 and 300 jobs in Summerlin over the next three years. In return for creating jobs with an average hourly wage of $20.54, Kareo could receive $750,000 over three years.

Those state dollars are used to help offset the costs of its expansion in Southern Nevada.

“Catalyst funds will be disbursed based upon actual job creation versus agreed-upon hiring objectives over a defined duration of time,” according to Kareo’s Catalyst Fund application.

Kareo’s Summerlin office opened last year. The health care software company, which serves more than 30,000 medical providers nationwide, expects to invest $2.25 million in its Summerlin operations.

Hill said Kareo and other companies “have to earn that benefit every year.” He said the companies are audited to make sure they are living up to their agreements.

Over the longer term, economic development officials believe there is a significant possibility that other units of Kareo will move to Summerlin.

“The company’s customer support team is the most likely group to follow suit in the near term,” according to Kareo’s application. “This team currently employs 87 people in Irvine.”

But moving forward, direct Catalyst Fund cash payments have been replaced with transferable tax credits. Hill said the change was made during the 2015 Legislative session.

Senate Bill 507 said the Catalyst account would no longer require Gov. Brian Sandoval’s proposed general fund appropriation of $10 million for fiscal year 2016. Instead, lawmakers approved $500,000 in transferable tax credits for fiscal year 2016, $2 million in tax credits for fiscal year 2017, and $5 million in fiscal year 2018.

“We proposed that funding of the catalyst fund not take place,” Hill said. “Going forward, we wanted transferable tax credits in a catalyst account.”

Hill also said the bill allowed GOED to streamline the process, “so we don’t go through a city to issue the tax credits.” The transferable tax credits are directly funded by gross gaming taxes, the insurance tax and the modified business tax.

According to GOED, the word “transferable” means a company can sell that tax credit to somebody else. For example, Hill said, if say Tesla earns a $100,000 transferable tax credit, it could use it or sell it to, say, Caesars Entertainment.

Hill doubted Tesla would get full price, but said if the electric automaker sold it to Caesars for $98,000, the gaming company would still get to reduce its tax liability by $100,000.

“The cost to the state is the same regardless of which company uses it,” Hill said.

Overall, whether it has been a direct payment or a transferable tax credit, Hill said Catalyst has been one of the most effective tools to boost economic development in Nevada.

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