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NV gaming tax proposals: the big con

Two special interest groups are separately proposing voter referendums

The NSEA (teacher’s union in Nevada) and an eminent domain attorney, Kermit Waters, have lodged proposals that would raise the gaming tax in NV from 6.75%, to 9.75% and 20.2%, respectively. We think both proposals are misleading, misguided and self-serving. We do not believe the authors of either proposal have given any serious consideration to the longer-term ramifications, which we believe to be quite negative for the gaming industry and the state as a whole.

Why do we say these proposals are big cons?

Quite simply, we think the NSEA proposal is essentially a smoke screen to increase currently higher than state average teacher pay under the guise of a student achievement initiative, while Mr. Waters’ proposal would provide property tax relief to residents of a state with one of the lowest personal tax burdens in the country.

Teachers already make more money than the average Nevadan

While the referendum language does not specify, NSEA commentary suggests at least 60% of the taxes generated under their proposal would go towards increasing teacher compensation. Surprisingly, we found that the median annual NV teacher salary is already 40% higher than the average Nevadan’s salary and could potentially be about 67% more than the average Nevadan if the NSEA proposal were to become law. Further, this isn’t time adjusted for more time off (e.g. summer vacation) compared to the average Nevada worker.

Higher gaming taxes could likely lead to a significant loss of employment

We believe either of these ill-conceived gaming tax increases could throw off the delicate economic balance that exists in Nevada. As public gaming companies have a fiduciary responsibility to seek higher returning projects for shareholders, 1) a portion of the development pipeline could be canceled and redirected to other more rational gaming jurisdictions; 2) existing operations could endure job cuts in order to maintain acceptable levels of profitability (similar to what happened in Illinois); 3) upward pressure on wages and notable demand for new jobs may never materialize. By way of example, we note that when Illinois raised gaming taxes, casinos laid off 26% of their employment base. We believe a similar scenario could happen in Nevada as 264 casinos would be subjected to higher gaming taxes under the NSEA proposal.