State education tax battle to heat up this summer
July 14, 2014
A low-key but high-stakes campaign is underway to win the hearts and minds of Nevada voters ahead of the general election and a crucial vote on a margins tax to fund public education.
Question 3 on the Nov. 4 ballot, called The Education Initiative, is arguably the most important issue for voters this election year. Although the focus is voter education, money will play an important role in the debate when the campaign intensifies this summer.
Supporters of the 2 percent tax on the gross revenue of businesses making more than $1 million say state policymakers have failed over the years to provide more money to public education to improve student performance.
As a result, many measures of student achievement show Nevada in last place or near the bottom nationally.
The new tax, placed on the ballot by the Nevada State Education Association, is expected to bring in as much as $750 million a year for Nevada’s public- education system. It would be a substantial increase in funding. The state is spending $2.5 billion on education in this current two-year budget, but total K-12 spending is much higher when local revenue is counted.
But a broad coalition of business groups with Gov. Brian Sandoval and many other officials oppose the tax, contending it would lead to the elimination of 9,000 private-sector jobs and jeopardize Nevada’s slow recovery from the Great Recession.
BIG WAR CHESTS
The amount of money being raised for the ballot box fight shows how high the stakes are for both sides.
The Coalition to Defeat the Margin Tax Initiative raised more than $1.5 million this year through June 5 and had spent nearly $500,000.
The Las Vegas Metro Chamber of Commerce’s political action committee has contributed $262,000 to the campaign, and the Nevada Resort Association PAC has given $250,000. Hotel-casinos would pay the tax on nongaming revenue. The Nevada Mining Association has contributed $50,000.
The Nevada State Education Association and its national group are exclusively funding the pro-campaign, making $670,000 of in-kind contributions in 2012 to qualify the measure for the ballot, spending the same amount. This year, the state and national associations contributed $235,000 to the campaign and reported spending $385,000.
The spending includes $50,000 payments to Mi Familia Vota, Progress Now Nevada, America Votes and the Progressive Leadership Alliance of Nevada. The groups are using the money to gain constituent support for the measure.
BUSINESS COMMUNITY SPLIT
One supporter of the measure is Cassie Rice, who with her husband owns Gymcats in Henderson, a gymnastic school.
Rice said her business, which has operated for 22 years, will have to pay under the margins tax proposal. But she views the proposed levy as an investment in the state’s children.
“The tax will be paid by the businesses that can most afford it,” she told the Las Vegas Review-Journal. “The amount we’re spending on education is ridiculous. We need to do something because nothing is being done at the Legislature.”
Rice said she believes in the power of education and believes the investment will bring returns to the state, from a stronger economy to a lower incarceration rate.
But Dan Boyle, who has operated Proshop Motorsports and Marine in Henderson since 1997, said the tax will curtail job expansion and threaten many small businesses. A business does not have to be huge to bring in $1 million a year in gross revenue, he said.
If approved by voters, the 2 percent margins tax will mean a $20,000 tax on the bottom line of a business grossing just more than $1 million, Boyle said.
“It will be a killer on a lot of small businesses,” he said.
Boyle said he thinks his business would survive the tax but would have less money to add employees or expand.
Nevada and other states offer tax breaks as an incentive to bring businesses in, so a tax increase will have the opposite effect, he said. Add in the higher costs for health insurance from the Affordable Care Act, and there is no guarantee any business will survive, Boyle said.
“Every year it’s a battle,” he said.
The camps rebut each other’s arguments.
The private-sector job loss estimate of 9,000 comes from economist Jeremy Aguero of local research firm Applied Analysis, who concluded that: “Extracting $700 million from private-sector businesses by way of the proposed margin tax translates into roughly 5,800 direct private-sector positions, with an estimated reduction in labor income (including employee wage and salary payments) of $273 million annually.”
“When indirect and induced impacts are factored in, private-sector job losses increase to 8,860 and incomes fall by approximately $413 million annually,” he said in an analysis created for the margins tax opponents.
But Dan Hart, campaign manager for The Education Initiative, said the analysis doesn’t account for the number of jobs, from teachers to support personnel, that will be created in the public-education sector because of the new spending.
“TEI will be a net positive for jobs,” he said.
Although tax opponents argue that the measure would stifle economic development, Hart said Nevada’s efforts at diversification lag because of the state’s underperforming education system.
“If we show we’re willing, as a community, to support a better education system, it will create a more attractive environment for business to locate here,” he said.
Opponents question whether education funding would increase if the tax were approved. Critics say although the money is required to go to the state education budget, but there is nothing to stop the Legislature from reducing existing sources of funding to that budget.
Hart also said that because businesses making less than $1 million in gross revenue wouldn’t pay the tax, only 13 percent of the state’s largest businesses would fall under the new levy.
But Karen Griffin, a spokeswoman for the Coalition to Defeat the Margin Tax Initiative, said higher costs for companies doing business in Nevada will mean higher costs to consumers. And a lot of those 13 percent of businesses that will pay the tax are small businesses, she said.
“Much of the tax will be passed on,” she said. “The cost of essentials will go up. It will hurt low- and fixed-income residents the worst.”
The organization’s sole focus is defeating the tax at the ballot box. But some opponents are interested in having a meaningful discussion about education funding in the 2015 legislative session should the measure fail, Griffin said.
State Sen. Michael Roberson, R-Las Vegas, said last week at a legislative meeting on public-education funding that many lawmakers believe the funding is inadequate and requires more revenue.
“We know increased education funding has to happen next session,” he said. “It will happen next session. I and many others (who) serve in the Legislature, of both parties, are committed to doing that.”