Nevada lawmakers expected the Southern Nevada Tourism Improvement Act — Senate Bill 1, which was enacted during the 2023 special legislative session, to be a positive force for the Nevada economy by paving the way for the Oakland Athletics to move to Las Vegas. Instead, it may be hampering economic development opportunities and business attraction options for the state.
Included in SB1 was a new rule for companies seeking tax abatements from the Governor’s Office of Economic Development that went into effect Oct. 1, 2023. Under Section 39 of SB1, companies that seek abatements for relocation or expansion and plan to employ at least 50 workers must “agree that all employees who have been employed by the business for at least 1 year will be eligible for at least 12 weeks of paid family and medical leave at a rate of at least 55 percent of the regular wage of the employee.”
At first glance, this seems to bolster worker rights and welfare. But a deeper analysis shows this mandate will potentially create a burden on business operations and their bottom lines.
This new policy will likely lead to increased business costs that might outweigh the tax abatements these companies receive. Unlike the abatements, which expire, the SB1 mandate is permanent. The mandate could absorb a substantial amount of the tax abatements meant to incentivize businesses to move to Nevada. This is especially critical because the majority of the abatements granted by the economic development office have gone to small businesses.
According to GOED’s 2024 data, the number of companies seeking tax abatement incentives to move to Nevada has declined by 40 percent year-over-year. That number is also down 35 percent from 2022 and down 64 percent from 2021.
For the manufacturing industry, one of GOED’s target sectors, these abatements temporarily offset taxes in Nevada that do not exist in other competing states such as Texas, Utah or Arizona. With the SB1 mandate, when abatements expire, companies become subject to both taxes and paid family medical leave mandates that do not exist elsewhere.
Defenders of paid family medical leave contend that the legislation supports worker welfare. They claim it signals Nevada’s commitment to attracting businesses that are “like-minded” in valuing their workforce.
One could argue that this provision, which applies only to companies seeking tax abatements for relocation or expansion, is designed to shield existing Nevada employers from competition. By reducing competition, however, this policy could harm workers by pushing wages down. Whether this is intentional or not, it is a likely unintended consequence of the mandate.
Wages aren’t the only thing that can be decreased. The number of jobs can also be negatively impacted. According to recent research from the Federal Reserve Bank of Chicago, state parental paid leave laws have led to reductions in employment of between 3 percent to 8 percent compared to states without this mandated benefit. Although this study focused on parental paid leave rather than paid medical leave, both mandates increase the cost of doing business. As a result, it is reasonable to expect similar employment outcomes under the SB1 mandate.
Relocation or expansion decisions need to make economic sense for businesses. Relocating or expanding is about company economics and results, not values and intentions. If it costs too much for businesses to create a job in a regional market or a state, they won’t create that job.
Even though this mandate doesn’t apply to all companies relocating or expanding, the fact that this was included in a bill could be seen as a red flag. New policies that increase costs and burdens on employers, such as the family leave provision, send a signal that more mandates may be expected in the future.
Business owners are forward-looking and need to have less uncertainty around what policies they can expect to be passed in the next five, 10 or even 20 years. Prospective businesses may interpret SB1 as Nevada is becoming more and more interested in making it harder to do business.
If businesses believe it’s going to cost them more money to operate in a new location, why would they ever move there?
It’s clear the proponents of the family leave mandate hoped to help workers in the state. But, so far, Nevada is seeing decreased interest by prospective businesses due to the very real costs from this mandate. SB1 was intended to diversify the economy. Instead, it seems to have made diversification more difficult.
Cameron Belt is director of research and senior economist at RCG Economics in Las Vegas.
This post was originally published on here
