Nevada Business Coalition

Politicians have an uncontrollable urge to do something in response to any unusual event. But too often they end up doing something that makes the problem worse or that creates an entirely different set of problems. And often these new problems are worse than the one they were trying to fix.

The collapse of the housing market and the glut of foreclosures in Las Vegas resulted in a profusion of abandoned homes. Some people have complained about abandoned homes in disrepair that are both unsightly and can be an invitation to squatters and vandals. To address this, the City of Las Vegas passed an ordinance requiring banks to register and maintain abandoned homes on which they have filed notices of default (NOD), the first step in the foreclosure process. But, as is often the case, this law has created a new set of problems.

Within 10 days of the NOD filing the bank is required to register the home, pay $200 and send someone out to the property to verify whether or not someone is living in the home. If it has been abandoned, the law forces the bank to take responsibility for maintaining the exterior of the property and threatens fines and possible jail time if they do not.

So who’s going to go to jail? Will the City make a big show of arresting the President of CEO of the company, someone for whom it is not possible to know the status of every mortgage, inviting the press and the cameras to show their serious? Or will they arrest some poor hourly worker in the mortgage department who just happens to have the misfortune of working on that file?

What about the people who’ve purchased a second home and walked away from the first? According to the ordinance they’re not responsible for the upkeep, the lender they stiffed is.

The new law requires banks to trespass onto property they don’t yet own. They will also have to keep utilities turned on, such as water and power – in houses that are officially still owned by someone else.

And the registry they’re supposed to use? It doesn’t exist yet. Hopefully that bid will be an item on an agenda in the near future. Meanwhile, some are under the impression this ordinance is taking effect right away.

The ordinance may not have very much effect after all.

Fannie Mae and Freddie Mac own more distressed mortgages than any other lenders in Las Vegas. The Federal Housing Finance Agency (FHFA), which regulates these two entities, is suing the City of Chicago, claiming only the FHFA can tell Fannie and Freddie what to do, not some local government.

If the FHFA wins the Chicago suit, the two entities that own more distressed homes in Las Vegas than any other lenders will not have to abide by this ordinance. Even if the FHFA loses its lawsuit against Chicago, it has already informed Fannie and Freddie to raise their rates on mortgages in Chicago to cover the additional costs they will encounter from that City’s plan. As if it weren’t hard enough to sell houses in Las Vegas, this ordinance will likely increase the cost of mortgages in as well.

But the ordinance could fail to do exactly what it’s supposedly designed to do. The mandate to maintain properties only applies to those with a mortgage. When the bank actually owns a property after completing the foreclosure process and failing to sell it at auction, there is no longer any mortgage, so legally the bank is under no obligation to keep the property up.

In other words, this new ordinance requires banks to maintain properties they do not own but not properties they do.

Just another example of the unintended consequences when lawmakers feel they have to do something in response to every event.

Ask around Las Vegas, especially in the corridors of City Hall and the streets of downtown, and people will sing the praises of Tony Hsieh, founder of Zappos. The company’s move to the Las Vegas Valley several years ago was celebrated. And Hsieh rescued the City from its ill-advised and misguided decision to build a brand-new City Hall in the depths of the recession by inking a deal to take over the old one.

Hsieh has played a huge role in downtown redevelopment and pledged to invest even more in efforts to revitalize the area. In some ways he has replaced former Mayor Oscar Goodman as unofficial ambassador for the City. Hsieh and Zappos have brought investment dollars, jobs and energy, elements that had been lacking recently, to downtown Las Vegas.

But there is one group not singing the praises of Zappos and Hsieh. The Culinary Union, as part of its campaign against Stations Casinos, has identified Hsieh as a target of its ire.

According to a report in the Las Vegas Sun, Union members have harassed Hsieh as he has attempted to go about living his life – while dining at a local restaurant and attending a popular function that Hsieh and Zappos saved from extinction.

For the leader of a company whose reputation has been built on customer and employee satisfaction, he would seem to be a strange choice for such anger. So what is Hsieh’s offense that earned him the role of target of such “disgusting”, in the words of one person quoted in the Sun piece, behavior? Zappos puts up visiting executives in the hotel nearest its current Henderson headquarters, which happens to be a Stations property.

As disgusting as this is, it’s pretty much par for the course for the Culinary, even mild. The Union has a reputation for thuggish tactics and, on more than one occasion, recent demonstrations aimed at Stations have resulted in the arrest of Union members.

Unable to convince workers to voluntarily join their Union, the Culinary has resorted to harassing and intimidating innocent people who’ve done more for workers and for Las Vegas than the Union could ever hope to.

The Roadhouse Casino has been forced to delay its remodeling and reopening plans as its fight against one of the gaming Goliaths continues. The Roadhouse is the casino on Boulder Highway in Henderson whose gaming license has been challenged by a competitor that doesn’t want the competition.

The renovation and eventual opening of the Roadhouse could be just the shot in the arm that area of Henderson needs to get moving again. The company estimates it will spend about $2.3 million on the renovation, which will involve adding a restaurant and several other interior and exterior features. That spending will include $1 million in construction labor. In addition, it predicts the casino and restaurant will create more than $17 million in new spending annually.

Stations Casinos sued the Roadhouse and the City of Henderson to block the casino’s renovation plans, claiming the company had lost its nonrestricted gaming license. The Roadhouse obtained that license before the laws were changed to require a hotel and certain other items in order to qualify for a nonrestricted license.

When the law was changed the Roadhouse was grandfathered in under the old laws and operated for several years. During much of the last decade it has been dormant, opening for just one day every other year, which is required to maintain its gaming license.

In a report by Channel 8 television in Las Vegas, available on the Roadhouse’s website, the attorney for Stations said, “No one out there would make the type of investment the legislature says is necessary if other people could compete against you and don’t have to do the same outlay.”

But the Roadhouse obtained its nonrestricted gaming license before this particular requirement was the law. Just like some Stations properties that were also granted their nonrestricted licenses before the law changed, the Roadhouse’s license was grandfathered at that time. Therefore, it does not have to comply with these requirements, just like those Stations properties don’t comply with these requirements.

The next episode in this saga has been delayed until after the first of the year as the judge overseeing the case rescheduled a hearing that was supposed to occur earlier this week.

Once again a smaller competitor is forced to battle against Stations, the state’s self-appointed gaming cop, in an arena other than the marketplace.

An improving economy has generated nearly $60 million above revenue estimates for Nevada’s state government in recent months, according to figures released by the state’s Economic Forum.

The Economic Forum, which provides the revenue projections lawmakers are required to use in creating the state’s budget, revealed that tax collections were more than $21 million above the Forum’s estimates for the last few months of Fiscal Year 2011, which ended on June 30. The state’s economy has also generated just under $38 million more in tax revenue than predicted in the first five months of FY 2012.

In the past, state government gobbled up and spent additional revenues, which was partly responsible for massive increases in expenditures during boom years. It is up to us, the taxpayers, to make sure the state does not repeat that mistake in the current recovery.

According to participants in the Forum, a slow but noticeable recovery is taking place in Nevada. With one notable exception, the presenters appeared cautiously optimistic about the state’s economic future.

Bill Anderson, chief economist of the Department of Employment, Training and Rehabilitation, indicated that employment has been picking up in the state. September and October actually saw increases in the total number of jobs. 15,000 new jobs were created in the Leisure and Hospitality industry in the past year.

However, the state still leads the nation in unemployment at 13.4%, which is far worse than the state with the second-highest unemployment rate (11.4% in California). Even more sobering are that the unofficial unemployment rate (including people who are no longer looking for work and part-time workers who would rather be full-time) is around 23% and that over half of those unemployed have been out of work for more than a half-year.

The future does look a little better but the hole that state is in is very deep. Anderson said he “expects relatively modest improvements going forward” but no new boom. He predicts job growth of about 1% per year and the unemployment rate dropping by around 1 percentage point for each of the next few years.

Stephen Brown from UNLV’s Center for Business and Economic Research stated the Southern Nevada economy is improving and predicted slow growth for the next couple years.

Brown disclosed the Indices of Leading Economic Indicators were up and that the Center’s Southern Nevada Business Confidence Index revealed, “Southern Nevada businesses are more confident than they’ve been in the history of this index,” although he stated the index is only four years old.

This index samples business sentiment in five areas – sales, profits, hiring, capital expenditures and economic conditions. For the first time all areas were above the neutral 100 mark into optimistic territory.

Brown presented several elements used to develop the Southern Nevada Forecast – visitor volume, gross gaming revenue, hotel/motel rooms, population, employment, unemployment, total personal income and housing units permitted – all of which he predicts to move in a positive direction in each of the next two years. He predicted the Southern Nevada economy will “show slow growth in 2012 and 2013.”

Perhaps the most optimistic of all was Rossi Ralenkotter of the Las Vegas Convention and Visitors Authority who presented the visitor and tourism statistics for the Las Vegas market.

These numbers have improved in virtually every area. Ralenkotter indicated that, at the current pace, visitor volume would exceed 39 million. 2007 was the only year in which Las Vegas achieved 39 million visitors. And even a modest increase in 2012 might be enough to reach the magical 40 million figure.

The most dour report came from Dennis Smith, President of Home Builders Research, who provided the Southern Nevada housing outlook. Not a pretty picture.

The homebuilding industry was hit harder than any other by the recession. After new home closings reaching a peak of nearly 39,000 in 2005, the number fell by over 7% in 2006.Closings fell by nearly half the next year, nearly half again the next and nearly half again to just 5,271 in 2009. After a slight increase in 2010, new home closings fell by 1/3 this year with Smith projecting just 3,600 closing in 2011. Smith predicts modest increases in the next couple years.

Meanwhile, new home prices have remained relatively stable for the last year. Smith indicated this is because builders have reached the bottom limit of what they can afford to build a house for. While existing home prices may fall further , although Smith didn’t believe this was likely because of the already-large spread between new and existing home prices, builders of new homes have run out of areas in which to cut costs.

The Northern Nevada contingent revealed the Reno-Sparks Metropolitan Statistical Area (MSA) the area had 2,000 fewer jobs in October 2011 than October 2010, which itself had 3,400 fewer than October 2009. Four of the thirteen sectors included in the study suffered job losses during this time.

They also indicated that the fifteen rural counties, despite containing 80,000 fewer residents, actually generated more taxable sales than Washoe County in the last 4 quarters. However, taxable sales in Washoe County increased in the third quarter of 2011, although by only 0.8%, far less than in Clark County or the state of Nevada as a whole.

The economy does appear to be picking up and there are reasons for optimism, though the construction industry is a notable exception to that optimism. As the economy improves, tax collections should continue to exceed estimates.

Before another politician makes a statement claiming that regulations don’t do any economic harm, he needs to talk to Buddy Byrd.

Byrd got his first contractors license in 1984 when he was 24 years old. He built Byrd Underground up to 65 employees by 2006, at the peak of Southern Nevada’s building boom.

The company, which he describes as “a full-A civil contractor” that performs grading, paving, concrete, digs trenches and installs utilities such as electrical, water and sewer, fell to sixteen employees recently although he has added two new people since.

But if certain new regulations are allowed to take effect in 2014, he is concerned that Byrd Underground, after surviving the collapse of the local construction market, may become a casualty of federal government overregulation.

In 2014 new EPA guidelines take effect that tighten emissions standards on certain diesel engines – those not for highway use – to what is called a Tier 4 standard. In some cases, these emissions would have to be reduced by 90% from their current standard to comply with Tier 4.

Byrd, whose current vehicles and equipment comply with the Tier 3 standard, says he can “not afford to replace every single piece of equipment I have or bring it up to the new Tier 4 regulations.”

He estimates it would cost him over $7.5 million to upgrade or replace his fleet to comply with Tier 4. With gross revenues of $2-3 million per year and net profits “down to nothing” it may be impossible for Byrd’s family business to continue if this regulation is implemented.

It’s not as though Byrd’s equipment is ancient. Much of his 50 pieces of heavy equipment and 15 trucks were purchased new in and around 2006. That is virtually brand-new in the area of construction equipment, but obsolete in terms of the pending regulations.

In the end the new regulation may be self-defeating. The best option available, according to Byrd, may be “to sell all of my equipment and let it go overseas.”

Other countries, such as Mexico and China, don’t have nearly as strict emissions standards as the United States. So companies in those nations would readily buy the perfectly-good but non-compliant equipment American firms would have to dump. The equipment would still be emitting the same particles, only on foreign projects instead of American ones.

The NFIB featured Byrd as part of its Small Business for Sensible Regulations campaign, which highlights the impact of federal regulations on small businesses. NFIB’s Nevada State Director, Randi Thompson says, “Currently there are over 4,000 federal regulations that are in the pipeline.” She adds, “What we’ve seen in the last six years is a 60% increase in regulations that actually have an economic impact.”

“It costs businesses that have 20 employees on average about $2,400 a year per employee to comply with federal regulations,” according to Thompson. The purpose of the NFIB campaign is to focus attention on the plight of the small business owners who must deal with these regulations.

While the emissions standards may have the most damaging effect on Byrd’s business they are far from the only federal regulations hampering it. Byrd identified the health care reform legislation (the Patient Protection and Affordable Care Act, or ObamaCare) as one that will pile additional costs on his business. In addition, one of Byrd Underground’s projects has been on hold, with the company’s equipment sitting idle, because of federal lead paint regulations.

As Thompson says, “They only way they’re going to pull back on these reg’s is if people like Buddy Byrd stand up and say, ‘You know what this is going to cost me?’” Buddy Byrd is standing up, but are they listening?

Nevada’s Modified Business Tax (MBT) ranks right up there as one the worst ideas ever devised by mankind.

Okay, maybe that’s just a bit of an exaggeration. But not much.

It punishes employers for employing workers, which is why even members of the left have declared it “hurts small business and hampers job creation.” Yet it still survives.

The MBT is levied on the amount of payroll a company pays. It has to pay 1.17% of its total payroll minus a deduction for the health insurance premiums the company pays on behalf of its employees.

The old saying goes if you tax something you get less of it. Certainly, taxing employment through the MBT has had a negative effect on the state’s highest-in-the-nation unemployment rate. For a business with 86 employees, the company pays the equivalent of an entire employee’s wages in MBT – without getting the added production that employee would provide.

Recent changes in the law reduced, or eliminated, the MBT for some smaller companies while increasing it for larger ones. These, in part, eliminated the MBT on the first $250,000 of payroll per year. Oops, that should say $62,500 per quarter.

Several news reports and public statements quoted the $250,000 number, which is slightly misleading and could cause problems for some businesses.

For instance, say a seasonal company has payroll of $30,000 for each of three quarters, then $150,000 in a single quarter. The total payroll for the year is $240,000.

If the calculation were done over the course of a year, there would be no MBT. However, since it’s done by quarter the company has to pay the MBT on its payroll in that highest quarter.

We recently spoke with the owner of a small business who ran into a similar problem. His company’s fiscal year ends on September 30. He pays himself only once a year, at the end of the fiscal year.

This year, although his payroll was well short of $250,000 he still was forced to pay the MBT in his business’s final quarter of the year because his pay pushed the company’s total payroll above $62,500 for the quarter.

Having planned based upon the public statements he’d heard from the media and politicians he was not prepared for the hit. What a shock when he discovered he’d be responsible for forking over a little bit to the state of Nevada for the privilege of putting people to work in the state. For a small business every unexpected expense is burdensome.

So take note, Mr. SmallBusinessOwner, for this little gift from the Legislature could snag you, too. The MBT, not just a job-killing business tax anymore!

A small Elko contractor targeted by a Union will be slugging it out with the Union in court. A judge in Reno has set a December 6 court date for Mach 4 Construction to have its case heard against Operating Engineers Local 3.

The company was unable to come to a settlement agreement with the Union and its Trust Funds earlier this week. The Union once again was unwilling to agree to accept amounts that would allow Mach 4 to stay in business. Judge David Hicks also dismissed the Union’s motion for summary judgment and set the date to hear the case at trial.

Mach 4 will be claiming “unclean hands” on the part of the Union in the dispute. This defense alleges the Union and its Trust Funds have acted unethically or in bad faith.

The company signed what it believed to be a one-year contract with the Union in 2007. While the Union assured the Millers they would be thrilled with the deal and want to extend it, they were anything but. Duncan Miller complained of being sent unqualified workers from the union hall and having to waste time with remedial training of supposedly highly-trained operators.

When the company attempted to terminate the agreement at the end of that year, the Union rejected the termination and today claims Mach 4 has been subject to the terms of the agreement ever since. Because of this the Union and its benefit Trust Funds assert the company owes them in excess of a million dollars in back pay and benefits for union members, even though the company has not used union labor since it attempted to end the deal and its 36 current employees do not want the Union.

Angela Miller, one of the principals of Mach 4, along with her husband Duncan, indicated that the ongoing litigation has hurt the company. Not only is it costly but some potential customers are hesitant to hire Mach 4 because of the possibility the Union could succeed in driving it out of business.

According to Nevada law, were the company to be forced to close its doors the Union could go after its customers for the money it claims it and the Trust Funds are owed by Mach 4. Rather than knuckle under and give up, Mach 4 has chosen to fight.

A couple years ago, Clark County was first named a Judicial Hellhole. The state of Nevada could be on its way to being the nation’s first Lending Hellhole.

The pendulum swings all the way to one side, then all the way to the other, never stopping in the middle. So it is with Nevada’s overreaction to the loosey-goosey days of easy money.

The Silver State is creating taxpayer-backed business loan programs because “banks aren’t lending,” while at the same time making it more difficult for lenders to survive in the state.

Banks are currently fashionable targets for contempt and derision but the fact is that financing is vital to a modern economy. Not many of us have enough idle cash laying around to pay for a home, even at today’s depressed prices.

The ability to finance automobile purchases allows the average person to buy a car more advanced than the Fred Flintstone Mobile. Commercial lending facilitates business growth and permits companies to make capital investments while freeing up cash for operations.

While politicians complain about banks not lending money, government regulators are looking over the banks’ shoulders scrutinizing every transaction and forcing lenders to tighten their requirements. The Silver State has gone even further in overreacting to the excesses of the mortgage bubble by enacting legislation that could make it extremely difficult for lenders to operate profitably in the state and, therefore, more difficult for the state’s consumers and businesses.

If lenders can’t make money by lending it out, they won’t lend. Nevada Banking Association President Bill Uffelman says, “Nevada is rightfully gaining a reputation as a lousy place to loan or buy debt.”

Two pieces of legislation that became law this past spring have contributed to that reputation. AB284 creates additional hoops for lenders jump through to foreclosure on property owners who have defaulted on their loans. As a result of this law the number of Notices of Default (NOD), a filing required to start the foreclosure process against delinquent borrowers, has plummeted.

AB273, among other things, reduces the amount some lenders can recover from a secured loan. This could severely hamper banks’ ability to sell loans to secondary buyers, which provides additional capital to make more loans. It could also more difficult for solvent banks to purchase failed banks that have been taken over by the FDIC.

AB284 has virtually stopped NOD filings in Nevada, at least for the time being. Some of those familiar with the legislation believe that the requirements of AB284 don’t present an impossible burden for lenders wishing to foreclose on delinquent borrowers but it is making lenders more hesitant.

Mark Connot, a real estate attorney with Fox Rothschild, stated that the “personal knowledge” requirement in an affidavit filed with a NOD could be satisfied by an individual familiarizing himself with the documents and electronic records of prior transactions. “Someone can be educated on the personal knowledge,” according to Connot. He believes other requirements, such as the need to demonstrate “actual or constructive possession,” meaning the “power and intent to control the note”, could be more troublesome.

However, even if lenders believe these issues can be overcome, NOD filings are unlikely to return to their prior pace any time soon. No lender wants to be the first one to jump into that pool.

A person making a false statement on the affidavit, including a claim of “personal knowledge”, is subject to fines and can be prosecuted for perjury. In addition, there are a slew of attorneys, many flushed with past successes suing mortgage companies, chomping at the bit to sue over AB284. Lenders could be liable for civil awards to homeowners who have not made mortgage payments in many months, simply for filing improper affidavits.

While lenders may eventually discover a way to comply with the requirements of AB284, everyone is waiting for someone else to take the plunge first. As Uffelman puts it, “Who’s going to be the test dummy?”

While the consequences of AB284 may be more immediate, the impact of AB273 is more far-reaching.

AB273 mandates that a lender who buys a mortgage from another lender can only collect what it paid for the note, regardless of the face value. In other words, the law removes the profit potential from the purchase of promissory notes on secured loans and, thus, the willingness of lenders to buy promissory notes.

Banks often sell these to acquire more capital, allowing them to make more loans. In addition, these secondary sales allow banks to salvage something from loans in default by selling them to buyers who then have incentive to collect the remaining balance, especially in the case of business loans secured by personal guarantees. If buyers can’t collect more than they paid, “nobody is going to purchase those notes,” Connot says.

According to Uffelman the law could also have an effect the ability of solvent banks to purchase the loans of banks taken over by the FDIC. These are almost always purchased at a steep discount.

AB273 would prevent the purchasing bank from collecting more than the discounted amount it paid for them. This would remove any incentive for banks to purchase these loans. If the FDIC is unable to sell the loans of failed banks it could possibly have an impact on FDIC insurance.

Currently the Nevada Supreme Court is hearing cases regarding AB273 and whether it is retroactive. Borrowers have argued the law should apply to any loan not foreclosed upon before it took effect. Lenders dispute this, claiming it should only apply to loans issued after the effective date of the law. Lenders can factor the additional costs and risks into new loans but not to those with contracts already in force.

The ability to secure financing is vital for a modern economy. It increases the capacity of consumers to make major purchases and is essential for business growth. The state of Nevada has taken several steps that have made an already-difficult climate even worse for the state’s lenders, which could seriously hamper the state’s recovery and economic growth.

The media was all abuzz last week with the release of the Economic Development Agenda for Nevada by Brookings Mountain West. The plan is now in the hands of the state’s policymakers, who would do well to look closely before blindly adopting its recommendations.

It does contain some good ideas – enhancing the business development data available to businesses and assisting the state’s “exporters through the ins and outs of selling abroad”. The report deviates from liberal orthodoxy in some places, for example, advocating for real alternative licensure and merit-based pay for math and science teachers. It also cites as a constraint on businesses in the state the difficulty and delays caused by the land-use and permitting policies of the various federal agencies that own 87% of Nevada’s land.

But generally it reads like a document prepared by a group of left-leaning academics and (surprise, surprise) contains what one might expect from a group of left-leaning academics – more money for academia, for instance. While it expresses a preference for bottom-up approaches as opposed to top-down dictates, it is itself an exercise in top-down planning.

One of the worst, and possibly dangerous, ideas is the creation of the positions of “sector champions” within state government (p. 96).

These champions or product managers will serve as both the state’s emissaries to the target sectors or clusters and, conversely, the target industries’ key “go-to” contacts and advocates in state government. Along these lines, the champions would as a first order of business spearhead further organizing work, but they would do more. As the sectors’ appointed champions, these professionals would work relentlessly—one with each target industry—to identify and respond to key cluster opportunities as well as binding constraints, especially in state policy and process. With those opportunities in constraints in their sights, the champions would work to seize the opportunities and to work through the policy constraints that impede growth. On the one hand, they might coordinate a targeted business attraction effort to complete a regional supply chain. On the other hand, they might drive a needed regulatory tweak with likely benefits to a prized cluster. In all, the champions will ensure that the state’s strategic industries in the regions have not just a direct line into state government but a dedicated, focused, and action-oriented point person waking up each day focused on driving the industry forward.

These “sector champions” are essentially taxpayer-funded lobbyists for privileged (“target”) industry groups.

If there is one ideal that can unite OccupyWallStreet, the Tea Party and virtually everyone in between it is a contempt for crony capitalism – the unnatural alliance of government and business in which government uses its power to promote the interests of particular (privileged or “prized”) businesses at the expense of others.

This report advocates making crony capitalism official policy of the state of Nevada. It explicitly provides for certain, selected industries to have their own lobbyist in state government, funded by the taxpayers no less!

Government should be coordinating with business to help remove regulatory barriers – or, ideally, to avoid creating them in the first place. But it doesn’t take a very cynical mind to believe that a “regulatory tweak with likely benefits to a prized cluster” might be one that provides benefits to the cluster not only with the government’s ear but with an advocate on the government payroll, and that these would come at the expense of other businesses or industries.

In some places the plan works at cross-purposes. The report identifies “retirees” as Target Opportunities for the Tourism, Gaming & Entertainment sector but then denotes the “[h]igh percentage of Medicare patients and low reimbursement rates” as a constraint on the Health and Medical Services sector. More retirees means an even higher percentage of Medicare patients.

In others the ideas are little more than repetition of liberal pipedreams. Energy Efficiency Upgrading, for example, is not a viable sector or subsector.

Large-scale Upgrades to existing buildings or residence are rarely feasible unless there are significant subsidies available to do so. In other words, only if the taxpayers are forced to bear some of the cost does this type of investment pay off for a building owner. Past experience with state- and federally-run programs of this sort is that they are, quite frankly, boondoggles – lots of money spent with little results.

The idea that this could result in a significant, or even notable, level of economic activity during the report’s time window is ridiculous. Ironically, this fact could change if Nevada follows through with implementation of its renewable portfolio standard (RPS), which requires state utilities to obtain 20% of their power from renewable sources by 2015 with higher requirements in future years. Adopting the RPS will drive the state’s energy costs significantly higher than current level, which the report terms “relatively high for the region.”

That is just a sample of the potential policy hazards contained in this document. The plan is loaded with other provisions and recommendations that come with unintended consequences, not to mention the expense of adopting these recommendations, which will have to come largely by increasing the tax burden on existing businesses and damaging the state’s attractive tax climate.

There will be a lot of pressure on the Governor’s office and Legislators to adopt the provisions of this plan wholesale. That approach would be a mistake and they need to tread carefully to avoid the numerous minefields it contains.

A small contractor from Elko is continuing its fight against a union that the company claims is trying to force it out of business. As we discussed previously, Mach 4 Construction is a general contractor that signed what it believed to be a one-year contract with the Operating Engineers Local 3 in 2007. The union has rejected Mach 4’s attempts to terminate the agreement and maintains the company has been subject to the contract to the present day.

Federal Judge Larry Hicks has set a December 6 trial date to hear the case. One of the items at issue in the trial is whether or not Mach 4 was subject to the union agreement after the company delivered its notice to terminate the contract in 2008.

Even as Mach 4 contends the union continually sent ill-trained and unprepared workers to Mach 4 jobsites, neither side disputes the company complied with its agreement and made proper payments to union members and Trust Funds during the one-year period everyone agrees the contract was in force. The union claims that Mach 4 did not properly terminate the contract and that it should be forced to make payments to the union and its Trust Funds to cover the last 3-1/2 years, during which Mach 4 believes it was not subject to the agreement.

The union and its Trust Funds are asking for hundreds of thousands of dollars from Mach 4 to reimburse what it claims were wages not paid to union members during the disputed period. In addition, the union’s Trust Funds are seeking more than $200,000 from the small company to cover benefit payments during the disputed period.

Mach 4 also announced that one of its employees, Jacob Kendall, has filed an independent action against the Operating Engineers Trust Funds. A statement from Mach 4 says,

According to Kendall’s suit, the Trust Funds out-of-court collection activity are illegitimate and violate the trustees’ fiduciary duty to participants such as Kendall not to annihilate employers of Plan participants. “As far as I know, Mach 4 has not been a Union shop since 2008. Yet, the Union contends otherwise, and, if they’re right, I don’t want their out-of-court collection activities against the company to destroy my livelihood. They’ve said they’re trying to close the company’s doors, and I believe it. So I’m taking a stand to stop that from happening,” said Kendall.

Nevada is one of the few states in which unions and their Trust Funds can pursue the customers of union companies for unpaid contributions after the union company has declared bankruptcy and/or gone out of business. The Operating Engineers Trust Funds have already attempted to force Mach 4’s customers to make payments to them rather than Mach 4. If Mach 4 were to close its doors, the Trust Funds would then be free to go after the deeper pockets of the company’s customers.

Mach 4 is continuing to fight the union – to keep its doors open and its workers employed – literally the fight of its life.

A couple weeks after Halloween, economist Andrew Biggs brought a fright to Nevada’s taxpayers at NPRI’s November luncheon. They may be on the hook for tens of billions more in unfunded liabilities than they’ve been told.

Biggs discussed the funding problems of Nevada’s Public Employee Retirement System (PERS) plan, the defined-benefit pension plan in which most public employees in Nevada participate. The presentation was a follow-up to the study Biggs had authored for NPRI a few weeks ago.

The good news is that many other states’ government employee pension problems are far worse than Nevada’s. Many are underfunded to a far greater level and haven’t been nearly as responsible as the Silver State.

For one thing, Biggs pointed out the state of Nevada has continued to make full contributions each year. Other states have shorted contributions to their pension plans, creating even greater problems.

The bad news is Nevada’s problems are pretty bad. According to Biggs, they are worse than PERS is saying.

PERS reports that it is underfunded by approximately $10 billion, which means the value of its assets is $10 billion less than what it would need to pay all of its future liabilities. While this may sound bad, it’s not unmanageable and, as a percentage, is much better than many other states. But according to Biggs, rather than $10 billion, the plan is actually underfunded by approximately $40 billion, a huge difference.

The reason for the difference is the manner in which liabilities are calculated for government pension plans as opposed to private plans. Public pension plans are able to ignore the risks of their investments because the taxpayers, not the plans, assume that risk. Private pensions, on the other hand, are not.

If a private pension has a shortfall, the beneficiaries have to accept reduced payments. If a public pension runs short, the taxpayers must make up for it in higher taxes or cuts in spending on other programs, such as schools, roads, etc.

This taxpayer backstop is inherent in the calculation of future liabilities by government pension plans and is sanctioned by the Government Accounting Standards Board (GASB). For instance, Biggs claimed Nevada should be using a rate of return of around 3% to calculate its future liabilities. However, because GASB rules allow public plans to ignore the risk in their investments, Nevada is able to use a rate of return of approximately 8%.

The rate that PERS uses is perfectly legal and perfectly acceptable for a government plan but, according to Biggs, perfectly wrong. In fact, Biggs said economists characterize it as “laughably” wrong.

Economists and actuaries generally require that a plan with a guaranteed benefit should use investments with a guaranteed return to calculate its unfunded liabilities, regardless of the instruments the money is actually invested in. But PERS does not use this rate. Rather, it calculates its liabilities using a much higher rate of return, ignoring the risk that comes with this higher rate, which, according to GASB, it is allowed to do. Other states do exactly the same thing for their pension plans as well.

Biggs illustrated the absurdity of such an approach by saying that if PERS could magically double the amount of money in the fund and then invest that money in a risk-free investment, it would actually appear to be in WORSE shape than it is now. Ironically, Biggs said, it is this miscalculation of future liabilities that allows PERS to claim it would cost taxpayers additional money to switch to a 401(k)-style defined-contribution from the current plan.

There are other issues that make government employee pension plans problematic for taxpayers.

Private companies can, and often do, change the terms of their employees’ retirement benefits on a going-forward basis. A company can’t go into a worker’s 401(k) and take out money it had already put in but it can change things such as the level that it will match the employee’s contributions.

But, according to Biggs, public pensions normally cement in place a worker’s pension benefits from the first day of employment. What a government worker can expect to receive in retirement benefits (based upon pay and years of service) are never reduced after his first day on the job.

Government workers are generally able to retire earlier and at a higher rate compared to their wages while working than private-sector employees. Biggs claimed that a comparison of retirement benefits of private-sector workers and government employees reveals a public employee with a defined benefit plan will average about 50% greater retirement benefits than a private sector worker with a 401(k).

Unfortunately, Nevada’s public employee pension plan, as well as those of many other states, is on a path to blow up the state’s budget. Fortunately for Nevada, many other states are in worse shape than we are and, hopefully, we will be able to watch their implosions and react to save ourselves.

With people like Andrew Biggs sounding the alarm maybe we’ll wake up sooner than later.

Ronald Reagan was fond of saying that the nine most frightening words in the English language are, “I’m from the government and I’m here to help.” A couple who owns a small farm in a small town discovered first-hand the destructive power of a bureaucracy intent on helping.

Monte and Laura Bledsoe, the owners of Quail Hollow Farm, a small organic farm in Overton, thought they would host a gathering to bring community together and celebrate local farmers. Instead they ran headlong into a bureaucratic buzzsaw.

The Bledsoes had planned what is called a Farm-to-Fork dinner, one featuring all locally grown food. Hoping for a large turnout they advertised in the local paper and spread the word around their small community.

A couple days before the dinner they got a call telling them they needed to pull a permit from the Southern Nevada Health District. Even though it was on their private property, since they had advertised it, the dinner was considered a public event requiring a permit.

So Mr. Bledsoe traveled from Overton to downtown Las Vegas to fill out the paperwork and pay the fee to apply for the permit. As he completed this process he was informed an inspection would be required before the permit could be issued.

The Bledsoes had hired a certified chef for the event. He assured them the inspection would be no problem as he’d been through many of these inspections in the past.

But this inspection was unlike any other.

The Health District inspector showed up just as the guests were arriving. “It was apparent she had arrived with the sole purpose of shutting us down,” Mrs. Bledsoe told us.

The first thing the inspector went for was the kitchen. Luckily for the Bledsoes they had rented a certified kitchen trailer foiling any hopes the inspector had of pulling the plug on the dinner for that infraction. In addition, some of the food had been prepared in a certified kitchen in Las Vegas and delivered to the farm in time for the dinner.

However, she was not to be deterred. “From there,” said Mrs. Bledsoe, “it was, ‘let’s see what we can find.’”

She eyed the meats and told the Bledsoes they were not USDA-certified. She demanded receipts or packaging for the meats, which the Bledsoes obviously could not produce since the animals had been raised and slaughtered on Quail Hollow Farm.

When she was asked what could be done, the inspector replied the Bledsoes could go to the supermarket, buy meat and give her receipts. The fact that would defeat the purpose of the entire event didn’t seem to bother her.

She then proceeded to take the temperature of the food that had been prepared in Las Vegas and which the cook was getting ready to heat before serving.

After declaring this food was not up to the proper temperature the inspector deemed all of the food unfit and unsafe for consumption. She demanded it all be destroyed. Every morsel.

The guests had absolutely no say in whether they would eat the food that had been prepared. They had no rights and they had no choice. The agent of the state, the representative of the all-powerful bureaucracy, had issued her decree and the subjects had no choice but to obey.

The inspector further declared that not only could it not be consumed by the guests, the Bledsoe family could not keep it to eat themselves. She went even further than that. Not merely satisfied with declaring it unfit for human consumption, she prohibited the Bledsoes from feeding it to their pigs and forced them to pour bleach on it.

“We had 12 rabbits we had raised and butchered,” Mr. Bledsoe said. These animals were declared to be trash by the Health Department inspector. Dozens of pounds of produce were destroyed as well.

Before you start thinking that this was just some rogue inspector taking out her frustrations on an unfortunate business, this outrage was sanctioned by higher-ups in the department. Bledsoe indicated the inspector was communicating with and receiving approval from her supervisor throughout the inspection and destruction of the meal.

The Bledsoes were able to act quickly and not allow the Health District to entirely destroy the evening. They took some produce that was ready to be delivered to a farmer’s market the next day. Between them and the chef they were able to prepare a meal so the guests would not be sent away completely famished.

Upon hearing of this fiasco, Overton resident and County Commissioner Tom Collins was outraged and arranged a meeting between Mr. and Mrs. Bledsoe, the Health District inspector, the inspector’s supervisor and her supervisor. After spending most of the meeting attempting to justify their disgraceful actions, eventually the supervisor issued an apology to the Bledsoes.

Although it is an extreme case, the Bledsoes’ story is far from unique. It represents precisely the type of outrageous government overreach and arrogance that businesses and individuals are forced to deal with on an almost daily basis and that stifles business growth, consumer choice and personal liberty.

In this case their overreach may have backfired. The Bledsoes are now motivated to change things. They are working with organizations of small farmers and with politicians to change some of the laws and regulations that are burdening small farmers.

But the Farm-to-Fork event was probably the last for Quail Hollow Farm. “We never want another public official on our property again,” declared Laura Bledsoe.

Nearly four years after the collapse of the real estate market, Nevada remains the foreclosure capital of the nation. But here comes the government to the rescue!

The Nevada Legislature may have unwittingly found a way to reduce foreclosures by over 99%. Though it may come at the cost of driving a stake through the barely-beating heart of the state’s real estate industry, what’s a little collateral damage?

During its last session the Legislature passed a bill, AB284, that is designed to combat what some people had claimed were abuses by banks in foreclosure proceedings, such as “robo-signing”. But it is a classic example of legislative action having serious unintended consequences.

The law requires a bank to submit an affidavit proving it has the right to foreclose when it files the Notice of Default and Election to Sell (NOD), which is required to begin a non-judicial foreclosure (a foreclosure that does not proceed through the courts).

In the first month the law was in effect, the number of these notices filed with the Clark County Recorder’s office plunged by over 99%. The number of NOD filings averaged 1,956 per month from October 2010 to September 2011 and totaled 2,724 in August 2011 and 2,297 in September.

After the law took effect on October 1, 2011, there were a total of 13 NOD filed in the next month. That’s not a typo and there are no digits missing. Thirteen were filed in the entire month of October 2011.

Under normal circumstances a drop in NOD filings might be a sign of recovery. But in the wake of AB284, this is not an indication of such good news but that the law has rendered lenders unable to pursue non-judicial foreclosures, which could have a devastating effect on real estate, banking, title and other companies related to the real estate industry.

The reason it presents such a roadblock to pursuing foreclosures is the nature of the affidavit, which is required to verify the lender has the right to foreclose on the property. The lender must prove the owner is delinquent in payment and the lender owns the right to foreclose.

The person signing the affidavit must swear to “personal knowledge” of various characteristics and history of the property and the mortgage; merely possessing documentary evidence – paper trail or electronic trail of transactions – is not enough. In many cases this is impossible to do.

For example, one portion requires the person have “personal knowledge” of “all prior beneficiaries of the deed of trust.” If a mortgage was initiated by Bank A, then sold to Bank B, then to Bank C, then Bank D, there is NO WAY an employee or agent of Bank D can have personal knowledge of the prior transactions. Yet the affidavit requires her, under penalty of perjury, to swear that she does. No sane person would take the risk of signing such a document.

In the current market, no foreclosures means no home sales. About 2/3 of real estate sales in Las Vegas currently are foreclosure auction sales, real estate owned (REO) sales or short sales. REO’s are those in which a lending institution has taken possession of a property after foreclosing on the previous owner and failing to sell it at the foreclosure auction.

Short sales are those in which the homeowner sells the home for less than is owed on the mortgage. This transaction requires approval from the bank as it has to take a loss on the sale. Most short sales are a result of a homeowner in default or at risk of default attempting to avoid foreclosure.

If there is no risk of foreclosure these homeowners will not choose to short sell their homes. Most will likely choose to live in their homes without making mortgage payments. With the lenders unable to foreclose they can do this indefinitely.

Although no one knows for sure how many homes banks are currently holding onto, estimates vary from about 4 to 6 months worth at current sales volume. So if there are no more foreclosures there will be significantly fewer homes to sell after the first couple months of next year. This artificial shortage could inflate yet another housing bubble that would have a disastrous burst.

Realtors and others involved in home sales are extremely worried about the impact AB284 may have on the real estate market in Las Vegas. Tracy Bouchard has owned National Title of Nevada since 1983 and has rebuilt his company back up to 50 employees after it had fallen to 20 after the bubble popped. He says the effect of AB284 could be “a lack of Notices of Default, a lack of product to sell” and warns “that really is checkmate” for his firm and others in the industry. He adds, “I don’t know what’s going to happen in April.”

Bouchard notes the residual economic boost that these sales can have. “Investors are a very important part of this market,” he says. “When the investors buy these properties at the auctions, they are buying properties and fixing them up, bringing the HOA current – a homeowner who’s not paying his mortgage probably isn’t paying his HOA dues, either – and selling them to a vested owner. When they do this, they’re hiring contractors, buying materials – such as flooring, granite, paint. They have a huge positive effect on the economy. If these investors go away it’s going to hurt a lot more than just real estate.”

But there could be other unintended consequences of AB284. A bank that can’t foreclose on a delinquent buyer is not going to offer home loans. There’s a reason interest rates on home loans and other secured loans are less than those on credit cards – collateral, the lender can take something of value if the buyer doesn’t pay the loan back. Remove the ability to repossess that collateral and the price to borrow goes way up, if they will lend at all.

Banks could also rely exclusively on judicial foreclosures. But clogging the courts with an additional 2,000 cases per month would put a tremendous strain on an already bursting court system. More than likely banks will choose to tighten their restrictions for obtaining home loans in Nevada, making it even more difficult to obtain a home loan.

AB284 is a prime example of unintended consequences. The legislation could allow many people to live in their homes indefinitely without making a mortgage payment, courtesy of the Nevada Legislature. But that could have catastrophic effects on the local real estate market and the wider economy.