As the Nevada Legislature works during its 81st Session, many in Carson City (and beyond) are still buzzing over Governor Steve Sisolak’s (D) eye-popping “Innovation Zone” proposal. So what on earth is a “Blockchain City”? Why is this not as “shiny and new” as it appears? And while we’re at it, how does this fit into the pattern of “economic development” by way of corporate tax giveaways that’s led us to the depressing state of the state where we find ourselves now?
What on earth is a “Blockchain City”, and what the hell is an “Innovation Zone”?
Following Governor Steve Sisolak’s State of the State address, “Innovation Zone” proponents have begun to circulate some draft legislation indicating that they envision a “Blockchain City” in Storey County’s Tahoe-Reno Industrial Center, just a short drive from Tesla’s famous Gigafactory. Jeffrey Berns, the founder and CEO of Blockchains LLC, has claimed that “Blockchain City” will employ 1,000 workers this year. His allies have claimed that Blockchains’ stablecoin cryptocurrency will net “massive amounts of tax revenue” if stablecoin is adopted worldwide and subjected to a special financial transaction tax.
Sisolak has leveled up Berns’ vision with his “Innovation Zone” where the “Blockchain City” is overseen by a Board of Supervisors hand-picked by the Governor and “Blockchain City” backers, transitions to its own municipal entity separate from the county where it’s located, and holds its own elections once it houses at least 100 eligible voters. And due to how state-level legislation can not be drafted in a way that explicitly targets any specific municipality, it’s at least theoretically possible for other tech companies to request “Innovation Zones” beyond Storey County.
Does any of this sound familiar? It should, because it’s happened before. Blockchain technology obviously wasn’t around during the turn of the 20th century, but “company towns” most certainly were.
What are “company towns”, and why are they still relevant? (Also, here’s where Las Vegas enters the chat.)
From the 1880s to the 1930s, “company towns” were established as localities where companies owned all the property and businesses inside, and in turn promised to provide their workers with all the essential products and services they needed to survive without the need to frequently travel great distances to larger cities. On paper, “company towns” appeared to be an ambitious social welfare agenda by the industrial era corporations that were quickly becoming America’s largest economic powerhouses. And in some cases, such as Hershey’s “company town” in Pennsylvania, they actually did deliver a fairly good deal for workers.
However in many more cases, especially those in Appalachian “coal country” and the textile-dominated South, the utopian illusion belied a far more hellscaped reality. In these more dystopian “company towns”, the controlling company overcharged its workers for products and services, threatened to take their homes away if they didn’t comply, subjected them to horrifying levels of pollution, and in some cases even violently attacked its own workers when they attempted to collectively bargain for a better life.
Though the New Deal era workers’ rights laws gradually discouraged companies from launching new “company towns”, they never fully vanished from American life. Rather, they adapted. Look right here at home, where the casino gaming industry became such a powerful force in Las Vegas’ rapid transformation from small railroad town to tourist-fueled metropolis.
Ever since I first moved here in 2009, I lost count of how many times I heard this clause: “The casinos take care of us.” But now that multiple gaming companies have been caught not taking care of workers and the larger community amidst the COVID-19 pandemic, and now that the crowds on the Las Vegas Strip who once sustained us are (mostly) long gone, we’re facing a long overdue reckoning of whether our gaming and tourism dependent economy is still sustainable. Yet instead of committing to a long-term strategy to invest in the public infrastructure we need to sustain a more diversified economy, so many Nevada politicians have attempted a public policy version of the classic “get rich quick scheme” for economic development.
I don’t want to say it, but at this point I really have to: I told you so. (And really, it’s not just me!)
“There is a technical term economists like to use for behavior like this: Unbelievable chutzpah.” That’s how University of Southern California law professor Edward Kleinbard described Apple’s international tax evasion scheme to The New York Times in May 2013. Yet just ten months prior to the Times’ story and subsequent Congressional hearings on Apple’s tax evasion, then Governor Brian Sandoval (R) brokered a deal with Apple and Washoe County involving $89 million in tax subsidies in exchange for an iCloud data storage facility. And before anyone claims that state and county officials didn’t know about Apple’s penchant for tax evasion, keep in mind that the Times reported in April 2012 on Apple setting up a shell company in Reno to avoid paying California state taxes.
Of course, Apple’s sweetheart deal pales in comparison to the historic September 2014 $1.3 billion corporate tax subsidy deal that Sandoval and then U.S. Senator Harry Reid (D) negotiated for Tesla. At the time, multiple economists from across the ideological and partisan spectrums were warning Nevada policymakers of the cost of this allegedly “free” tax subsidy package. Nonetheless, the vast majority of legislators from both parties rushed to approve the package that launched the public-private “economic development” partnership that we now call Tesla’s Gigafactory in Storey County’s Tahoe-Reno Industrial Center.
Just over five years later, the Reno Gazette-Journal’s Anjeanette Damon assessed the aftermath of the Tesla tax subsidy deal in Season Two of USA Today’s podcast series, The City. At the surface, the Reno-Tahoe region appeared to reap rewards from the Tesla deal in the forms of a piping hot housing market, chatter over whether Reno might become “The Next Silicon Valley”, and a rapidly redeveloping urban core. But beneath that glitzy and glamorous surface of “redevelopment” lie a slew of documented workplace safety violations, a metastasizing affordable housing crisis, city and county budgets strained by the denial of tax revenue coupled with increased demand for services, Tesla’s scheme of selling some of its tax credits to casino companies to pad its earnings reports, and a new report by the Nevada Current’s April Corbin Girmus showing how Tesla officials hand-picked where they “donated” $37.5 million for K-12 schools (which was still far less than the tax revenue that schools lost as a result of the Tesla deal).
Since Tesla, we’ve seen additional tax subsidy deals that have delivered even less on their “economic development” promises, including the disastrous Faraday Future deal that ultimately netted far more in corporate malfeasance than any actual products, and the once-hyped mega-deal with the NFL and the Raiders that’s so far resulted in an empty Allegiant Stadium that Clark County must now bail out. Now that we’re caught up on Nevada’s shady “company town” history, let’s assess the present and discuss the future.
Next, let’s take “stonks!” of how much has stayed the same amidst all this change.
Though the original iteration of “company towns” may have begun to die in the fallout of the Great Depression, we’re witnessing the rise of “New Economy” flavored “company towns” that are no less problematic than Version 1.0. From Nissan’s successful 2017 plan to prevent the United Automobile Workers (UAW) from forming a union at their Mississippi plant to Volkswagen’s harrowing rap sheet of intimidating workers at its Tennessee plant, followed by multibillion-dollar tech companies like Uber, Lyft, DoorDash, and Instacart pouring millions into their Proposition 22 campaign last year to kill a new California law that would have guaranteed basic workers’ rights (like minimum wage, paid sick leave, and anti-discrimination protections) to “gig economy” workers, the most powerful corporations on this planet wield more power over our economy than ever before.
Now that we’re learning more details about what exactly led to the GameStop short squeeze, it’s becoming clearer than ever before that it was never some “grassroots Reddit Rebellion!” that far too many media outlets portrayed it as. Earlier this week, The Washington Post published a detailed account confirming much of what social justice activist Alexis Goldstein had already pointed out during the peak of last month’s “meme stock” speculation, which is that the hedge fund superpowers that be were always several steps ahead of r/WallStreetBets. They tracked the “Reddit Rebellion” in real time on Robinhood and other trading apps, and they took full advantage of the “Reddit Rebellion” in real time to pump up their own portfolios while dumping smaller retail investors and thousands of IRL retail workers onto a very harrowing ride.
Remember Tesla? Its CEO, Elon Musk, has not only become a central figure in the GameStop short squeeze scandal, but he’s already compiled a massive rap sheet of misusing his social media clout to manipulate Tesla’s stock price. In addition, Elon Musk is already jumping into another manipulation scheme with his public cheerleading for Dogecoin, a cryptocurrency that cryptocurrency experts like venture capitalist Nic Carter have described as a “vehicle for speculation”.
Meanwhile, Tesla has bought $1.5 billion worth of Bitcoin just weeks after Tesla’s disappointing fourth quarter earnings report. Also, keep in mind that Tesla’s market capitalization is over six times that of GM and Ford combined despite the two traditional automakers actually producing far more cars than Tesla, and yet Musk may now be the world’s richest person thanks to the $137.2 billion worth of Tesla stock that he holds. Remember: The State of Nevada has provided $1.3 billion worth of tax subsidies to this company.
Back to Blockchains: Is this really the most pressing need of the 81st Session of the Nevada Legislature?
On paper, Blockchains LLC’s vision of a shining “Blockchain City” in the hills of Storey County appears to be Nevada’s chance of making our “we matter” dreams come true. For Governor Steve Sisolak, he gets to one-up Sandoval’s repeated pitches for a “New Nevada” with a brand new chain of “Innovation Zones” across the state. And for Blockchains CEO Jeffrey Berns, he might end up with an extra sweet return on investment after donating $50,000 to Sisolak’s 2018 campaign.
However, Blockchains LLC has already fallen behind its earlier goal of hiring 1,000 new workers by the end of this year. Instead, Blockchains suffered layoffs last year due to their struggle to translate aspirational rhetoric into actual reality. Where have we seen this behavior before? (Re-read above for some answers.)
Of course, Blockchains is a fairly young company, and it’s at least theoretically possible that Blockchains will get its act together in time to turn “Blockchain City” into an actual community later this decade. However, does this project truly merit such privileged recognition and aid from the state? And really, has this state benefited from its past track record of granting companies such highly privileged “company town” status via tax subsidies and wide leeway to develop their own rules?
Say it ain’t so, Joe… But really, President Joe Biden can’t always come to our rescue. We’ll eventually need to figure out how to guide ourselves into a more sustainable economy.
Yesterday, Sisolak and his allies delivered a compelling presentation for AB 106, a bill to continue last year’s federally backed $51 million small business grant program with $50 million in state funded Pandemic Emergency Technical Support (PETS) small business grants. AB 106 serves as an example of what most people want their government to do: address pressing needs, respond competently to actual emergencies, and provide a safety net to prevent people from failing due to circumstances that are outside their control.
Contrast this well choreographed presentation for AB 106 with what we eventually expect with the yet-to-be-formally-introduced bill to establish “Innovation Zones”, and then contrast this hotly anticipated legislation with the rest of Nevadans’ most pressing needs. How will this program boost our public schools that were already “grossly underfunded” long before COVID-19 hit? How will this fix our often strained health care system? How will this fix the roads, bridges, mass transit systems, and the rest of our often malnourished transportation infrastructure?
While the U.S. House appears closer than ever to finalizing its version of the American Rescue Plan to send to the Senate, then for the Senate to send to President Joe Biden’s desk following the conclusion of former President Donald Trump’s impeachment trial, opponents continue to attack Democratic leaders’ steadfast support for $350 billion in state and local government aid. Even if the Biden administration and Congressional Democrats remain united in passing the Rescue Plan and keeping all that state and local government aid in there, it’s doubtful at best whether Congress will take up another “stimulus bill” with this much state and local government aid any time in the near future.
While the federal government’s possible coming to our rescue might have Sisolak and the Legislature thinking they have the ideal escape hatch from an inconvenient debate over a bumper crop of tax initiatives (AJR 1 and SJR 1 from last summer’s special session to change our mining tax structure, and CCEA’s gaming tax and sales tax initiative petitions), they must remember that this is temporary. And while they’re at it, they should also remember that an endless parade of corporate tax subsidies does not make a sustainable economic development plan. We can’t always count on Biden to bail us out, and it’s long past time for us to reassess our pattern of bailing out companies for the sake of “economic development”.