Cheat-Seeking Missles

Wednesday, May 30, 2007

Vegas' Green Bust

No, Vegas' green bust isn't the latest titillating show on the strip; it's the latest lesson in why we should let the market establish prices and buying decisions. Will politicians ever learn?

In one of today's most-emailed WSJ stories, the tale is told of high-minded Nevada legislators who thought that the construction of green buildings -- buildings that conserve energy and energy, and use earth-friendly building materials -- should be incentivized.

Now, one would think that in a desert city where the temperature routinely reaches 300 degrees or so, developers would need no incentive beyond lower electric and water bills to build green buildings. But legislators didn't get this, so here's what they cooked up:

In 2005 the Nevada Legislature unanimously approved a measure that cut property taxes up to 50% for 10 years and lowered sales taxes for building supplies to 2% for energy-efficient construction. ... Original estimates put state abatement costs at just $250,000, though no one can say how that figure was conjured.

The $250,000 cost was just a wee bit off -- the ding to the state in lost tax revenues is approaching $1 billion. Green buildings already in the pipeline got meaningless incentives and new buildings got decked out in the greenest shades of green, when a lighter shade of green might have been sufficient.

Nevada has no income tax, so when its sales and property taxes flatten, there's no back-up plan for funding schools, road and infrastructure projects except the General Fund. So, and I can't say this any better than WSJ did:

... late last week the Nevada Legislature, already facing budget shortfalls, worked out a retroactive compromise and essentially asked for a mulligan.

The details of the roll-back aren't important; the lesson of the roll-back is. If there's a good product that offers benefits to the market, the market will buy it. The market is smarter than the legislators, every time.

But if the legislators followed this wisdom, how would they keep themselves busy?

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