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Tax Breaks Enrich Companies, Burden Communities

By John Solari

RENO, Nev. ( J. A. Solari and Partners) -- The headline was an economic coup.

A massive Apple (AAPL - Get Report) data center and $1 billion of investment from one of the world's most successful companies was coming to Reno. The city, a Northern Nevada community at the base of the Sierra Nevada mountains and minutes from Lake Tahoe, was working to reinvent itself in the face of a deep recession, a decline in gambling and large state budget deficits.

The deal, inked last summer, was generally heralded as an infusion of new economic lifeblood into the Reno community, and a move that would put the growing Reno technology sector into hyperdrive. It promised jobs, construction activity, and an economic ripple effect that would benefit businesses throughout the community.

But slowly the details of the deal became apparent. And those details were not as rosy. They underlined the precarious position that state and local governments are in when negotiating with the smartest, most successful and most powerful businesses on the planet, and how hard it is to calculate if what you are giving up is worth what you are getting.

In all, Reno and Northern Nevada is estimated to have handed out $89 million in tax breaks to Apple for the data center. Apple's sales tax rates (one of Nevada's most important ways to generate income because the state has no income tax and no corporate tax) will stand at less than 1%. The school district waved its taxes on the data center. And Washoe County tax abatements wiped out approximately 85% of Apple's property taxes.

In return for that $89 million, it is hard to put a finger on what Reno actually got. Data centers create little employment -- the 350-acre center is expected to employ only 35 full-time workers, but may provide work for up to 200 contract workers. The construction activity will certainly benefit the area, albeit in a relatively short window. And there will be a modest economic ripple effect. But many of Reno's citizens are left wondering: Is that worth $89 million?
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