Economic diversification office grants major tax breaks to one of its own

Courtesy Switch

Switch, a high-tech company that started 11 years ago in Las Vegas, now houses digital data for a number of Fortune 500 companies and the U.S. government in its expansive facilities.

The Governor’s Office of Economic Development carefully considered the largest request for tax abatements in its history on Thursday — carefully, because the request came from one of the members of the board making the decision.

The board approved sales tax and personal property tax abatements and deferrals of $10.4 million for an expansion for Las Vegas-based Switch Inc. that is expected to generate $22 million in new tax revenue for the state over the next 10 years.

Switch CEO Rob Roy is a member of the board and made the company’s presentation, but didn’t participate in the board’s consideration of the request.

Prior to considering the request, Gov. Brian Sandoval, who chairs the board, noted that the Economic Development office sought an opinion from the state’s Ethics Commission before proceeding with the request. The commission said Roy could make a presentation as a citizen and officer of the company but couldn’t participate in the board’s deliberations.

Roy has been on the eight-member board since it began operating last summer. His company, which has built a vast data storage hub in Las Vegas, has been a catalyst for the expansion of the state’s technology sector because scores of tech companies want to store their sensitive data banks in a safe place. The Switch SuperNAP has emerged as a data storage industry leader because Southern Nevada is considered safe from natural disasters and climatic disruptions.

It only took about 15 minutes for the board to conclude that Switch was worthy of the tax incentives. The company’s request surpassed three statutory requirements for consideration — the creation of 35 new jobs, providing an average wage of $24.43, which exceeds the state average of $20.10 in that sector, and capital investment of $112.8 million.

The Economic Development office’s analysis of the Switch request said the sales tax would be abated to 2 percent, or a total of $6.9 million. Personal property tax of $3.5 million would be deferred by 50 percent over 10 years.

Roy, whose company has grown to become one of Southern Nevada’s primary tech company magnets, said he recently met with 111 corporations and conducted 87 tours of his facility. He expects Switch’s expansion could result in 10,000 new tech jobs in Southern Nevada over the next decade.

That expansion would generate $22 million in direct and indirect property, sales and modified business tax revenue for the state and local municipalities over the next 10 years.

Switch currently employs 184 people and 85 percent of its market is from outside the state.

Roy said he’s a believer in Nevada’s future but that Switch has been aggressively pursued by the states of North Carolina and Iowa for its expansion. He said those states offered incentive packages that were greater than Nevada’s.

Four other companies moving to or expanding in Clark County were approved for tax incentives by the board.

The most intriguing — and most controversial — approval was for Miami-based MBT Repair Inc., which provides aircraft wheel and brake repair and overhaul services for commercial aircraft.

MBT met only one of three statutory requirements instead of the standard two for incentive consideration, but board members are allowed to take special circumstances into account when making a recommendation.

In a 7-1 vote, the board concurred that the incentive package was minimal — only $65,575 — but that approving the request could lead to a greater presence by MBT’s parent company in Southern Nevada in the future.

MBT is a subsidiary of Paris-based Safran, which also partners with GE to manufacture jet engines and is involved in other aerospace industries.

MBT President and CEO Frank Mocilnikar said the company, which has operations in Miami and Milwaukee, is expanding to the West Coast and chose Las Vegas as its western base of operations.

Mocilnikar said executives with the parent company were opposed to locating in Las Vegas because of its reputation as a resort destination. But he convinced them that it was a better location than Utah and Arizona, two other states that were under consideration.

Board members concurred that offering incentives to MBT could represent a broader opportunity for Nevada in the future.

In other votes, the board approved a $2 million package for St. Joseph Health System, Orange, Calif., for data storage at the Switch facility; a $1.5 million tax abatement and deferral incentive package for New York-based Fab Fulfillment Corp., an e-commerce design company; and a $393,665 package for Nicolas & Co., a Salt Lake City company planning a food distribution operation in Southern Nevada.