RENO – Four years ago, Reno's economy glittered as brightly as its casinos.

"The Biggest Little City in the World" created jobs faster than anyone, often at California's expense, luring companies across the state line. A national magazine anointed Reno, with its low taxes and low-regulation climate, America's hottest spot for business.

Now the lights are dimming on the casinos and most everything else. Unemployment was 12.4 percent in August, the latest month for which statistics are available – four-tenths of a point higher than it was in Sacramento. The gambling industry is in retreat, and the collapse of the real estate market has exposed a "shallow economy," said one California consultant. The state of Nevada just raised taxes by $1 billion.

But the cross-border poker game with California isn't over, and Reno isn't folding.

The Economic Development Authority of Western Nevada (EDAWN) just launched a new recruiting offensive. The organization is going after green-tech companies, with California a big target. Next up: life sciences and software companies.

EDAWN says a weak economy doesn't undermine its message. The fundamentals that lured such employers as Microsoft and Amazon.com to Reno are still here: low costs and little red tape. Although the sales, hotel and payroll taxes have gone up, there's still no income tax.

Besides, California remains an all-too-easy target. Its ongoing economic and budget troubles "play into our hands," said Chuck Alvey, EDAWN's chief executive.

Inquiries to EDAWN from California have jumped 15 percent this year. Since 2004, EDAWN has lured 33 companies from California, including biotech and software firms.

The new companies haven't generated nearly enough jobs to overcome the impact of the recession, however. By this measure, Reno has taken quite a tumble.

In 2005, it ranked No. 1 on the "Best Places for Doing Business in America," an annual list compiled for Inc. magazine by California public policy analyst Joel Kotkin.

In the latest rankings, published on Kotkin's NewGeography.com Web site, Reno is No. 314. Sacramento is No. 297.

The rankings are based on job growth, and Reno's performance has been dismal. Unemployment has tripled since 2005. The slump in housing has erased half of Reno's construction jobs.

The recession also has accelerated the serious decline in gambling caused by competition from California Indian casinos. Though casinos still dominate the skyline, one-fourth of Reno's gaming jobs have vanished since 2005.

When community leaders staged a rally in May to promote tourism, near the famous downtown Reno arch, attendees couldn't help but notice the nearby Fitzgerald's casino-hotel, closed since November.

"There's no relief in sight," said Tom Cargill, an economist at the University of Nevada, Reno.

Nevada's siren song

Some economists say it's a myth that businesses are fleeing California in droves. The Public Policy Institute of California, in a 2007 study, said California's share of the nation's jobs has remained steady over the years at 11 percent. The exodus of companies from California to Nevada slowed considerably when the recession set in.

Yet relocation activity is perking up again, and the California-Nevada rivalry continues to fascinate business leaders and elected officials. Last spring, some Republican assemblymen from California staged a summit of sorts in Reno to call attention to the Nevada business climate.

"Instead of standing still and accepting difficult times, (Reno has) gone on the offensive," said Assemblyman Dan Logue, R-Linda, in a recent interview.

Matt White is among those who've responded to Reno's call. The CEO of Basin Street Properties, a developer that owns office buildings in Sacramento and elsewhere, moved his headquarters to Reno from Petaluma in August. A key reason: California's high costs and surplus of turmoil.

California "may recover just fine," White said. "It's just not a bet that we're willing to make anymore."

Call The Bee's Dale Kasler, (916) 321-1066. Read his blog on the economy, Home Front, at www.sacbee.com/blogs.