Nevada’s political establishment may think the recent Tesla incentive deal is the greatest thing since the repeal of the state’s usury law to attract a giant credit-card processing center to town, but outside the Silver State, the reaction is a bit more jaundiced.
Urban studies expert Richard Florida, writing in the Los Angeles Times, said Nevada let Tesla walk away with the store last week, when a two-day special session of the state Legislature brought the unanimous approval of benefits worth more than $1.3 billion to the electric car company. In exchange, Tesla will build a 5-million-square-foot battery factory at the Reno-Tahoe Industrial Center to make batteries for its newest car.
Florida calculates the value of Nevada’s package of tax abatements and credits at about $55,000 per job, under the best-case scenario. And, he says, the package will be a hardship on the communities that forgo those tax revenues but still have to deal with the impacts of the factory and its workers.
“Virtually all of the published research on the subject shows that most economic development incentives are a senseless waste of taxpayer money,” Florida writes. “The Lincoln Institute of Land Policy, for example, studied the issue and found that ‘instead of creating new jobs or spurring employment, the main effect of incentives is simply to deplete a community’s tax base.’ Poorer, less advantaged communities often take the biggest hit, being more likely to gamble public funds on the hope of new factory jobs. My own analysis found no connection between incentive dollars spent per capita and such measures of economic success as wages, incomes, human capital levels or unemployment.
“It’s time to put an end to incentive madness once and for all,” he concludes.
The conservative Wall Street Journal — no fan of incentives — marveled at the size of the giveaway to Tesla.
“But the Tesla giveaway is in a category of its own, coming in an unproven market for a company that has never recorded an annual profit (based on generally accepted accounting principles), notwithstanding various subsidies. Nevada’s gift is 15 times larger than any incentive package the state has awarded and among the richest nationwide,” the newspaper wrote.
“Mr. Musk handled it like a private Sotheby’s auction, launching a secret bidding war among southwestern states with a price floor of $500 million. Tesla also wanted to be exempt from states’ dealer laws that prevent car companies from selling directly to consumers. Such dealer laws are bad policy, but it must be nice to carve out an exemption that doesn’t apply to Ford and GM.”
And the emphasis is on “private.” Negotiations were conducted in secret, and The Associated Press was mostly thwarted when it tried to use public records laws to get access to documents detailing the talks in various states competing for the Tesla factory.
Even the Legislature was kept in the dark; the main incentive bill — Senate Bill 1 — wasn’t introduced until late in the evening of the first day of the special session, giving lawmakers all of about 24 hours to vet the plan that had been hammered out in secret over a period of months between Tesla and Nevada officials.
Contrast those gimlet-eyed perspectives with that of Gov. Brian Sandoval (“We made history today. We have changed the trajectory of Nevada forever.”) Or consider U.S. Sen. Harry Reid, who credited federal loan and grant programs aimed at encouraging alternative energy as laying the groundwork for the deal.
“Tesla’s investment in Nevada shows what is possible when public-private partnerships and smart federal and state policies are encouraged,” Reid said on the Senate floor. “In the 21st century, this is how public-private partnerships should work. It is so important to realize that through these grants, loans, and the private sector working with the states of Nevada, California, and the federal government, we were able to accomplish this. This is a blueprint for success.”
Whether it’s a blueprint for success or an unnecessary depletion of the tax base won’t be known with certainty for a long time. But in the meantime, Nevada will have to figure out how it’s going to make good on its promises to Tesla, an all-too-real scramble that will undoubtedly fall on the state’s real people, and not its newest corporate citizen.
Steve Sebelius is a Review-Journal political columnist who blogs at SlashPolitics.com. Follow him on Twitter (@SteveSebelius) or reach him at 702-387-5276 or SSebelius@reviewjournal.com.