Tesla Soaks Nevada for $1.3B in Corporate Welfare; Just the Beginning

Tesla logoThere was little doubt that once CEO Elon Musk and Tesla announced they would locate their electric vehicle battery “Gigafactory” in Nevada, that Silver State lawmakers would vote in a special legislative session to support targeted tax breaks and incentives – even at the breathtaking amount of $1.3 billion.

Gov. Brian Sandoval, the courter, would have appeared an extreme fool if he didn’t already have the political backing needed for the deal. But there were other mini-surprises: Unanimity at the legislature; four separate bills passed to construct the package; and benefits enjoyed by other industries in Nevada that were rescinded to help with the Tesla payoff.

“This is obviously an historic and exciting day for our great state,” said Democrat state Sen. Justin Jones from Las Vegas.

Just imagine how Nevada lawmakers would feel if they won the heart of a real automobile company, like Texas just did by convincing Toyota to move its North American headquarters to its tax-friendly confines. The Lone Star incentive package was microscopic – reportedly $50 million or less – compared to the virtual treasury that Nevada spread out for Musk. But if what makes you happy is spending 26 times as much as Texas to lure a yet-unprofitable company with only one minimally-selling car model that runs on heavily subsidized network of vehicles, batteries, and battery chargers, then more (plug-in) power to you.

Just don’t expect taxpayers to necessarily be as excited, nor the market demand to cooperate, nor other businesses who don’t reap the same privileges to be very happy. Among the four new laws passed were the elimination of a $25 million/year tax break for insurance companies whose headquarters are in Nevada, and $70 million that was earmarked for films that shoot in the state. Those funds were redirected to pay off Tesla. But it’s not like those incentives have vanished forever; lobbyists and lawmakers said they hoped those breaks would be restored by the legislature next year, in addition to addressing other Tesla-related matters that couldn’t be considered in the special session.

“The special session also ended with a lot of promises,” the Reno Gazette-Journal reported.

And ironically, an issue of great importance to Musk (as it would be for any manufacturer) is how much his company will have to pay for electricity. Tesla was granted an 8-year discount from the local utility, NV Energy, at a value of $8 million. Of course the point of Tesla is that it is supposed to be a “green” company, with the Model S (and allegedly forthcoming new styles) running on electricity. However, according to data compiled by the Institute for Energy Research obtained from the federal Energy Information Administration, Nevada generates 89 percent of its electricity from burning natural gas and coal – so, so much for Tesla’s “clean tech.” Other Nevadans will also pay more for providing this benefit, all to bask in the presence of Tesla within their state.

“Northern Nevada power customers will see their bill go up about $1.52 a year to pay for Tesla’s discount,” the Gazette-Journal reported.

And in a scheme that looks remarkably like the electricity boondoggle that Apple set up in North Carolina and elsewhere for its massive data centers, Bloomberg News reported that Musk plans a renewable energy plant that will allegedly provide 100 percent of the power needed for the plant – the boast is that it’s a “net zero energy factory.”

But that’s not what happens, because if the Tesla plant depended only on a solar farm (probably from Musk’s SolarCity), the intermittency of sunshine would undermine consistent automobile production because of the lack of electricity. So instead – as is clear from the requirement that Tesla buy electricity for 10 years from NV Energy’s grid – the solar power generated from Musk’s panels will likely be sold back to NV Energy at a much higher cost, thus ultimately forcing up the utility’s overall rates for all its customers. That would be beyond the $1.52-per-customer already built into the electricity subsidy.

Then there’s the matter of how much jobs are being subsidized (contrary to what politicians’ claim, they are not being “created”). Instead we have the political promise of 6,500 jobs – half of which are supposed to go to Nevadans – for the cost of $1.3 billion in incentives. That’s $400,000 per job for an in-state resident, if you just count the corporate welfare.

Others, like New York University global research professor Richard Florida, dispute that 6,500 jobs are a likely result. Citing others’ research he concluded that the Tesla factory is likely to employ less than half that number of workers directly, and that estimates based upon “multiplier effects” (indirect jobs) were rosy too.

Finally, the free-market Nevada Policy Research Institute, a Las Vegas-based think tank, says the subsidies provided to Tesla could very well violate the state constitution, which forbids public money going to private companies. The organization already has a lawsuit over funds provided by the state to SolarCity.

Paul Chesser is an associate fellow for the National Legal and Policy Center and publishes CarolinaPlottHound.com, an aggregator of North Carolina news.