As the Nevada Current reported Earlier this week, a month from now, on March 2, a state economic development agency is scheduled to vote on granting Tesla new, additional tax breaks.
Under the Nevada Economic Development Act, the agency may have no choice but to approve the “abatements.”
And then a state where education, health, transportation, and numerous other public programs and services have historically been among the most underfunded in the nation will end up giving hundreds of millions of dollars to a company run by the second richest person in the world world is led.
It’s absurd at first glance.
It would also be, to borrow a phrase the Nevada governor has tried to popularize, “the Nevada way.”
Tesla is eligible for the tax breaks under the original 2014 legislation, which authorized up to $1.3 billion in tax breaks and other publicly funded support for Tesla’s battery factory. Although written specifically for Tesla, the word “Tesla” is nowhere in the law.
Instead the law authorized Reductions for any applicant who “makes a total new capital investment of at least $3.5 billion in that state within 10 years immediately after approval” of the tax relief by the Governor’s Office of Economic Development (GOED).
Tesla announced last week that it would be expanding operations at its battery factory location in Storey County. Estimated investment: $3.6 billion. Comfortable, no?
In 2014, Nevada lawmakers unanimously pressed their original generosity to Tesla into law during a rushed two-day special legislative session. It’s hard to tell how many of them, if any, had time to envision Tesla taking a second massive bite into the same apple nine years later. Maybe that’s not what Elon Musk and other Tesla officials had in mind in 2014, either.
But Musk and his company are now imagining it, and questions for a new round of tax breaks.
Perhaps there will be some surprise, last-minute consideration — or just a sense of decency — that will cause GOED to delay granting Tesla’s March 2 tax break.
Or maybe GOED will treat the giveaway the same way (the Nevada way) as lawmakers did in 2014 and stamp it without a thought.
The latter seems by far the most likely. That means the only way a relatively small state can avoid handing out unnecessary but expensive handouts to the seventh most valuable company in the world is to take legislative action. And fast.
Add a zero or something
Nevada’s state legislature meets only every two years. Fortunately, this is one of those years. In fact, the legislature meets on Monday.
Lawmakers should respectfully take their time — two days sounds about right — to amend the 2014 law to nullify Tesla’s motion. (One idea: Add a zero or two or three to the $3.5 billion legal investment threshold.)
They would have to pass it quickly as an emergency measure. Nevada lawmakers did so in 2013 to expedite an online gambling bill at the request of the resort industry, so the proceeding is not unprecedented.
The bill would then go to the governor, who could sign it, veto it, or take no action. If he does nothing, it becomes law after five days.
If he were to veto the bill, it would take a two-thirds majority in both houses to override the veto. The Democrats have a veto-proof majority in Parliament and are missing only one vote in the Senate. But it might not be that tight. It can be surprising at times how many Republicans dislike government giveaways to certain companies when confronted head-on.
If GOED saw lawmakers act, they might wait and give lawmakers more time to complete the process. But to be on the safe side, lawmakers want the new law on the books and in place before GOED could put a stamp on it on March 2.
And in any scenario where lawmakers stopped Tesla’s second giveaway, Tesla could sue.
So what? Nevada would have nothing to lose that it wouldn’t lose anyway. And a Tesla suit might nicely signal the start of things that are about to get pretty interesting.
Wanted: A New Nevada Trail
Nevada awarded Tesla the original giveaway deal as part of what economic development critics call a “race to the bottom.” Beaten into submission by corporations, state and local governments routinely compete across the country to see which corporation will receive the most money and prizes in exchange for the corporation undertaking one project or another in their state.
Just as routinely, state and local officials defend freebies by saying everyone does it, so they must do it too.
The competition between governments has also been called the zero-sum game. A company will eventually place its project somewhere — the total number of jobs added to the nation’s economy will be the same whether a project is in Nevada or New Mexico.
But in the process, Nevada, New Mexico, or wherever, in the race to the bottom, loses tax revenues and its ability to provide public services and infrastructure — services and infrastructure that are ordinarily assumed even more stress by the arrival of the new project.
In the spring of 2014, Musk said five states were being considered for the battery factory — Nevada, Arizona, California, Texas and New Mexico. (We’ll probably never know if he was telling the truth; a dirty little secret among economic development folks is that there’s rarely, if ever, any way of knowing if incentive packages really matter, or if corporations already selected the location they want, but are just pretending to look elsewhere to bring generous financial benefits to the already selected location for the business.)
When Musk announced his battery factory sweepstakes, the governors of those states should have reacted in unison and taken notice of everyone Their states offer attractive business and industry benefits and would happily welcome Tesla, but announce they are unwilling to sacrifice public services and obligations by participating in a high-stakes race to the bottom with Musk holding the checkered flag . Or words in that sense.
Instead, they unfortunately dragged themselves to Musk.
If the Nevada state legislature proactively thwarts Tesla’s new request for more tax breaks and sues Tesla, the ensuing fight would provide the good that at least some Nevadans seem to crave: national attention. But more importantly, it would draw national attention to the murky practice of quasi-state economic development officials nationwide facilitating a corporate racket that rips off states and their citizens while adding nothing to the national economy that wouldn’t have been added anyway.
If Nevada pulls through in a suit like that, great.
If Tesla, a corporate titan run by a goofy media personality, were to prevail over Nevada, a small state, the example would serve as a poster child for how insidious, counterproductive, overbearing, and aggressive corporations can be once they shut their mouths have entered the public trough.
And instead of suing, when Tesla announced that because Nevada had refused to provide hundreds of millions of dollars in new, additional tax breaks, it would take its expansion plans to one of its other factory locations, it would show just how petty and punitive corporations can be , if a state has the nerve to oppose them.
In the meantime, if Tesla walked away from lawsuits, took his medicine, and proceeded with its Nevada expansion for all of the fundamental reasons that led to its announcement last week (reasons that are certainly far more economically consequential than Nevada’s cheesy tax breaks), then a state that cannot afford it does not unnecessarily and obscenely squander corporate welfare on a company that does not need it.
To borrow a phrase popular in the economic development subculture mentioned above, it’s a win-win situation.
And whatever the outcome, the Nevada state legislature has a duty to the state, its citizens, and common sense to do whatever it takes to end a second Tesla giveaway.