In 1993 Mercedes set off a competition for a new U.S. auto plant and several states — Alabama, North Carolina and South Carolina — ended up pitted against each other in a bidding war. Alabama won it with a $250 million to $300 million incentive package, the equivalent of $397 million to $476 million in 2013 dollars.
The locals really fought back. Alabama industries said they were being put at a disadvantage, education leaders said the incentive denied funding to schools. “It’s gone from euphoria to fright,” one analyst said after the initial enthusiasm died out. The governor began driving a Mercedes “loaner,” which seemed to symbolize the deal. It was a statewide scandal, with some political consequences.
The plant was built, anyway, but legislators and the media did their jobs — subjecting the deal to terrific scrutiny. Among the things that came to light were unannounced provisions such as a promise from state government to buy 2,500 vehicles.
If there is such a thing as a “Nevada way of life,” the Tesla deal will undercut at least two elements of it — an aversion to corporate welfare and limited heavy manufacturing with its attendant problems. Until now, only Henderson has been a center of such factories. And Nevadans have paid less for corporate subsidies than any other state, $12 per capita, according to The New York Times (neighboring Arizonans pay $230).
When he was running for governor in 1998, I spoke with Kenny Guinn about incentives, and he started shaking his head even before I finished my question. Now Gov. Brian Sandoval seeks to alter that sensible tradition.
Tesla demanded a half billion dollars from whatever state it gave the battery plant. That would be 15.6 percent of Nevada’s current fiscal year state government budget. Sandoval is offering Tesla more than twice that amount in abatements, which would be more than 31 percent.
Sandoval is pushing the notion that Tesla in California pays higher than most manufacturing in Nevada pays, which is quite an admission, but is entirely true. The Wall Street Journal reports that Nevada manufacturing pays 31 percent less than California, which speaks volumes about how the state treats workers.
But Sandoval’s implication is that Tesla will be paying the same here as they do there. Will the legislators make sure we get that in writing, along with a guarantee of cost of living rises as time goes on?
Many supporters of corporate welfare are trying to divert the public’s attention from the huge amounts of revenue that would be abated under the Sandoval deal at a time when Nevada would get the children of 6,000-plus workers to educate and whatever other services must be provided. They keep urging that the public look at the “long term.”
At Forbes magazine, columnist Joe Harpaz quoted Nevada conservative and liberal leaders who are critical of the deal and then wrote, “Populist sentiment aside, a more apt question might be what kind of long-term impact the development of this factory might have on the region.”
First, let’s not put populist sentiment aside. Second, if we ignore the near-term consequences of this deal, we will have no basis for complaining if they damage the state. Educators are said to be staying out of the way of the Tesla deal for fear of offending the governor. They will have to live with the consequences of their silence.
State legislators are planning a one- or two-day special session. If that’s the case, it will just be rubber-stamping the deal. Far better would be for the legislative leaders to go into session, then promptly recess it with a statement like this: “We’ll take our time and scrutinize this deal within an inch of its life. This is our decision, not the governor’s.”
Then they turn the legislative legal and fiscal divisions loose to examine the Sandoval deal with a fine-toothed comb for a few days and report back. It would be nice to be certain that they don’t end up buying 2,500 rich people’s cars for the state motor pool.
They also could examine closely the effect of thousands of new residents and a mammoth factory on our limited resources. Tesla has reportedly bought its own water rights, but that doesn’t create any more water in this desert state.
Most of all, lawmakers should not hurry. In 1926 the Nevada Legislature met in special session to clear the way for construction of a hotel that was never built.
Sometimes it pays to take a little more time. Whenever state officials try to give out-of-state firms these kinds of deals, I’m reminded of a 1990s three-county vote on whether to provide tax support to a private company to rebuild the Virginia and Truckee Railroad. Part of the deal was that the taxpayers in those counties would end up with part ownership of the railroad.
How much of Tesla will Nevadans own for their forgiveness of a billion dollarsplus in taxes?
Dennis Myers is a veteran and Nevada journalist.