Would luring Tesla ‘gigafactory’ require an unconstitutional outlay of tax money?

Largely overlooked during all the congratulatory back slapping that came with the news that Tesla Motors had built an earthen pad in an industrial park east of Sparks for its new  $5 billion lithium-ion battery “gigafactory” that would employ as many as 6,500 workers was a statement by Tesla CEO Elon Musk about what he expects the state getting the plant to shell out.

“Consistent with out strategy to identify and break ground on multiple sites, we continue to evaluate other locations in Arizona, California, New Mexico, and Texas,” Musk wrote at the time about the Nevada site, keeping his suitors guessing.

But in a telephone conference call on July 31 about company plans, Musk, 43, said of the $5 billion plant: “Of that number, we see Tesla probably providing 40 to 50 percent of the total; Panasonic probably about 30 to 40 percent; the state maybe 10 percent; and other industrial partners maybe 10 to 15 percent, depending on how vertical we go with the factory.”

Water is sprayed on a site for a potential Tesla Motors battery factory. (RGJ photo )

That 10 percent from “the state” could be $500 million or more.

Tesla already has received a federal loan guarantee for $465 million, though it has lost or written off more than $1 billion. Musk’s SpaceX gets $1 billion in NASA funding.

But the name Elon Musk is known to make Nevada politicians swoon. Perhaps you recall how the Governor’s Office of Economic Development (GOED) this past year doled out $1.2 million of your money to another Musk-headed business. That tax money from a $10 million Catalyst Fund went to attract SolarCity to open an office in Las Vegas and create 100 jobs. SolarCity erects solar panels on rooftops, something a dozen or so taxpaying Nevada companies already do.

GOED board member Secretary of State Ross Miller fawned, “You had me at Elon Musk,” while voting to award the handout, despite the fact Article 8, Section 9 of the Nevada Constitution states: “The State shall not donate or loan money, or its credit, subscribe to or be, interested in the Stock of any company, association, or corporation, except corporations formed for educational or charitable purposes.”

That little Mexican hat dance on the state constitution prompted the legal arm of conservative think tank Nevada Policy Research Institute to file suit in the state district court in Carson City.

The suit was filed by the Nevada Policy Research Institute’s Center for Justice and Constitutional Litigation on behalf Michael Little, an alternative-energy entrepreneur, a taxpayer and a competitor of SolarCity.

“Nevada’s constitution clearly states that state government has no business picking winners and losers in the economy by subsidizing the favored,” said Joseph Becker, chief legal officer and director of the CJCL at the time. “Subsidies from state government to private businesses are unconstitutional and directly harm both taxpayers and competing businesses.”

As a part of its ongoing litigation in that case involving a Musk handout, CJCL retained an expert witness, Dr. Randall G. Holcombe, DeVoe Moore Professor of Economics at Florida State University.

In written testimony filed in the court case, Holcombe said, “Government subsidies to businesses are a drain on the economy, and do not provide any net benefit to the state of its citizens. If the business would be profitable without the subsidy, there is not public purpose served by paying it. If the business would not be profitable without the subsidy, then the subsidy supports a business that takes more out of the economy than it puts back in. Costs measure the value of resources firms take out of the economy; revenues measure the value of the output firms produce for the economy. Firms that produce more value than they take out of the economy benefit the economy. Firms that take more value out of the economy than they produce reduce economic welfare. Government policy produces the greatest economic benefit when it is neutral toward all firms, allowing firms that produce more value to prosper while those that drain value from the economy disappear. Government subsidies disrupt that process by distorting economic incentives. Even if a firm would be profitable without a subsidy, a subsidy allows the subsidized firm to use more resources than would be efficient.”

If that could be said of a $1 million subsidy, isn’t it 500 times more applicable to a $500 million handout?

Additionally, NPRI points out the state has thrice attempted to amend the constitution so it could legally subsidize companies. In 1992, a proposal was nixed by 76.5 percent of the voters. In 1996, 64.8 percent of voters opposed it. By 2000, resistance dwindled to 59.3 percent, but it still failed.

Despite the clear wording of the constitution and the majority of voters, Attorney General Catherine Cortez Masto’s opinion on the Catalyst Fund states: “The Nevada Constitution does not prohibit the State from disbursing Catalyst Fund money to regional development authorities that by definition must be local governments, or prohibit local governments from disbursing Catalyst Fund money to companies.”

Ross Miller is running for attorney general. What opinion do you think he will embrace if elected?

Musk already has a hand in your pocket. Now he wants your pants, too.

14 comments on “Would luring Tesla ‘gigafactory’ require an unconstitutional outlay of tax money?

  1. iShrug says:

    I understood that there was a mere $10 million in the Catalyst Fund. Silly me.

  2. Steve says:

    In this case we are competing against other states fully prepared to spend what they need to get that battery factory. Being in the running for a project this large is great for any state in the union. So much so that even the worlds 12th largest economy (California) wants it.
    Not to mention there is no competition anywhere in the world for such a factory, so the Nevada constitutional prohibition on state support for such a business may be acceptable as this factory (by its very nature) may well include an educational component in the research and development of battery technology.

    Furthermore, the tax revenue from this factory will most likely exceed that $500 very quickly.

    I would like that factory to be built and operate in Nevada for as long as possible, perhaps generations of Nevada families could work there.

    AND we must not fail to consider the value of other business spurred by such a factory.

    This thing could remake northern Nevada and diversify the states economic base in ways we have all been hoping for decades.

    I agree the Solar City support was counter to the State constitution as existing business was impacted and Solar City offers no charitable or educational benefits. Solar City is a PPA provider, nothing more. It would have been much better to encourage local outfits to offer their own PPA systems which none currently do. As far as I have been able to determine, Solar City is the only Nevada source for a PPA Solar system.

    I support the state of Nevada in tis efforts to get the GigaFactory built in Nevada rather than in another state.

  3. Steve says:

    Ahh…$500 million.

    And “tis” should be “its”

  4. Getting into a bidding war with taxpayer money is foolhardy.

  5. iShrug says:

    There is a large, legitimate market for Li-ion batteries. Maybe there are private citizens who wish to invest, here in NV. They can’t simply continue to ignore our State Constitution. The deal needs to be above-board.

  6. Steve says:

    The bidding war is exactly what seems to be happening.

    That factory will be built. It’s only a matter of where.

    I prefer it be Nevada.

  7. bc says:

    The bidding war will likely happen and Nevada will have a place at the table. Musk has already spent a fair amount of money moving dirt, question is has he began work at any other sites?

    A larger question is the size of the plant. I am having trouble imagining the need for 6500 employees to build batteries. I understand that Musk intends to be the battery supplier of choice for the electric automotive industry in general, not just for Tesla, and that he thinks on a grand scale. I do not see the demand in the industry for a plant of 6500 employees to build automotive traction batteries. Labor cost alone for 6500 employees here in the US is going to run $1M-1.5M a day, that is a lot of batteries to sell.

    But if it truly requires 6500 employees to build these batteries then I think the odds are that the plant will be in China or Mexico.

    I hope that he has this figured out and that this plant lands in Northern Nevada, a lot of folks will find work.

  8. Winston Smith says:

    Ahh, the lure of money and jobs and the slippery slope of fascism. Unlike how we got stuck with the banksters’ federal reserve system 100 years ago, these types of deals need to be transparently analyzed and the ramifications fully understood before any decisions are made by our “representatives”. And if our “representatives” choose to assist some companies to victory in the marketplace with our tax dollars while others lose, I guess that’s just too bad, eh? Or what if one of the unassisted companies win in spite of its disadvantage, and taxpayers are stuck with a losing investment?

    Either way, it’s lose-lose…

    War is Peace; Freedom is Slavery; Ignorance is Strength

  9. Vernon Clayson says:

    Another green energy project so Harry Reid is likely involved. It’s a huge gamble so his fingerprints won’t be on it until it looks possible. And a business with that many employees won’t use a lot of water, will it? That says nothing about the utilities, whould they have to cover half of Nevada and parts of neighboring states with solar panelsto provide electricity?

  10. […] California, New Mexico, and Texas, but said he wanted the state winning the bidding war to put up $500 million in state funding or some sort — grants, tax breaks, whatever. Will Gov. Brian Sandoval call a […]

  11. […] the clear wording of the constitution and the majority of voters, AG Cortez Masto’s opinion on the Catalyst Fund states: “The Nevada Constitution does not prohibit the State from disbursing […]

  12. […] the clear wording of the Constitution and the majority of voters, AG Cortez Masto’s opinion on the Catalyst Fund states: “The Nevada Constitution does not prohibit the State from disbursing […]

  13. Anonymous says:

    Remember when the government choosing winners and losers was against republican “principles”?

    What happened to those I wonder.

    “Republican Sen. Orrin Hatch has urged the Federal Trade Commission to open a new antitrust investigation into Google.

    Hatch, the longest-serving Republican in the Senate, argued on Thursday in a letter to the FTC’s new chairman, Joseph Simons, that Google had become “more dominant” since the competition body last investigated its conduct in 2013 without major repercussions for the firm. Hatch is a member of the Senate’s antitrust committee.”


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