Newspaper column: Spending money to entice business is a bad bet

Hard on the heels of slapping existing taxpayers with $1.5 billion in new levies, our ever considerate lawmakers on Saturday overwhelmingly passed a package of bills that play Santa to a potential new business by doling out tax breaks and promises of infrastructure improvement totaling upwards of $335 million. Gov. Brian Sandoval signed the bills shortly after Legislature recessed.

Sandoval called the Legislature into special session in Carson City to rubber-stamp a deal he had cut with a company called Faraday Future — which claims it will someday be an electric car manufacturer, though today it is little more than a gleam in the eye of a wealthy Chinese businessman. The state handouts are meant to entice Faraday to build a $1 billion auto factory in the Apex industrial complex in northern Clark County. The deal is similar to the one generously provided this past year to Tesla Motors — which actually makes electric cars now though it loses $4,000 on every car it sells — for a $5 billion battery plant near Sparks.

Faraday claims its 3 million-square-foot factory will employ 4,500 workers.

Gov. Sandoval signs bill giving tax breaks for electric car company. (R-J photo)

A study by Applied Analysis estimates the company could have an economic impact of $87.5 billion over the next 20 years.

The company is headed by Jia Yueting, the head of Leshi Internet Information and Technology, which is described as the Chinese version of Netflix. He announced a year ago he plans to build electric cars, though it is unclear whether he even has a prototype.

The deal Sandoval put forward includes $215 million in tax credits and abatement, plus money for employee training and $120 million in infrastructure that includes water, rail and road improvements that may include widening I-15 and improving the freeway interchange near Apex.

The governor and lawmakers jumped at the incentive package despite the fact history has shown that such government subsidies and tax breaks amount to a zero sum game.

Richard Florida, director of the Martin Prosperity Institute at the University of Toronto and Global Research Professor at NYU, wrote earlier about Nevada’s Tesla incentive package: “But no matter how you slice it, the deal makes utterly no sense. It is just one more example of a government giveaway for a factory that would have been built anyway. As I’ve argued before, there is virtually no association between economic development incentives and any measure of economic performance. And it’s not just me. I spoke with several experts in economic development incentives and advanced manufacturing and the consensus was the same: this deal was overblown and unnecessary.”

Florida calculated that when a realistic number of actual Tesla jobs is used that the tax incentives would amount to $385,000 per job.

In litigation involving another Nevada handout to a business competing with existing businesses, Dr. Randall G. Holcombe, DeVoe Moore, professor of Economics at Florida State University, said in written testimony, “Government subsidies to businesses are a drain on the economy, and do not provide any net benefit to the state or its citizens. If the business would be profitable without the subsidy, there is no 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.”

In fact those Tesla economic impact projections, by the same company that did the Faraday Future forecast, are already proving to be overly optimistic.

Nevada Policy Research Institute’s Victor Joecks, executive vice president of the free-market think tank, reports that a recent state audit of the Tesla project reveals that the number of jobs created and the amount of money spent on the battery plant are far below projections.

Forecasts indicated Tesla would have 700 employees here in 2015, instead there are 24 new qualified employees and only 16 of those are Nevada residents, according to a report for the Governor’s Office of Economic Development. Instead of 3,793 construction jobs, there are 1,348 and only 916 are Nevada residents. Instead of spending $1 billion in 2015, the company has invested just $186 million, less than 20 percent of projections.

“Tesla’s actual numbers serve as a stark reminder that relying on rent-seekers’ rosy scenarios — concocted to justify letting politicians pick winners and losers — is not a taxpayer-friendly proposition,” Joecks writes.

Nevada was built on bad math and even our lawmakers can’t figure out the house always wins in the long run.

A version of this column appears this week in the Battle Born Media newspapers — The Ely Times, the Mesquite Local News, the Mineral County Independent-News, the Eureka Sentinel, the Lincoln County Record and the Sparks Tribune — and the Elko Daily Free Press.

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2 comments on “Newspaper column: Spending money to entice business is a bad bet

  1. Rez says:

    IF they are actually a legitimate business that intends to make and sell a product and earn their own profit, low or absent business taxes are the only incentive you need.

    IF their actual business model is to suckle at the government teat, then leave for greener suckers when the bounty runs out — that’s when you’ll need to “entice” them with something more.

    Cut business taxes and stop with the enticement crap, and you’d soon have all the business and industry your state can support, at no cost to taxpayers and a boost to your economy, not a drain your grandchildren will have to pay for.

  2. Notice how Sandoval is always smiling when he’s reaching into our pockets…to pick winners and losers.

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