Editorial: The deal that never should have been

In all the second-guessing and navel gazing over the Faraday Future flop, no one is bringing up the real reason that the deal should never have been made in the first place.

Yes, it was an ill-conceived idea for gullible Nevada lawmakers in a special session in 2015 on blind faith alone to agree to dole out $215 million in tax abatements and credits to entice Faraday Future to build an electric car factory at the Apex industrial complex in North Las Vegas, though at the time it did not even have a prototype vehicle. The deal, struck by the Governor’s Office of Economic Development, also promised to spend $120 million on infrastructure improvements at the site — water, rail and widening of Interstate 15.

Faraday promised to build a $1 billion manufacturing facility, create 4,500 jobs and start producing cars as early as 2016.

After visiting China in 2016 state Treasurer Dan Schwartz, long a critic of the Faraday largesse by the state, told the press, “We’re increasingly more concerned than we were before that this is just a big Ponzi scheme.”

He and the handful of other naysayers have been proven right. Faraday has pulled the plug, tucked tail and run off.
But it wasn’t just naiveté or poor negotiating skills or poor judgment that made this a bad deal. It was blatant and arrogant flouting of the state Constitution. In fact, it was a double flout.

Nevada’s Constitution has a Gift Clause, which 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.”

Self-styled economic development advocates have tried three times to amend the Constitution and remove the Gift Clause. The voters rejected those attempts all three times — in 1992, 1996 and again in 2000 by wide majorities.
The state Supreme Court has said that when the state provides something to a private entity without getting adequate compensation for the value, that is a gift and thus a violation of the Constitution.

Nevada’s high court has cited an Arizona Supreme Court ruling on that state’s nearly identical Gift Clause. The Arizona court said its Gift Clause “represents the reaction of public opinion to the orgies of extravagant dissipation of public funds by counties, townships, cities, and towns in aid of the construction of railways, canals, and other like undertakings during the half century preceding 1880, and it was designed primarily to prevent the use of public funds raised by general taxation in aid of enterprises apparently devoted to quasi public purposes, but actually engaged in private business.”

Then there is the section of the Nevada Constitution that clearly states, “The Legislature shall provide by law for a uniform and equal rate of assessment and taxation …” It is not uniform or equal if a select few get breaks while others don’t.

Despite these clearly worded prohibitions the state doled out $1.3 billion in tax breaks to Tesla Motors to build a battery factory near Sparks. The projections on capital investment and number of jobs to be created have fallen far short. All it would take to make the whole deal go bust is a technological breakthrough that makes lithium ion batteries obsolete.

That $750 million to build a Las Vegas stadium for the Oakland Raiders football team on a site with woefully inadequate parking spaces still could come up a piker.

But none of them should ever have been allowed in the first place and none like them should ever be allowed again, if officials and lawmakers would abide by the Constitution.

A version of this editorial appeared this week in some of the Battle Born Media newspapers — The Ely Times, the Mesquite Local News, the Mineral County Independent-News, the Eureka Sentinel,  Sparks Tribune and the Lincoln County Record.

Site of failed Faraday Future electric car factory. (R-J pix)

Real reason the Faraday Future deal should never have been struck

For all the recriminations and navel gazing over the Faraday Future flop, no one is bringing up the real reason that the deal should never have been made in the first place.

Yes, it was an ill-conceived idea for gullible Nevada lawmakers in a special session in 2015 on blind faith alone to agree to dole out $215 million in tax abatements and credits to entice Faraday Future to build an electric car factory at the Apex industrial complex in North Las Vegas, though at the time it did not even have a prototype vehicle. The deal, struck by the Governor’s Office of Economic Development, also promised to spend $120 million on infrastructure improvements at the site — water, rail and widening of Interstate 15.

Faraday promised to build a $1 billion manufacturing facility, create 4,500 jobs and start producing cars as early as 2016.

After visiting China in 2016 state Treasurer Dan Schwartz, long a critic of the Faraday largesse by the state, told the press, “We’re increasingly more concerned than we were before that this is just a big Ponzi scheme.”

He and all the handful of other naysayers were right. Faraday has pulled the plug, tucked tail and run off.

But it wasn’t just naiveté or poor negotiating skills or poor judgment that made this a bad deal. It was blatant and arrogant flouting of the state Constitution. In fact, it was a double flout.

You see the Constitution has a Gift Clause, which 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.”

Self-styled economic development advocates have tried three times to amend the Constitution and remove the Gift Clause. The voters rejected those attempts all three times — in 1992, 1996 and again in 2000 by wide majorities.

The state Supreme Court has said that when the state provides something to a private entity without getting adequate compensation for the value, that is a gift and thus a violation of the Constitution.

Nevada’s high court has cited an Arizona Supreme Court ruling on that state’s nearly identical Gift Clause. The Arizona court said its Gift Clause “represents the reaction of public opinion to the orgies of extravagant dissipation of public funds by counties, townships, cities, and towns in aid of the construction of railways, canals, and other like undertakings during the half century preceding 1880, and it was designed primarily to prevent the use of public funds raised by general taxation in aid of enterprises apparently devoted to quasi public purposes, but actually engaged in private business.”

Then there is the section of the Nevada Constitution that clearly states, “The Legislature shall provide by law for a uniform and equal rate of assessment and taxation …” It ain’t uniform or equal if a select few get breaks while others don’t.

Despite these clearly worded prohibitions the state doled out $1.3 billion in tax breaks to Tesla Motors to build a battery factory near Sparks. The projections on capital investment and number of jobs to be created have fallen far short. All it would take to make the whole deal go bust is a technological breakthrough that makes lithium ion batteries obsolete.

That $750 million to build a Las Vegas stadium for the Oakland Raiders football team on a site with woefully adequate parking spaces still could come up a piker.

But none of them should ever have been allowed in the first place.

The only car Faraday Future has made.

 

 

More woes for the electric ‘car makers’ that Nevada is backing

First, Faraday Future has seen a Chinese court freeze $182 million in assets tied to its chief investor due to missed payments, then Tesla Motors missed its projections for car production in the latest quarter, causing analysts to downgrade its stock.

Nevada’s governor and lawmakers placed a bet on Faraday Future to the tune of $215 million in tax abatements and credits to entice it to build an electric car factory at the Apex industrial complex in North Las Vegas. The bet also promised to spend $120 million on infrastructure improvements at the site — water, rail and widening of Interstate 15.

The governor and lawmakers doubled down on Tesla.

In a special session in 2014 the Nevada Legislature handed Tesla $1.3 billion in tax breaks and credits in return for the company promising to build a $5 billion, 10 million-square-foot battery factory near Sparks. Its capital expenditures so for amount to $1.1 billion, well short of the projected $3 billion.

Projections were for the battery gigafactory to be employing 1,700 workers by the end of 2016, but the latest progress report shows there are only 477, even though the state has shelled out $59 million in transferable tax credits.

Is there any way Tesla will employ 4,700 at the factory by the end of this year and 6,500 by the end of 2018?

Also, there are plans for 10 new battery gigafactories in the works.

Anyone care to bet on whether Nevada taxpayers will see a return on their investments?

Site of Faraday “Future” manufacturing plant. (AP pix)

 

Editorial: Is Faraday Future history?

Work has stopped at Faraday Future factory site. (AP photo by John Locher)

Gullible Nevada lawmakers in a special session in 2015 on blind faith alone agreed to dole out $215 million in tax abatements and credits to entice Faraday Future to build an electric car factory at the Apex industrial complex in North Las Vegas, though at the time it did not even have a prototype vehicle.

The deal, struck by the Governor’s Office of Economic Development, also promised to spend $120 million on infrastructure improvements at the site — water, rail and widening of Interstate 15.

Faraday officials claimed they would build a $1 billion manufacturing facility, create 4,500 jobs and start producing cars as early as 2016.

Now the company is seeking $1 billion in outside investments, while cutting more than 300 jobs in the U.S. and closing its San Diego operations. Work on the Apex site also has stopped and there have been reports the would-be electric car manufacturer is stiffing some of its contractors.

The Chinese head of Faraday Future, Jia Yueting, is reportedly experiencing a cash crunch and, after investing more than $300 million of his own money in Faraday, will not be putting up any more capital, according to a news report from Bloomberg Technology.

Jia wrote in a memo obtained by Bloomberg News late this past year, “No company has had such an experience, a simultaneous time in ice and fire. We blindly sped ahead, and our cash demand ballooned. We got over-extended in our global strategy. At the same time, our capital and resources were in fact limited.”

After visiting China in 2016 state Treasurer Dan Schwartz, long a critic of the Faraday largesse by the state, told the press, “We’re increasingly more concerned than we were before that this is just a big Ponzi scheme.”

When word of Faraday’s fading fortunes surfaced, the head of the GOED, Steve Hill, was quoted as saying, “Trying to predict whether a company is going to succeed or flourish, or even say what they’re going to do is … you’re going to be wrong at times, maybe as often as you’re right.”

Sounds bit like playing roulette with tax money.

Reportedly the state hasn’t doled out any money to the listing electric car company yet, because the firm hasn’t reached the necessary threshold of spending to warrant turning on the taxpayer spigot.

This turn of events supports our oft-stated contention that spending taxpayer money to invite companies to come to Nevada to compete with those taxpayers is a bad idea and unconstitutional to boot.

The Gift Clause in Nevada’s 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.”

Self-styled economic development advocates have tried three times to amend the Constitution and remove the Gift Clause. The voters rejected those attempts all three times — in 1992, 1996 and again in 2000 by wide majorities.
The state Supreme Court has said that when the state provides something to a private entity without getting adequate compensation for the value, that is a gift and thus a violation of the Constitution.

But the governor and our lawmakers continue to defy the Constitution with impunity. Disband the GOED and stop calling special sessions to give away taxpayer dollars.

A version of this editorial appeared this week in some of the Battle Born Media newspapers — The Ely Times, the Mesquite Local News, the Mineral County Independent-News, the Eureka Sentinel,  Sparks Tribune and the Lincoln County Record.

 

 

Editorial: Billions for billionaires, pittance for parents

We now know the pecking order in Nevada.

In his State of the State speech this past week Gov. Brian Sandoval boasted that the Tesla gigafactory near Sparks, in addition to making batteries for electric cars, would also be making electric motors and gearboxes, adding 550 workers.

Left unsaid was who would pay for the police and fire, schools and other government services those workers would need, since Tesla was given $1.3 billion in tax breaks and credits, as well as promises of millions more to improve roads, by lawmakers in a special session in 2014.

Tesla is owned by billionaire Elon Musk.

Nevada takes care of billionaires.

Nevada lawmakers in a special session in 2015 agreed to dole out $215 million in tax abatements and credits plus millions in road improvements to entice Faraday Future to build an electric car factory at Apex in North Las Vegas. The company is owned by a Chinese billionaire.

As if on schedule, legislators in 2016 agreed to pony up $750 million in tax money to help build a domed football stadium for the billionaire owner of the Oakland Raiders, Mark Davis, and Sheldon Adelson, billionaire owner of the Sands casino corporation and the Las Vegas daily newspaper. The stadium would also require the state to spend $900 million for road improvements.

Mark Davis and Sheldon Adelson.

Mark Davis and Sheldon Adelson.

Almost as an afterthought, Sandoval tossed out a $60 million sop to the parents who have applied for education savings accounts (ESAs) approved in 2015 by lawmakers. The ESAs were blocked when the state Supreme Court said ESAs are constitutional but the funding mechanism devised by the lawmakers was not.

Under the law, parents who opt out of sending their children to public schools would be given an education savings account that would equal a portion of the statewide average the state spends per public school pupil, currently that is about $5,700. Low-income parents and parents with special needs children would get 100 percent of that amount, while all others would get 90 percent, or about $5,100 currently.

That money could be spent on private schooling, tutoring, transportation, distance education and/or homeschooling.

“We’ve heard from the thousands of Nevada families about how crucial it is that we give them freedom of choice in the education of their children,” Sandoval said in his speech. “I look forward to building a bi-partisan solution to get this done. It is time to give Nevada families more choice.”

Well, a few Nevada families perhaps.

It turns out the $60 million — $25 million in the first fiscal year and $35 million in the second — would fund about half the 8,000 to 9,000 ESAs already applied for so far in the first year and about two-thirds of them in the second year.

To add insult to injury, a spokesman for the governor said Sandoval is open to limiting who is eligible for ESAs by imposing means testing — the more a family earns, the less the family could get back from its own taxes.

When Sandoval announced his funding proposal for ESAs, Republicans applauded and Democrats sat on their hands, prompting the governor to quip with a chuckle, “I knew it would be a split house on that one.”

In 2015 not a single Democrat voted in favor of authorizing ESAs. Now the Democrats have majorities in both chambers of the Legislature, making that bi-partisan solution look like a pipe dream.

The governor had his chance to fund ESAs in that special session, while Republicans still held majorities in both chambers, in which lawmakers approved $750 million for that football stadium in Las Vegas, but he failed to put that on the agenda. Just not as important as the billionaires.

Nevada doles out billions for billionaires, but pittance for parents.

A version of this editorial appeared this week in some of the Battle Born Media newspapers — The Ely Times, the Mesquite Local News, the Mineral County Independent-News, the Eureka Sentinel,  Sparks Tribune and the Lincoln County Record.

When money is no object ask the government for it

Faraday Future prototype on display. (Reuters photo)

Faraday Future prototype on display. (Reuters photo)

If you have to ask you can’t afford it.

The story in the morning paper about the unveiling at a local convention of the prototype for Faraday Future’s electric car that is supposed to be built at a factory in North Las Vegas was full of numbers.

The plant is to cost $1 billion. The car’s range will be 378 miles on a charge. It will generate 1,050 horsepower. Nevada ponied up $215 million in tax breaks and improvement projects. (Well, actually that was $215 million in tax abatements and credits, plus another  $120 million in infrastructure that includes water, rail and road improvements that may include widening I-15 and improving the freeway interchange near the Apex industrial park. But what’s a few hundred million in tax money?) You can reserve one by depositing $5,000.

But the story never says what the cost of the car will be.

Reuters is reporting that the tricked out FF 91, as it is dubbed — replete with holograms, sensors, cameras and radar — will be priced, according to insiders, at $180,000. That’s even higher than the high-end Tesla, which is getting $1.3 billion in tax exemptions and credits for promising to build a battery plant in Northern Nevada.

That’s right, your tax money is going to support the possible construction of cars you can never in your wildest dreams of avarice afford, even if they ever get built. Ain’t socialism grand?

Maybe if Faraday Future finds enough suckers to part with $5,000 deposits it can actually pay its contractors to build that factory.

 

Electric car company should change its name to Mañana

Faraday Future site (AP photo by John Locher via Business Insider)

Faraday Future site (AP photo by John Locher via Business Insider)

Maybe there is a reason the company is called Faraday Future. Could it be because everything is in the future?

The company’s contractor now says it has “adjusted” its construction schedule at its proposed future electric car manufacturing plant at Apex in North Las Vegas. That’s another word for halted. The contractor says work is to resume next year.

Faraday has failed to reply to emailed questions from the Las Vegas newspaper, but Business Insider reports that a Faraday Future representative said late Monday that the company is “refocusing efforts” on its upcoming production vehicle in the meantime.

Based on Faraday’s pie-in-the-sky promises in 2015, at the urging of Gov. Brian Sandoval, the state Legislature meeting urgently in special session agreed to dole out $215 million in tax abatements and credits to entice Faraday Future to build in Nevada. The state also promised $120 million in infrastructure that includes water, rail and road improvements that may include widening I-15 and improving the freeway interchange near the Apex industrial park.

The governor told the Las Vegas newspaper the state will be out no money if Faraday fails to perform in the future.

But state Treasurer Dan Schwartz, who visited China recently, has been warning for some time that the company may be a sham. He told the local paper a few days ago, “We’re increasingly more concerned than we were before that this is just a big Ponzi scheme.”

The LA Times reported two weeks ago that Faraday Future hasn’t been paying its bills and still owes on a $75 million performance bond to the state of Nevada. It has fallen $57 million behind in payments due to an escrow account for its contractors.

Speaking of special sessions to dole out money, Tesla Motors continues to build on its electric car battery plant near Sparks but appears to be still lagging behind its promised schedule when lawmakers in 2014 approved $1.3 billion in tax exemptions and agreed to spend $100 million to build a highway to the plant.

And the governor said Monday he wants to hold off on going forward with fast-tracking $899 million in road work to handle traffic for a new $1.9 billion, 65,000-seat stadium in Las Vegas that is being funded with $750 million in hotel room tax funds.

NFL owners could vote in January to move the Oakland Raiders to Las Vegas — or not.

 

Maybe he heard about casino and newspaper owner Sheldon Adelson threatening to walk away from the deal if the Raiders don’t meet his terms.

Faraday Future released a promotional video with remarkably little real information:

Can’t hear any construction work?

 

Future of Faraday Future’s Nevada manufacturing plant looking bleak

Faraday Future pro type

Faraday Future pro type

“No company has had such an experience, a simultaneous time in ice and fire. We blindly sped ahead, and our cash demand ballooned. We got over-extended in our global strategy. At the same time, our capital and resources were in fact limited.”

— Jia Yueting, head of Faraday Future and other businesses, in memo obtained by Bloomberg News

Gullible Nevada lawmakers in a special session in 2015 on blind faith alone agreed to dole out $215 million in tax abatements and credits to entice Faraday Future to build an electric car factory at Apex in North Las Vegas, though at the time it did not even have a prototype vehicle. The prototype it has since unveiled appears to have only one seat.

The state also promised $120 million in infrastructure that includes water, rail and road improvements that may include widening I-15 and improving the freeway interchange near the Apex industrial park.

Bloomberg reports that Nevada Treasurer Dan Schwartz is still balking at issuing bonds needed to advance the project due to doubts about Jia’s ability to raise funds — doubts expressed by Jia himself — but Schwartz’s office wasn’t available for comment outside of normal business hours.

Bloomberg also said Jia’s memo “singled out the car division for its profligacy, saying it had already spent 10 billion yuan in early development.”

The LA Times reported two weeks ago that Faraday Future hasn’t been paying its bills and still owes on a $75 million performance bond to the state of Nevada.

The newspaper quoted Schwartz as saying, “My questions are all about how they finance this. … I’m afraid it will never be financed and implode in the middle.”

He noted, “The stock is worth [about] half of what he started with.”

 

How is that first special session gift — the one for Tesla — turning out?

Tesla gigafactory (R-J photo)

Tesla gigafactory (R-J photo)

There have been three special legislative sessions in three years in Nevada specifically to dole out generous gifts to billionaires based on base assumptions that those gifts might someday prove beneficial to the economy of the state and generate more tax revenue than the handout.

You know the gifts — tax breaks and abatements and roadwork and land for a Tesla Motors battery factory near Sparks, tax breaks and infrastructure for a planned electric car plant for Faraday Future in Clark County and now $750 million in tax money to build a football stadium for casino and newspaper owner Sheldon Adelson and the NFL Raiders.

So, how’s that first handout working out?

Montana Skeptic at Seeking Alpha reports that Nevada is getting the shaft.

As of the latest report in late August, even with generous amortization allowances, the 272 jobs created by the so called gigafactory have cost Nevada $179,000 each.

Tesla has said the $5 billion, 10 million-square-foot factory eventually will employ 6,500 workers and add $100 billion to the state economy over the next 20 years.

There were supposed to be 700 full-time jobs in 2015 instead of 272 and 1,700 this year instead of only 419 so far. For 2017 the prediction is 4,700 jobs, reaching that pie in the sky 6,500 in 2018.

Capital expenditures by Tesla also have fallen well short of projections.

The plant is supposed to be 10 million square feet in size, but now is less than 2 million.

Editorial: Nevada slipping in its embrace of personal and economic freedom

Nevada ranking 12th in the nation in terms of economic and personal freedom, according to the Cato Institute, is not too shabby — until you notice that we’ve fallen from No. 5 in 2000.

Having legalized gambling and county-option legalized prostitution probably helps in the personal freedom category, but we’ve been marked down for continually raising taxes and having too many business regulations and license requirements.

But what is really frightening is that Cato’s Freedom in the 50 States only analyzed economic data through 2014, which fails to take into account that the 2015 Legislature passed, and the governor signed, a record-setting $1.5 billion increase in taxes. Who knows how far Nevada will fall once that data is taken into account?

Cato analysts scored all 50 states on more than 200 standards including fiscal policies, as well as personal and regulatory freedom.

Cato points out that Nevada state-level taxes have risen from a low of 4.9 percent of personal income in 2009 to about 5.9 percent in 2014. Local taxes have also risen. Also government debt is well above average and rising — from 22 percent of income in 2000, state and local debt in 2014 stood at more than 26 percent of income. That is probably partly due to the $40 billion in unfunded liability for the public employee pension fund.

The analysts mistakenly credited the state Supreme Court for some of the rise in taxation. “Nevada’s fiscal policy has worsened over time, a fact that might have something to do with a 2003 Nevada Supreme Court decision setting aside part of the state constitution, which required a supermajority for tax increases,” the Cato piece reports, neglecting to notice that the court repudiated that Guinn v. Legislature decision three years later. So we’ll just have to blame the lawmakers and executive branch.

We lost freedom points in the area of education, Cato notes, “Nevada was one of the worst states for educational freedom. Private schools are tightly regulated, facing mandatory state approval, mandatory teacher licensing, and detailed private school curriculum control. However, our index does not take account of the educational savings account plan passed in 2015, which in 2014 would have raised its educational freedom score to average.”

Cato did not note that the education savings accounts have yet to be implemented due to litigation questioning the law’s constitutionality.

Nevadans should be concerned about how we will rank in future analyses of our embrace of fundamental freedoms, because freedom requires equal applications of the laws and taxation. The Nevada Constitution dictates a “uniform and equal rate of assessment and taxation.”

But the state has been handing out tax breaks and tax credits and outright grants to companies that curry favor with public officials, leaving the rest of the taxpayers to foot the bill for public services needed by those favored few. Hardly conducive to freedom or equality.

Tesla Motors was given $1.3 billion in tax breaks and credits for its new battery manufacturing plant near Sparks that opened recently with much fanfare and at a much smaller size than promised. One critic called it a Potemkin Village.

Then there were millions in similar credits for Chinese-financed Faraday Future, which says it will build an electric car manufacturing plant, though it does not even have a prototype.

And where’s the fairness in a $1.2 million grant to solar panel installer SolarCity, which has since shutdown most operations in the state?

Nevada was once known as a live and let live state. We need to return to those values — letting people make choices for themselves and keep their own money, rather than send it to Carson City to dole out to others.

A version of this editorial appeared this week in some of the Battle Born Media newspapers — The Ely Times, the Mesquite Local News, the Mineral County Independent-News, the Eureka Sentinel,  Sparks Tribune and the Lincoln County Record.