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July 20, 2019

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Three reasons watchdog group says Tesla deal is bad for Nevada

Brian Sandoval-Tesla-Bill-Signing

Cathleen Allison / AP

Surrounded by lawmakers and staff members at the Capitol in Carson City on Thursday, Sept. 11, 2014, Nevada Gov. Brian Sandoval signs into law an unprecedented package of incentives to bring Tesla Motors’ $5 billion battery factory to the state.

A watchdog group today criticized Nevada's tax deal with Tesla Motors as one-sided in the car maker's favor and called one provision "a scheme we have never seen before."

Greg LeRoy has tracked corporate subsidies for years as the executive director of Good Jobs First and the author of the book "The Great American Jobs Scam."

LeRoy pegged the total value of Tesla's tax incentives at $1.287 billion, by far the largest in Nevada history and the 12th largest in U.S. history.

The Nevada Legislature approved the deal in four bills and Gov. Brian Sandoval signed them into law late last night.

In a statement today, LeRoy detailed three reasons why he thinks the tax deal is bad for Nevada. His statement is below with references to Senate Bill 1, the key bill that governs the deal. His statement has been edited for brevity and clarity.

Tesla doesn't have to meet hiring and spending benchmarks alone to qualify for the tax incentives. Some of the hiring and spending could be done by suppliers.

The fine print actually does not require Tesla Motors itself to create any specific number of jobs in order to be eligible for the tax credits and abatements. Apparently, the bulk of hiring could be at suppliers.

The only project requirement to trigger all but one the tax breaks is a total of $3.5 billion in capital investment over 10 years. That figure covers capital expenditures by Tesla (the so-called ‘lead participant’) and all of its co-located suppliers (named along with Tesla in the bill as ‘participants’).

In a scheme we have never seen before, Tesla, the "lead participant," is entitled to all of the refundable tax credits (up to $195 million) even when the hiring or the capital expenditures generating those credits are made by the other "participant" suppliers. Effectively, this would make the massive industrial campus CEO Elon Musk envisions a Tesla Tax Credit-Capture Zone. And $120 million of the refundable credits is tied to the $3.5 billion in capital expenditures; only $75 million is tied to hiring.

The requirement that 50 percent of the workforce come from Nevada is low and can be waived.

We also note that the bill requires that only half of the temporary construction workforce and half of the permanent manufacturing workforce be Nevada residents. This supports our argument that a Reno-area facility will likely draw its workforce heavily from nearby California. California could become a huge winner here, with lots of job-creation benefits and no economic development subsidy costs. And the residency requirement, even as low as it is, can be waived.

Public oversight is weak.

The disclosure requirements for reporting of tax credit transactions and other project activities have numerous problems and grant too much final authority to the Governor’s Office of Economic Development to withhold information from the public.

In closing

The big winners in this deal are Tesla Motors and possibly the state of California. In the history of high-stakes economic development poker games, Nevada will go down as the birthplace of the Tax Credit-Capture Zone.

In response

Asked to respond to LeRoy's statement, Sandoval's communications director Mari N. St. Martin provided this statement:

"The 6,500 jobs number is a projection based on several unbiased reports and, as detailed at length yesterday, if a company does not create jobs, they do not receive the tax credit. The Nevada Legislature conducted a comprehensive and thorough review of this legislation. Unanimous support from the Legislature confirms that this deal is good for Nevada."

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