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Tuesday, September 16, 2014

Tesla Deal Even Worse Than First Thought

Via an email from Greg LeRoy of Good Jobs First, we learn that the Tesla deal, as enacted by the Nevada Legislature, is even worse than announced. Aside from the widely touted 6500 jobs only being 6000 jobs for which the state is paying for, it turns out that Tesla doesn't even have to create the jobs itself!

You read that right. Tesla gets to receive tax credits for investment and job creation not only for itself, but for any of its suppliers ("participants," in the law's language) that locate on the project's huge location. Theoretically, Telsa does not even have to create half the jobs for which it will receive subsidies.

Why does this matter? Isn't Tesla still responsible for bringing all those jobs (assuming they all come, which Richard Florida doubts) to Nevada? Yes, but it tells us that all the figures bandied about for indirect and induced jobs are just malarkey. The state claims that there will be a total of 22,000 jobs ultimately due to the project, but that depends on Tesla itself creating 6500 jobs. If the state is instead paying for some of the indirect jobs it claims would be due to the project, it is admitting that the Tesla base of direct jobs is smaller than 6000; therefore, 22,000 jobs would no longer be supported (assuming you buy into that methodology in the first place, which you shouldn't). These multipliers are easily manipulated, and we have just gotten an object lesson in how to do that.

Amazingly, the media is not paying much attention. As far as I can tell from searching the Web and the premium Nexis news service, the only place that has picked up LeRoy's statement is the Las Vegas Sun's blog. Really, this is no time for the media to be letting us down!

I encourage you to check the link to the legislation above. It is a sight to behold, and proof once again that bad economic deals are a dime a dozen, leaving the average taxpayer to pick up the slack.

Cross-posted at Angry Bear.

8 comments:

  1. Most corporations are soulless blood suckers. I hate to defend any of them. Tesla's been getting screwed by some of the other states trying to keep sales of the cars out. Although these are sporty cars, they are electric. Tesla is building fast-recharging infrastructure for electric cross-country travel. Yeah it would be great to generate the tax revenue now but find a way to collect after success is assured at the pump.

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    1. I'm all for electric cars, but for the country as a whole, it basically doesn't matter which state the batteries are built in -- there's only the tiniest bit of difference it can make; nothing to justify a $1.25 billion subsidy to be in Nevada rather than California or wherever.

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  2. Exactly how high do Corporate Profits have to get before we stop giving them tax breaks?!

    http://research.stlouisfed.org/fred2/series/CP/

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  3. The corporations are always playing one state against another for the best tax breaks and the most giveaways, all to the determent of the taxpayers, who get nothing in return but budget shortfalls and less services. The auto companies (and Boeing) moved to non-union Southern states. If they're not offshoring to low-wage countries, they're automating and robotizing. As with Tesla in Las Vegas, the same thing might happen with a new soccer stadium downtown. All this is part of the race to the bottom for the U.S.

    When America becomes the Next Emerging Market ...

    http://bud-meyers.blogspot.com/2014/08/when-america-becomes-next-emerging.html

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  4. In Richard Florida's article, he notes that: "Looking just at the direct 6,500 jobs ... the number jumps to more than $192,000 per job. And it the plant ends up creating only half that amount... the figure balloons to ... $385,000 per job."

    Does this assume that the entire $1.25B will be paid to Tesla even if only half of the targeted jobs (6,500? 6,000?... now including indirect jobs...) are created? So basically the job targets are meaningless from a clawback and disbursement perspective?

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    1. Good point. The deal provides a tax credit of $12,500 per job for up to 6000 jobs. To calculate the cost per job if Tesla only creates half (I think Prof. Florida is using 3250) the jobs, you would double the figure, then subtract $12,500. This is because the biggest pieces of the deal, the sales and property tax breaks, and the investment tax credit, are not based on the number of jobs created. So it's not quite double per job, but very close to it.

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    2. That makes sense.

      I suppose one could argue that the investment tax credits and sales tax credits are somewhat correlated with jobs. Presumably if the company is only hiring half of the planned staff, then production is likely lower, and they're not going to put in all of the investment originally planned, and so the value of the sales and investment tax credit is *presumably* lower. Likely not proportionally lower but somewhat lower.

      I'm doing some interesting work on estimating what I called the "expected grant value" (in contrast with what is typically reported in contracts and media which I call the "maximum grant value"). We can talk offline about this, Kenny, but I think this Tesla example would be an interesting way to look at "expected dollar per job" - basically a probability weighted average of likely scenarios.

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  5. Or maybe the jobs' multiplier is more accurate than critics claim? http://www.rgj.com/story/news/2014/09/20/fact-checker-tesla-jobs-indicator-high/15858081/

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