Tesla shows how to bargain in Nevada
Forgive Richard Florida. He’s not from around here.
Sure, Florida is a foremost authority on urban planning and has a keen understanding of the interface between government and business. He’s a best-selling author, the director of the Martin Prosperity Institute at the University of Toronto, a global research professor at New York University, a senior editor at the Atlantic, and even the co-founder of the excellent CityLab project.
But when he penned a scathing commentary this week in the Los Angeles Times about Nevada’s remarkable deal with Tesla Motors to bring a gigantic lithium battery factory to Storey County under the headline “Want to deplete your tax base? Give ‘job creators’ what they want,” he showed that he just doesn’t appreciate the way business is done in the Silver State.
Like so many other critics, Florida observed that the Tesla deal represented an enormous giveaway by Gov. Brian Sandoval, R-No Opponent, at a time the recession-rattled state can ill afford such a lay-down of largesse. Nevada stands to hand approximately $1.3 billion in tax abatements, credits and free infrastructure to Elon Musk’s ritzy electric car company in exchange for what is projected to be a factory that employs 6,500 workers.
There’s a word for that kind of politics, Florida seems to be saying. “Rube.”
Florida writes: “As the company described it to its shareholders, ‘processed ore from mines will enter by rail car on one side, and finished battery packs will exit on the other.’ But then it held out the possibility that it might break ground at other sites in California, Arizona, New Mexico and Texas too — and that the factory’s ultimate location would depend on what kind of ‘relevant incentives’ states put on the table. The ante, Tesla said, would start at $500 million.”
Nevada saw its $500 million and raised it almost $1 billion more.
Florida notes what ought to be obvious: namely, that location plays a more important role in a responsible company’s decision-making process than tax incentives.
“The reality is that incentives play little if any role in companies’ location decisions, which are based on more fundamental factors like labor costs, the quality of the workforce, proximity to markets and access to suppliers,” he writes. “But companies have learned to game the process. Once they have decided on the best location, some even create a fictitious competition to extract whatever incentives they can from overzealous governments.”
Which sure appears to be what Tesla did on its way to making a bank of Nevada.
Florida’s criticism has been echoed throughout most of the press in Nevada and in such national newspapers as The Wall Street Journal, The New York Times and elsewhere in the Los Angeles Times. Sandoval and state Economic Development Director Steve Hill have been portrayed, at best, as bumpkins at Musk’s personal poker game.
But I say this Florida guy and all those economists who can add and subtract just don’t get it. They don’t understand Nevada’s history. For decades our politicians have made big names for themselves by playing courtesan to big business.
Mining and gaming are the easiest examples. There’s the mining industry, which has underpaid its way here since statehood and even has protectionist language written into the state constitution. And there’s the gaming industry, a national pariah that found a safe haven in Nevada a generation ago and has marketed itself into nearly every state in the Union. In Nevada, the casino bosses pay far less by percentage in taxes than they everywhere else.
In that light, the Tesla Motors deal isn’t outrageous at all.
In fact, it’s about average — and in keeping with a long tradition.
John L. Smith’s column appears Sunday, Tuesday, Wednesday, Thursday and Friday. E-mail him at jsmith@reviewjournal.com or call (702) 383-0295.
