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Lessons learned from Tesla’s ‘OK’ state incentive package

More than a year ago, a reader wrote in asking about the competition for Tesla’s battery production facility (referred to by the electric-car company as a “gigafactory”) and why there wasn’t more conversation about Washington as a potential site.

The finalists in that competition were Nevada, Arizona, New Mexico and Texas, with the Silver State (that would be Nevada, for those of you who didn’t grow up memorizing state nicknames) winning. As the reader noted, Washington didn’t even figure in the public controversy.

Now we know why.

A lengthy story in the Dec. 1 issue of Fortune (sorry, just catching up on a backlog of reading material) details the multistate competition for an economic development prize valued at $5 billion and 6,500 direct jobs. It’s still a timely subject, since the issue of economic-incentives is on the agenda in the current legislative session in Olympia with a pair of labor-backed bills that would tie aerospace tax breaks and exemptions to job and pay levels. It’ll continue to be an issue in Washington as state and local economic-development agencies continue to compete for new projects — especially when the next huge aerospace facility is up for bidding.

And it’s timely for what it tells us about the going price of landing a major project is these days. Given what Tesla asked for, states were willing to give and Tesla got, it won’t be just the high-profile megaprojects for which the price tag is inflated; those promoting more modest projects will be expecting more too.

Does Washington want to continue playing? Can it afford to even if it does?

It turns out that Washington was on Tesla’s early list of candidate states. Fortune reports the state fell off in the early going; while Washington’s power rates were attractive, Tesla didn’t think the state was offering big enough tax abatements, the magazine quotes a Washington business recruiter as saying. California, by contrast, got the ax even though Tesla’s assembly plant is there because environmental review and permitting laws jeopardized a tight deadline for building and operating the plant.

The article details considerable to-and-fro frenetic activity as the remaining states outdid one another, with Tesla encouraging the bidding.

Nevada won. What did it pay to win? Free land — 980 acres worth. A payment to the landowner for a road right-of-way. A new road to the site, which also opens up development sites elsewhere in the huge industrial tract, to the tune of $70 million. Tax abatements on equipment and construction-material sales taxes, property taxes and payroll taxes, estimated at $1.1 billion (tied to specific targets Tesla has to meet). Electricity discounts. Permission for Tesla to sell its cars directly to the public instead of through dealerships. Transferable tax credits that Tesla can sell (the company had wanted $500 million in cash, but that was too much even for Nevada).

Boeing and every other sponsor of a large development project might blush at such an audacious menu of goodies. Or they might be green with envy. Or they might be stroking their chins in thought, picking up a pencil and musing, “If Tesla can get that…”

It was Tesla CEO Elon Musk who made the connection with Boeing, in a quarterly earnings conference call in November. According to a transcript from thestreet.com, Musk took a swipe at those who had criticized the size and wisdom of the incentives package.

“I was a little bothered about some of the reports on the Gigafactory,” he said. “There’s like a lot of press about $1.2 billion tax incentive package from Nevada that Tesla got and is this like really a good idea for Nevada.” (Random use of the word “like” is from the transcript.)

“It is like a super good idea for Nevada. … It kind of bugs me that like I thought we got an OK incentive package, given the scale of the thing, but not a super huge one.

“When you consider that we’re talking about it in terms of the output of this factory, something on the order of several billion dollars per year for 20 years and growing. The Nevada tax incentive, over the period of time that it applies, is maybe a few percent of that and pales in comparison that, say, Boeing got for keeping one model of the 777 in Washington state.”

So there you go, Washington taxpayers, lawmakers and economic development officials. If what Tesla got was just “OK,” imagine what the successor plane to the 737 will cost you. We’ll reconvene here shortly to discuss the potential return from that sort of expenditure vs. what we won’t have if we don’t make it, and what the alternatives are. And if we even have a public checkbook large enough to impress a Tesla or a Boeing.

Bill Virgin is editor and publisher of Washington Manufacturing Alert and Pacific Northwest Rail news. He can be reached at bill.virgin@yahoo.com.

 

 

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