LAS VEGAS — Nevada’s new Tesla deal makes “utterly no sense,” says NYU Global Research Professor Richard Florida, writing yesterday on The Atlantic’s CityLab website.
Florida, director of the Martin Prosperity Institute at the University of Toronto and a senior editor at The Atlantic, questions both the economic impact of the new Tesla venture in Nevada and also the wisdom of Gov. Brian Sandoval’s call for a special session to provide Tesla with $1.3 billion in tax breaks and transferable tax credits.
Florida’s article is titled “Reno Won Tesla's Gigafactory. Was It Worth It?” In it, the professor argues that government officials have dramatically overstated the economic impact of Tesla in Nevada. He cites, among others, Martin Kenney, a University of California, Davis, professor and expert on high-tech factories, who predicts the Tesla factory would at most employ 3,000.
Florida than looks at the “multiplier effect” that government officials trot out to transform an estimated 6,500 jobs at the Tesla factory into more than 22,000 jobs in the economy. Florida writes:
The state of Nevada says the factory will ultimately create 22,000 jobs, after the multiplier effect of the Gigafactory is taken into account. That's a multiplier of more than three times the number of direct jobs. A smaller multiplier — say around 1.5 — is generally thought to be more in line with something like a high-tech battery plant…
Combining 3,000 jobs at the factory with a multiplier of 1.5 means the Tesla factory would produce, directly and indirectly, only 4,500 jobs. Presuming state lawmakers approve the proposed $1.3 billion in tax abatements and transferable tax credits, each direct job would be costing taxpayers over $365,000 in lost tax revenue. Even if indirect jobs are included in the calculation, each job still would cost Nevada over $240,000.
Florida argues that Tesla is unlikely to create an industry hub in Nevada, noting that trade-offs always accompany economic growth. He describes a scenario where Tesla, backed by government-guaranteed advantages, would kill off thousands of currently existing high-paying jobs:
The spillovers are limited, Kenney notes, by the simple fact that a battery plant, however advanced its technology, is much more self-contained than an automotive assembly plant, which forms the hub of an extensive supply chain. “There is little high-tech benefit in terms of things like research,” Kenney writes in an email. And since there is no real supply chain for the plant in the region, it is likely that a lot of money will leak out of Reno. Thomas notes that if the plant is ultimately successful, and electric cars take over our roadways, there will be job losses at traditional auto companies, where conventional gasoline-powered engines are built. “Therefore,” he writes in an email, “the net benefit to the country will be less than 6,500 jobs.” Those lost engine plant jobs would almost certainly be higher paying ones than the $22 an hour jobs the Gigafactory will create.
In view of this article, Andy Matthews, NPRI’s president, released the following comments:
Richard Florida’s article raises many important questions regarding the economic impact of $1.3 billion given to Tesla in targeted tax breaks. This new analysis also describes a scenario where Tesla’s factory produces just 4,500 jobs directly and indirectly — not 22,000 as GOED claims. In that scenario, taxpayers would be handing out over $240,000 for each job, hardly a good deal for the state.
Lawmakers should not just immediately accept the economic impact numbers put out by the Governor’s Office of Economic Development, Instead, they should conduct a thorough examination of both the best- and worst-case scenarios. Credible independent economic analysis needs to be done on this deal before lawmakers vote on any tax breaks for Tesla.
Life is full of tradeoffs, and taxpayers and lawmakers need to know what the opportunity costs are in this situation. That’s not something lawmakers can accomplish in just a one- or three-day Special Session — especially for targeted tax breaks of this magnitude.
If lawmakers wanted to give Nevada’s entire economy a boost, they should lower Nevada’s sales tax across the board.