NPRI: Tesla subsidies would be unconstitutional

LAS VEGAS — Responding to today’s report that Gov. Brian Sandoval is preparing to call a special session and offer Tesla huge subsidies and tax abatements for a private battery factory in Northern Nevada, Geoffrey Lawrence, NPRI’s director of research and legislative affairs, released the following comments:

News that Nevada’s current governor will ask Nevada lawmakers to approve a corporate-gift package for Tesla should concern all Nevada taxpayers and entrepreneurs alike. It’s especially alarming when the proposed giveaway is so large that even the governor acknowledges that it outstrips the existing authority to subsidize private businesses granted to him by the 2011 legislature. Even that generous authority oversteps a strict constitutional ban on corporate gifts.

It’s exciting when any company chooses to do business in Nevada, so it’s puzzling why the governor would go to such extraordinary lengths to promote the business interests of one wealthy investor, Elon Musk. Governor Sandoval has already channeled more than $1 million to another of Musk’s firms, SolarCity, and now seeks greater authority to bestow more millions on the Californian. Why should Elon Musk’s firms enjoy advantages that Nevada’s native entrepreneurs don’t receive and for which they must ultimately foot the bill?

Very few Nevada taxpayers will be able to afford the high-end luxury cars manufactured by Tesla Motors. According to automotive reviews, a 2014 Tesla Model S has an MSRP ranging between $69,900 and $93,400. In essence, even low- and middle-income Nevadans would be asked to subsidize the spending habits of wealthy consumers.

Why would lawmakers want to take from poor and middle-class families to subsidize a billionaire making cars for millionaires?

While advocates will predictably claim a public benefit for the subsidy in the form of greater employment opportunities, Nevadans should be careful to consider the trade-offs involved. Subsidies allow firms to create negative value by consuming more in labor and other productive inputs than can be justified by the value of the final product. Nevadans can realize far greater benefit by leaving those productive resources available to entrepreneurs whose products compete on their own merits.

Lawrence added that aside from the many economic and principled reasons to avoid state subsidies, the Nevada Constitution already prohibits taxpayer subsidies to private companies.

“While the specifics of what Governor Sandoval seeks on Musk’s behalf have yet to be made clear, the state constitution specifically prohibits politicians from handing tax dollars to private companies,” he said.  

Specifically, he noted, Article 8, Section 9 of the Nevada Constitution states:

The State shall not donate or loan money, or its credit, subscribe to or be, interested in the Stock of any company, association, or corporation, except corporations formed for educational or charitable purposes.

Lawrence observed that NPRI’s Center for Justice and Constitutional Litigation has already sued the Governor’s Office of Economic Development for violating the constitution’s gift ban to prevent GOED’s gift of over $1 million to SolarCity.

CJCL brought the lawsuit on behalf of Mike Little, a native Nevada entrepreneur who operates his own renewable energy enterprise and who has seen his own tax dollars transferred to Musk, his competitor, through Sandoval’s office.

Litigation in that case is ongoing.

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