After state bidding war, Tesla picks Nevada for new factory site

According to the American-Statesmen, Tesla has picked Nevada as the site for its new $5 billion “gigafactory” battery plant, which will reportedly create 6,500 direct jobs. Tesla's siting search set off a bidding war among a number of states to offer the most enticing location package, including big bucks for tax and financial incentives. According to the Las Vegas Review JournalNevada will offer Tesla state and local tax breaks and credits worth around $1.3 billion. That includes an elimination of all state and local sales and use taxes until June 2034 and a 100 percent abatement of the real property tax, the personal property tax and the modified business tax until June 2024. Nevada does not have a corporate income tax.

Although Nevada's incentive package is substantial, Tesla's CEO Elan Musk says that isn't the only reason the company chose the state. “This was not the biggest incentive package, it wasn’t just about the incentives,” Musk said at a Sept. 4 press conference. “What the people of Nevada have created is a state where you can be very agile, where you can move quickly and get things done.” Texas and California were also among those states competing for the factory. A Central Texas economic development official told the American-Statesmen that Texas offered the company an incentive package worth around $800 million to $900 million while California legislators couldn't agree on an incentive package in time, according to the Huffington Post.  

At the same press conferenceGov. Brian Sandoval announced the deal had been inked, pending legislative review. The state legislature is expected to convene soon for a special session to approve the package. Although the deal has been largely applauded by many in both the state's executive and legislative branches (Gov. Sandoval said it will "change Nevada forever") it is also under fire from both ends of the political spectrum.

"Why would lawmakers want to take from poor and middle-class families to subsidize a billionaire making cars for millionaires?" Geoffrey Lawrence from the right-leaning Nevada Policy Research Institute told USA Today. Bob Fulkerson from the left-leaning Progressive Leadership Alliance of Nevada echoed Lawrence's sentiments and additionally criticized the incentive process: “The lack of transparency is disturbing,” he told USA Today. “Why is it so easy for them to get called into a special session to give $500 million to a corporation? Why isn't it that easy to raise taxes to fund education?”

CSG's Take on Bidding Wars

The increase in frequency and size of state bidding wars for business siting led to the creation of a Working Group in 2012 and the publication of a CSG report last year. In that report, group members - including legislators, economic development practitioners and private sector members from across the country and political spectrum - openly and candidly discussed their concerns and observations about the use of business incentives in their states. Those observations and recommendations included: 

  • The cost of incentives—state leaders are in the dark: State policymakers don’t have an accurate accounting of the most basic of information about their state’s incentive programs—the cost.
  • Solid evaluation of existing programs is lacking: In addition to comprehensive cost estimates, reliable evaluations of the performance of existing programs are not available to policymakers, which are needed to make informed, data driven decisions.
  • Missed opportunities: While a well-designed and well evaluated incentive program may be effective, relying on incentives as a primary economic development strategy could mean alternative methods are ignored.
  • Bidding wars: Is there a better way? Given the potentially negative effects of bidding wars, finding alternatives should be a goal of state leaders.
  • Increasing inter-branch communication: Regular conversations across the legislative and executive branches are needed to ensure that practitioners have the tools they need to effectively implement policies and so that legislators maintain real-time insight as to how their policies are functioning.
  • Public Transparency: Just as policymakers need information about business incentives to make informed decisions, the public needs information about how its government is functioning to remain engaged in the democratic process.