There was an interesting quote in the Las Vegas newspaper recently from Steve Hill, executive director of the Governor’s Office of Economic Development (GOED), the office that gives your money to others in hopes that they will create jobs, improve the economy and generate more tax revenues. Sounds a bit like playing roulette.
“Trying to predict whether a company is going to succeed or flourish, or even say what they’re going to do is … you’re going to be wrong at times, maybe as often as you’re right,” Hill was quoted as saying.
Or perhaps you’re going to be wrong every time?
Hill’s comment came in response to concerns raised by Nevada Treasurer Dan Schwartz about the ability of Chinese-backed company Faraday Future to actually finance a proposed $1 billion electric car factory in North Las Vegas.
In a special session lawmakers agreed — at the urging of Gov. Brian Sandoval — to dole out $215 million in tax abatements and credits to entice the company to build its factory in Nevada, though at the time it did not even have a prototype vehicle. The state also promised $120 million in infrastructure that includes water, rail and road improvements that may include widening I-15 and improving the freeway interchange near the Apex industrial park.
Schwartz, who had just returned from a trip to China, told the Los Angeles Business Journal that he had doubts about whether Faraday Future’s billionaire backer, Jia Yueting, could raise the money needed. Schwartz said the state is asking the company to put up $70 million to ensure Nevada’s infrastructure investment.
“I spoke with several members of the Chinese corporate and financial communities who are familiar with and know Leshi (Jia’s Chinese company) and Mr. Jia,” Schwartz told the Journal. “What they all agreed on is he doesn’t have the money. … If you look at the financials, (Jia) isn’t making any money. He certainly isn’t making any money to fund a billion-dollar car facility.”
Hill told the Journal Nevada taxpayers should be protected so long as Faraday puts up the $70 million to secure the state’s general obligation bonds to pay for infrastructure.
The Faraday deal was a replay for the special session in which lawmakers agreed with Sandoval’s plan to provide $1.3 billion in tax exemptions and credits to Tesla Motors if it invests $3.5 billion in a new battery factory east of Sparks. The state also agreed to spend $100 million to build a highway linking the site to U.S. Highway 50 in Lyon County.
So far Tesla is coming up short on its projections.
Tesla planned to have the first two phases of construction complete by the end of 2015 and have a third phase underway. Only one phase is complete. It had projected spending $1 billion by now but has spent only $400 million. It also said it would employ 700 workers by the end of 2015 and hire another 1,000 in 2016. Only 300 are employed.
Hill has been quoted in the press as saying the risk for taxpayers is minimal, though he admitted the state could have to pay for the promised Tesla infrastructure improvements.
Tesla has until 2024, to invest its promised $3.5 billion. The company is still losing money on every electric car it sells.
As if those gambles were not risky enough, just this past week the GOED doled out another $400,000 to rooftop solar panel installer SolarCity, even though the company nearly two months ago laid off 550 workers and stopped installation work in Nevada because the Public Utilities Commission changed the rate structure for solar customers, making such installations financially unfeasible.
This brings to $800,000 the amount of tax money handed to the company out of a promised $1.2 million. The company’s stock has fallen from more than $60 a share to less than $20. Both Tesla and SolarCity are helmed by billionaire Elon Musk.
Whenever lawmakers and the governor gamble with our tax money, we are the ones left holding the marker. Perhaps, they should just bet on black. The odds might be better. — TM