A group of Democrat legislators posted an open letter on incentives for the proposed Tesla “gigafactory.” In their letter, the legislators laid out some concerns and ideas related to incentives that may or may not be provided by the State of New Mexico to bring the factory here. The letter mentioned Rio Grande Foundation and our previously stated position on the proposed incentives which we’ve discussed here and here.
First, it is great to see a group of people with whom we generally don’t agree on economic development issues citing us as an authority on important economic development issues. Also, it is worth noting that “corporate welfare” and business subsidies are an area in which the left and right can agree, so, there are many good points made in the letter, however, there are also several points made in the letter that need to be addressed.
1) No unlimited subsidies for Tesla: It’s hard to disagree with this one although it is worth clarifying that tax exemptions are much different than outright subsidies. Schott Solar received actual payments totaling $16 million from New Mexico taxpayers. The film industry receives outright payments (made by other New Mexico taxpayers) of 25 or even 30 cents on the dollar and these folks have been some of the biggest cheerleaders for this policy (despite opposition from prominent left-wing economists).
In summary, RGF has supported tax breaks as an economic development tool for Tesla, but we don’t support the “investment” of taxpayer dollars.
2) Leverage the universities and Labs: Another worthwhile albeit somewhat obvious point. To the extent that research going on at New Mexico’s Labs can be of use to Tesla and that locating in the same geographical area as those institutions can be helpful to Tesla, this point makes eminent sense.
3) Disclosure of Costs and Benefits: Another worthy point. New Mexico needs to do a better job on behalf of its policymakers of understanding the real-world economic impact of tax incentives and subsidies. Getting objective research is not always easy, but it is worth pursuing.
4) Money-back guarantees (strong clawbacks): Sounds good in theory, but not realistic. Despite all of the hype, Tesla is an extremely speculative business. There’s no way they’ll put themselves on the hook for reimbursements to the State in the case of a failure. Negotiating aggressive clawbacks will likely kill a deal. New Mexico policymakers need to structure incentives in such a way as to not be “out” millions of dollars if Tesla were to fail.
5) Job quality standards: I have no doubt that a vast majority of Tesla employees (even on the assembly line and in the absence of unions) will earn very good salaries and will thus not be a burden on our Medicaid and social welfare systems. The bigger issue is the Democrats’ demands for in-state hiring quotas. This is another deal-killer. Tesla is going to want the best workers possible in its plant and isn’t going to want to deal with unnecessary and artificial in-state hiring rules.
Policymakers should know that if Tesla moves here, they will hire lots of New Mexicans to work in its facility. To hire 6,500 workers, there is no doubt that some of those people will have to come from elsewhere. The good news is that whether Tesla ever pays a dime in corporate taxes, those well-paid workers will pay taxes and generate economic activity in our economy.
One additional point not mentioned in the Democrats’ piece, but mentioned elsewhere is that New Mexico has plenty of water. Nearly 80% is used for agriculture, much of which is not economically-viable. Some of the water rights for flooding fields to grow hay, alfalfa, and corn in places where such crops are not a wise use of water can and must be eliminated whether Tesla comes here or not.