(Thomas Mitchell) – Here we go again. The governor and Nevada’s legislators are poised to shred the state constitution, ignore proven economics and prostitute themselves to the latest corporate pimp promising big money and jobs for everyone.
According to an account by the Las Vegas newspaper, Gov. Brian Sandoval today will announce a deal with Faraday Future — which claims it will someday be an electric car manufacturer though today it is little more than a gleam in the eye of a rich Chinese businessman — to build a $1 billion auto factory in Clark County in exchange for handouts from the state. The governor is expected to call a special session for Dec. 16.
The deal is expected to be similar to the one provided this past year to Tesla Motors for a $5 billion battery plant near Sparks.
The newspaper quoted a letter to state lawmakers from Faraday’s Yueting Jia said: “We hope to bring our $1 billion investment to North Las Vegas and open our first manufacturing facility there, creating 4,500 jobs for the state of Nevada.”
Assemblywoman Shelly Shelton posted what will likely be one of the few negative remarks from lawmakers. She predicted “the Legislature will likely fold like a cheap suit to the whims of the Governor and will, once again, violate the constitution, their oaths, and the will of Nevadans by adding yet another welfare company to the state rolls.”
Shelton noted that every existing company in Nevada is being expected to cover the $1.5 billion in higher taxes approved this year by the Legislature but somehow there is enough money to lure a new company, one that would be a competitor to one lured a year ago. Nevada is nothing if not promiscuous.
“We were told we all had to ‘sacrifice’. …” she writes. “Yet, somehow, they found enough left-over funds to build infrastructure and abate taxes for this new business with no track record, no roots here in Nevada, and no real reason to stay once they have sucked us dry.”
If the Faraday deal is anything like the Tesla deal it could be costly. The Tesla deal would allow the battery manufacturing facility to operate tax-free for a decade if it invests $3.5 billion here, eventually amounting to tax exemptions and credits totaling $1.3 billion. The state also agreed to spend $100 million to build a highway linking the site to U.S. Highway 50 in Lyon County.
I noted when the Tesla deal came up that a 2012 New York Times article about tax incentives given to companies to relocate called such incentives a zero sum game.
General Motors had gotten lucrative tax breaks from states and communities for years. But the company closed 50 facilities and walked away, only to be bailed out by federal tax dollars.
Richard Florida, director of the Martin Prosperity Institute at the University of Toronto and Global Research Professor at NYU, wrote of the Tesla incentive package, “But no matter how you slice it, the deal makes utterly no sense. It is just one more example of a government giveaway for a factory that would have been built anyway. As I’ve argued before, there is virtually no association between economic development incentives and any measure of economic performance. And it’s not just me. I spoke with several experts in economic development incentives and advanced manufacturing and the consensus was the same: this deal was overblown and unnecessary.”
Florida calculated that when a realistic number of actual Tesla jobs to be created is used that the tax incentives would amount to $385,000 per job.
In litigation involving another state handout to a business competing with existing business, Dr. Randall G. Holcombe, DeVoe Moore Professor of Economics at Florida State University, said in written testimony, “Government subsidies to businesses are a drain on the economy, and do not provide any net benefit to the state or its citizens. If the business would be profitable without the subsidy, there is no public purpose served by paying it. If the business would not be profitable without the subsidy, then the subsidy supports a business that takes more out of the economy than it puts back in.”
The Nevada Constitution takes a very principled stance on taxation, dictating, “The Legislature shall provide by law for a uniform and equal rate of assessment and taxation …”
But in 1982 on the heels of the fuel crisis of the 1970s the Constitution was amended to add a loophole: “The Legislature may exempt by law property used for municipal, educational, literary, scientific or other charitable purposes, or to encourage the conservation of energy or the substitution of other sources for fossil sources of energy.” Electric cars and their batteries might fit this loophole.
But the Constitution also says, “In enacting an exemption from any ad valorem tax on property or excise tax on the sale, storage, use or consumption of tangible personal property sold at retail, the Legislature shall: Ensure that the requirements for claiming the exemption are as similar as practicable for similar classes of taxpayers …”
It looks like Faraday is climbing up the ladder Tesla put down. Who is in the wings?
But if the Nevada Constitution has a loophole, the U.S. Constitution does not.
The 14th Amendment to the U.S. Constitution that says neither the United States nor any state may “deny to any person within its jurisdiction the equal protection of the laws.”
Unequal taxation is hardly “equal protection.”
Nevada was built on bad math and even our lawmakers can’t figure out the house always wins in the end.
(Mr. Mitchell is a retired editor for the Las Vegas Review-Journal. He blogs on journalism, writing, politics and whatever amuses him at: https://4thst8.wordpress.com)