Tag Archives: Tesla

Taxing Tesla and Its Promises

Tesla

It isn’t quite a bait and switch, but it’s close enough to warrant further scrutiny.  Back on April 17th there was a news report about Tesla, it’s promises for wages, and the tax incentive package awarded if Tesla would build a really big factory in northern Nevada.  I’ve argued against tax incentive packages in general because: (1) Tax rates are not among the priorities given real consideration by corporations when determining factory locations.  (2) The actual criteria include (a) transportation and commercial infrastructure – can the materials be received and products shipped with ease and economy? (b) availability of local and accessible research and development assistance – are there research institutions in proximity which can enhance the research and development goals of the factory/corporation? (c) is there a well trained work force immediately available that can meet the corporation’s employment and staffing needs?

Tesla made the argument that Nevada was not first on the list in terms of the usual criteria, and the tax incentives were a “significant factor.”

“The application confirmed that the plant will employ 6,500 full-time employees but raised its average wage estimate to $26.16 per hour. Tesla expects to employ 300 workers during the first year of the project, growing that to 2,000 workers by the third year and 4,000 workers by the fifth year. Tesla plans to have 6,500 employees by its eighth year. Initial projections had the gigafactory being fully operational by 2017.” [RGJ]

Predictably, there are problems now – such as The Lawlessness of Averages.  Return with us now to elementary school arithmetic. There are three kinds of averages: the mean, mode, and median.  And, just to make certain we do well on the test – there’s also the Range.

Reports from October 2014 indicated Tesla’s personnel costs would include $22.79 for production associates and material handlers; $27.88 for technicians, and $41.83 for engineers and senior staff.  

One of the obvious problems with projections is that they are always based on figures said to be the ‘best available at the time.’  What else could they have been based upon?  Thus we had Tesla saying “$22.00, and the state saying $25.00” and no one offering hard and fast numbers on which to base the calculations.  Enter a new factor – contract negotiations elsewhere:

“Contract negotiations this year between the United Auto Workers and Detroit automakers are likely casting a spotlight on Tesla wages, said Kristin Dziczek, research director at the Center for Automotive Research. Tesla’s Fremont manufacturing operation, however, might be playing a bigger role in the wage issue, Dziczek said. The Free Press story noted, for example, that the starting pay at Tesla’s Fremont facility is $17 per hour.

“They don’t pay ($25 per hour) for their assembly wage,” Dziczek said. “Certainly, there are forces that would like to organize the Tesla assembly plant and would use a $25-an-hour wage in Nevada to rile up assembly workers.” [RGJ]

Yes, some people could become a bit riled if the wages for production workers (the most numerous in any operation) were as far apart as $25 and $17 per hour.  It’s not like we weren’t warned that the state was overestimating the economic benefit of the tax incentive package.

tesla chart

The Los Angeles Times offered the graphic shown above in September 2014.  There were some assumptions not necessarily in evidence:

“The projection, for instance, counts all future tax revenue, but makes no allowance for government spending to serve the influx of residents. It counts every dollar of workers’ salaries as if they were unemployed or lived out of state before Tesla arrived. And more than half of the estimated economic jolt relies on the assumption that the bulk of the factory’s supply chain will relocate to Nevada.” [LAT]

We can calculate dandy results for Nevada’s economy if we simply ignore some pesky details – such as: the cost to state and local governments to absorb the influx of new residents; or, we assume that everyone who applies for work at the battery plant was previously unemployed; or, we assume the suppliers will relocate to Nevada…

We might also have to factor in the costs associated with getting those suppliers to relocate?  Are we to offer “tax incentives” (read breaks) to suppliers who want to move to Nevada – on top of the tax breaks already given to the parent factory?

What we might want to consider before we go launching off on any new forays into ‘economic development’ and diversification is guidance which:

(1) Calls for a minimalist approach to employment prospects; one in which we do not assume that all applicants for positions are previously unemployed.

(2) Specifies that ‘average wages and salaries’ do not include senior executives and specialists.  Those higher salaries have a way of skewing the arithmetical averages.  Since Nevada has no personal income tax, we cannot expect revenue to stream straight in from wages and salaries; we have to assume that most of the wages will be spent within the state.

(3) Takes a situation as it is not as we would want it to be; that is, we do not assume the existence of an imaginary number of suppliers who would move at no cost to support a manufacturing facility.

(4) Takes into consideration the impact on local governments and their services in terms of an influx of population, and the need for physical infrastructure to support manufacturing.

It’s not necessarily a bad thing that the Tesla plant will be built in Nevada, but it is not helpful when the tax incentives applied to attract such manufacturing may end up costing the state and local governments more than they can bear.  And, certainly less than what Nevada citizens might have expected in return.

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Filed under Economy, Nevada economy, Taxation

Bits and Pieces: Tesla, Titus, Heller, and Amodei

Jig Saw Puzzle ** It’s a done deal. TESLA’s coming to Nevada, brought to us by $1.2 billion worth of ‘incentives.’ [RGJ]  Meanwhile, watch that multiplier! The state is assuming a 2.5 multiplier for revenue generation, i.e. for every one direct job with TESLA there will be 2.5 ancillary jobs created – that’s a big multiplier. [RGJ] See also [LVRJ]

**  Representative Dina Titus (D-NV1) asked the VA to move its regional office from Reno to Las Vegas. [LVRJ]  Much as it might pain a northern Nevadan to say so, but the Las Vegas metropolitan area does have more of the 246,000 Nevada veterans than those living in the north, [VA] and the northern office hasn’t covered itself in glory. [LVRJ]  I’d not want to hang by my hair waiting for a definitive answer from the new VA leadership.

** From the Department of No Surprises:  Senator Dean Heller (R-American Bankers Association) voted against the cloture motion to consider S.J. Res. 19, a bill to propose a Constitutional amendment to allow the Congress to enact meaningful campaign finance reform.  Senator Heller was one of 42 (all Republican) votes to continue to filibuster any attempt to overturn the decision in Citizens United.  [roll call 261]

Representative Mark Amodei (R-NV2) voted in favor of H.R. 3522, a bill which would allow insurance corporations to offer small businesses group  insurance plans which DO NOT meet the standards for comprehensive health insurance coverage for their employees under the terms of the ACA.  [RC 495]  One organization summed up the problem with the bill:

“This legislation would allow health insurers to continue offering coverage outside of the insurance marketplaces established by the health law even if those plans do not comply with its coverage requirements. In addition, the inferior plans that would be allowed to continue under Representative Cassidy’s bill discriminate against people with pre-existing conditions, force women to pay more than men for the same coverage and impose annual caps on the amount of care received by enrollees.” [NCPSSM]  (emphasis added)

Those three issues, pre-existing condition discrimination, gender discrimination, and junk policies with capped coverage are some of the main reasons the ACA was necessary in the first place.

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Filed under Amodei, Health Care, health insurance, Heller, Nevada economy, Nevada legislature, Nevada politics, nevada taxation, Titus

The Tesla Tango

Tesla Here’s the paragraph from PLAN’s letter to the Nevada state legislature which should capture attention:

If we are to use our state’s threadbare tax coffers to subsidize this multi-billion dollar corporation, we urge you, in the strongest possible terms, to hold Tesla accountable for creating family-wage jobs with Nevadans first in line, and other benefits for our state. Specifically, you should attach job quality standards regarding wages and benefits, indexed to inflation over the 20-year deal, to the Tesla tax breaks. You should also mandate customized training and first-source hiring procedures to maximize hiring opportunities for Nevadans. And to deter outsourcing or the use of temp agencies, all of Tesla’s tax breaks (not just the refundable credits) should require direct employment and be pegged to employment levels (so that property and sales tax exemptions would be scaled back if Tesla does not reach and maintain 6,500 employees). (emphasis added)

If Nevada is to experience the benefits from tax incentives offered to TESLA, then it needs to have the wage levels secured to a level which would allow for increased demand for goods and services.  In a state without an income tax, the state revenues have to filter through the sales and business taxes.  For that to happen there has to be an increased level of consumer spending.

‘Minimum wage jobs, temporary employment, outsourced temp employment will simply shave potential demand from the equation.  The current “half the loaf” proposal is problematic:

“The bill requires half of the construction workers and half of the permanent factory workers be from Nevada. Tesla will be required to keep such things as driver’s licenses and car registrations of its employees on file to prove the quota has been met. However, if Tesla can demonstrate it can’t find enough qualified employees in Nevada, it can ask the economic development director for a waiver.” [RGJ]

Why 50%? Why not 67%.  Or are we to be pleased that we’re getting the 50%?  The type of jobs included is another issue for stakeholders.  TESLA will no doubt import its own upper level management team for its plant, this is standard practice and will bring in incomes which could drive local demand for goods and services.  It’s the intermediate positions about which Nevadans might want to be concerned.   And, there’s this:

“Tesla will get a $12,500 transferable tax credit for up to 6,000 qualified employees, who work at least 30 hours a week and make an average of $22 an hour.”  [RGJ]

30 hours?  The last time we looked, 30 hours is a part time job, and which average are we talking about?  Is that the median wage? (half the paychecks above and half below the $22 mark) Or, is it an arithmetical mean, in which the salaries of the top employees are averaged in with the lowest paid workers?  In other words, if we use the arithmetical mean to get the average between a person paid $10 per hour with the income of the Sultan of Brunei wouldn’t that yield an artificially higher average wage?  Or, are we using the mode, the most common wage paid by the company? If there are more people earning $22 per hour than any other group – except there are profound disparities between the top and bottom – then would this be a clear picture of the salary and wage distribution of the firm?

No doubt there will be more questions as the Nevada legislature continues to debate the bill to offer TESLA tax incentives to locate its plant in the state. Stay tuned.

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Filed under Nevada, Nevada economy, Nevada legislature, Nevada politics