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Nevada Bets $1.3 Billion on Tesla to Push Beyond Gambling

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IMAGE: Elon Musk, Tesla Chief Executive Officer »


Nevada casinos, the state’s largest industry, took in $11.2 billion in the year that ended in July. Now lawmakers must decide whether to wager as much as $1.3 billion on a project that could help wean the state from its reliance on slot machines and ROULETTE WHEELS.

Lawmakers began meeting in a special session yesterday to consider tax write-offs for Tesla Motors Inc. (TSLA) to build the world’s largest lithium-ion battery plant near Reno. The incentives may be worth $700 million to $1.3 billion over 20 years -- depending on how much the electric-car maker spends on the so-called gigafactory, according to state documents.

Manufacturing accounted for 4.1 percent of Nevada’s total output in 2013, compared with 12.5 percent of the U.S. gross domestic product. With 6,500 jobs, Tesla would bring $101.6 billion in economic activity to Nevada over 20 years, the state demographer said in a report. That compares with a gross state product of $132 billion last year.

“This changes the perception of Nevada from just being tourism and real estate,” said Robert Lang, who teaches urban affairs at the University of Nevada at Las Vegas. “Nevada has been making a disciplined effort to pursue this plant.”

The effort culminated on the steps of the statehouse Sept. 4, when Governor Brian Sandoval and Tesla Chief Executive Officer Elon Musk said they’d struck a deal to bring the 5 million-square-foot (465,000-square-meter) factory to a business park east of Reno.

Taxes, Credits

In exchange, the state would write off property and business taxes for 10 years and sales taxes for 20 years. Tesla would also receive tax credits of $12,500 per permanent, full-time job, and of 5 percent for the first $1 billion in spending on the plant and 2.8 percent for the next $2.5 billion in spending.

California, New Mexico, Arizona and Texas also competed for the project, for which Tesla expects to spend $10 billion within 15 years.

Nevada would partially offset the cost of the tax breaks by reducing incentives for Hollywood film and TV production to $10 million from $80 million, and by eliminating $125 million in breaks for people who work at home.

Nevada’s legislature began considering a package of bills related to Tesla yesterday, including the tax incentives and a measure to allow the automaker to sell directly to buyers, rather than through dealerships.

Lawmakers heard testimony for and against the tax breaks and did not vote on the bills yesterday. The session was scheduled to continue today.

The legislature’s approval is needed to formalize the agreement. In making the announcement, Sandoval, a Republican seeking a second term, was accompanied by Democratic leaders of the state Assembly and Senate.

Bipartisan Support

Steve Hill, director of Sandoval’s economic-development office, said he expects the deal to pass with bipartisan support. Assembly Speaker Marilyn Kirkpatrick, a NorthLas Vegas Democrat, also expressed optimism.

Nevada’s proposed tax breaks for Palo Alto, California-based Tesla rank as the 12th-largest such deal in the U.S., according to the Washington-based nonprofit Good Jobs First, which is critical of corporate tax benefits. Washington state offered the largest package last year to Boeing Co. (BA) -- valued at $8.7 billion -- to keep work on the new 777X jetliner in Seattle.

Other companies may demand incentives to move to Nevada, Hill said.

“We would be open to that,” he said in an interview. “We’ve been on a push to diversify our economy in conjunction with gambling and mining.”

Gambling and hospitality accounted for 17 percent of Nevada’s gross state product last year, while mining accounted for 6 percent, according to the Bureau of Economic Analysis.

Even with Nevada forfeiting Tesla’s tax revenue, the plant is a credit positive for the state, according to Moody’s Investors Service, which rates its debt Aa2, third-highest.

The state and cities and counties in the Reno area, near the plant, will benefit from its construction and spending by new employees, Moody’s said Sept. 8. Sales taxes are Nevada’s largest revenue source, accounting for 28 percent, Moody’s said.

Nevada had $1.8 billion in outstanding general-obligation debt as of June 30, 2013, according to itsannual fiscal report.

In metropolitan Las Vegas, gambling revenue and visitor volume were up in June from a year earlier.

It was the reverse in the Reno area, according to a University of Nevada at Las Vegas economic report. Gambling in Reno has been on the decline because of competition from American Indian casinos in Northern California, said Stephen Brown, a UNLV economist.

Tesla rose 2.6 percent to $281.10 yesterday in New York and has gained 87 percent this year.

Article Credit: Bloomberg

Updated 5 Years ago

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Tags:     Tesla Motors Inc     Nevada     Robert Lang     Governor Brian Sandoval     Elon Musk     Marilyn Kirkpatrick     California     New Mexico     Arizona     Texas