B&G Report: Why Nevada's Tesla Tax Incentive Is So Risky
Plus more public-sector management news you need to know.
There's a lot of excitement in Nevada, thanks to the decision by electric automaker Tesla Motors to build a $5 billion factory there instead of four other possible states. Tesla said that it will bring some 6,500 new jobs to the state, a pretty impressive number.
But there's no such thing as a free lunch or, in this case, a free launch. The state is spending an enormous amount on subsidies to help lure Tesla to its borders -- around a half a billion dollars, according to press reports. That's many times bigger than the state's biggest previous deal $89 million for Apple. Meanwhile, a growing body of evidence has shed doubt on the value of these giveaways to draw business.
Under New Jersey Gov. Chris Christie, the state offered nearly $2 billion in tax incentives to businesses. But New Jersey's job growth still trails that of other states. The 2009 Promoting Employment Across Kansas (PEAK) state program, designed to spur job creation by encouraging companies to relocate or expand to Kansas, with tax breaks, resulted in $28 million in lost tax revenues and no "statistical link between PEAK benefits and job creation," according to a paper assessing the program published earlier this year.
That might be because policymakers don't really measure effectiveness very well. According to the Pew Charitable Trusts, "lawmakers often approve or continue incentives without knowing their potential cost or whether they are working. State leaders need better information to avoid unexpected budget challenges, identify effective incentives, and reform or end programs that are not meeting expectations."
Greg LeRoy, executive director of Good Jobs First, offers up a number of questions that lawmakers should ask in Nevada. Among them: "Was the five-state auction all just a charade to extract bigger subsidies from the state Tesla had already chosen?" (Tesla broke ground in an industrial park in Reno in July.)
As LeRoy told us, this "looks like another example of a state overspending on a trophy deal ... then Nevada puts so many eggs in one basket, where does that leave education funding? Small business assistance? Infrastructure? This deal is inherently risky and it will shift the burden for higher taxes onto everyone not named Tesla."
In August, we wrote a column that focused on the difficulties many cities and states have keeping track of their inventories. We provided a few examples. But we just came across one that's a doozy. Consider this recent audit of Atlanta's Public Works Department: "the Office of Transportation's recorded inventory is inaccurate ... In a sample of 68 randomly selected items, the quantities on hand differed from the amounts recorded in inventory for all but one item. Staff was unable to locate about one-third of the items we selected."
"If you do not know how to ask the right question, you discover nothing." -- W. Edwards Deming
What do you think about pay caps for individual positions? In and of itself, this doesn't seem like a bad idea. We'll reveal a personal bias when we suggest that some state university sports coach's pay levels should have been limited years ago. But the salary cap can create some perplexing consequences.
According to an article in the Jersey Journal, Harrison, N.J., recently determined that its school superintendent should not make more than $157,500 a year. The past superintendent, James Doran, was grandfathered in at his old salary, but under his new contract he'd have to take a $72,500 pay cut. Instead, he changed jobs and became the district's director of personnel, where he could get a significantly better deal.
This kind of pay cap may well save money for school districts, but can also risk pushing out people with extensive professional wisdom garnered over years in a job. When putting in pay caps, why not just grandfather in all current employees until retirement and then downgrade the pay. Meanwhile, a bill that would stop superintendent salary caps is now wending its way through the state legislature.
There's a troublesome tendency in the coverage of state management issues to assume that any trend line will continue indefinitely. For example, when the stock market booms, states dependent on capital gains taxes often overestimate their future revenues on the premise that a bull market isn't going to turn into a bear market anytime soon.
Anyone who has looked at a historic chart of the Dow Jones 500 knows that's not true.
The phenomenon can work in the opposite direction. The legislature of Washington state almost shut down the state's prepaid college tuition plan. Legislators were concerned that the combination of speedily and unexpectedly spiraling tuition rates and a weaker than anticipated stock market would eventually lead to an unsustainable program.
But then reality intervened. The state froze tuition rates for a couple of years. And the stock market has been doing quite nicely. As a result, the tuition plan is now 106 percent funded, according to the Seattle Times.
Moral: Good times and bad times don't last. And if you think they will, you'll be wrong.
One of the reasons why states have had such difficulty keeping up with road maintenance is a steady reduction in gas tax revenues due to fewer vehicle miles traveled and more efficient vehicles.
According to Federal Highway Administration data, Americans are indeed driving more than they have since 2008. You might think that if there were more vehicle miles traveled that would bring in more cash, and DOTs from coast to coast would breathe easy.
Not really. The more vehicle miles traveled, the quicker the roads wear out, and the more money the states need to fix them.
We know that we hear the word "bureaucracy" somewhat differently than most citizens. In our minds, the bureaucracy is the structure that keeps government running year in and year out while politics and policies inevitably change.
But we know from personal experience that many taxpayers think of bureaucracies as enormous, inhuman, wasteful organizations that thwart progress. How has that become such a dominant impression?
A recent study in the Washington University Law Review helps explain what's going on. For one thing, people working in the bureaucracy are "typically dealing with large numbers of individuals whom they are unlikely to have known before or see very often again." That doesn't allow for either empathy or understanding of public servants. Additionally, any number of jobs in the public service aren't intended to make themselves beloved. Consider welfare workers, traffic cops, and desk personnel at public hospitals. One more: "Often, government agents don't derive any direct benefit from providing effective or gracious service."
New York State's Low Income Housing Trust Fund Program has a clear mission. It provides about $236,000 per unit or $2.4 million per project for low-income housing, through loans and grants to rehabilitate existing or new housing.
Sadly, it represents yet another example of a good idea meeting with unfortunate results when it comes time for implementation, according to a recent auditor's report. Among the problems, have been half-year-delays in projects because of "questionable award decisions; lax monitoring or enforcement of expectations and delays in key approvals or other Division actions."
But here's the part of the audit that made us wince. The program has unambiguous policies that are supposed to help determine the projects to be funded. But, according to the audit, the program "awarded funding to six projects that staff review had deemed 'unfeasible,' and 24 others deemed 'feasible but not recommended.'"
We understand how hard it's been for states to keep their balance sheets in order for the last few years. And we also understand that increasing salaries can be a difficult move, even when the economy starts to improve.
But Oklahoma may have low-salaried itself into a pretty dismal situation when it comes to teachers, according to a recent survey.
Apparently, districts through the state have some 800 vacancies, and many seem to be filling slots with substitutes or underqualified teachers. "Not only are local school officials deeply concerned about the scarcity of applicants, they are worried about the quality of educators who do apply," said Oklahoma City Superintendent Rob Neu,
Why the shortage? Apparently, if a teacher gets employment in a neighboring state, he or she is likely to get something between $2,000 and $10,000 more than would be the case in Oklahoma. What's more, Oklahoma appears to have fallen behind other states in terms of professional development; the state has been reticent to give promotions to deserving teachers.
These issues prove to be more significant in some disciplines than in others. Four of the areas where Oklahoma schools have had the most difficulty filling positions include special education, high school science, high school math and middle school math.