State’s NDA with Tesla keeps potential tax breaks a secret — for now

The agreement has raised questions about transparency and the ability of the public to understand how state officials are using tax policy for economic development purposes.

Tesla, run by billionaire CEO Elon Musk, plans to produce high volumes of electric semi-trucks and cell batteries at its Gigafactory in Storey County, where lithium-ion batteries and other electric vehicle components are manufactured. The expansion will increase production capacity for the Tesla Semi, a cargo-hauling electric truck that PepsiCo ordered to help make customer deliveries.

But how much Tesla may get in tax breaks will remain secret until shortly before the vote because of the nondisclosure agreement.

The process of signing such an agreement is common practice, said Gregory Bortolin, director of communications for the Nevada Governor’s Office of Economic Development, which handles agreements with companies that want to come to the state.

The office enters nondisclosure agreements with almost every company that it negotiates with, Bortolin said. The nondisclosure agreement and tax abatement process started during Gov. Brian Sandoval’s administration about 11 years ago, and not much has changed since then, other than adjustments made during the 2019 Legislature to remove the Local School Support Tax from abatements, Bortolin said.

Since January 2022, the economic development office negotiated tax abatements for 21 companies, totaling $149.8 million. Within five years those companies will create 3,526 jobs, Bortolin said. The companies will make $1.9 billion in capital investments and will generate $478.8 million in new net taxes, he said.

“So for $149.8 million that the state is giving them a discount on their taxes, they will generate $478.8 million,” Bortolin said. The “return on investment on that is, for every dollar abated, the state gets back $41.12.”

Tax abatements are discounts on taxes, Bortolin said. The state is not writing checks for the companies using taxpayer dollars, which is a common misperception, he said. While the term “negotiate” is often used, the process is black and white with fixed tax abatement rates, Bortolin said. The sales tax gets lowered to 4.85 percent for 20 years, and the payroll, personal and real property taxes are waived entirely for 10 years.

In order to qualify for tax abatements, companies must meet a minimum wage requirement of $23 per hour and must provide health insurance to employees.

Each agreement that the state enters into is annually audited by the Department of Taxation to make sure the company is meeting the capital expenditure and job creation requirements, Bortolin said. If a company fails to meet those requirements, the state claws back the abatements.

Competing with other states

The nondisclosure agreements and tax abatements that Nevada signs help it compete with other states to bring in businesses, Bortolin said. Nevada has some advantages — it’s close to the big tech meccas of Oakland and Silicon Valley, but Salt Lake City and Phoenix are not too much farther away and also provide incentives, he said.

It’s also important for the state that the negotiations are kept private, because Nevada is competing with other states that Tesla might be talking with, Bortolin said.

“A lot of times these companies are thinking about moving, you know, they’re exploring what they can do in Nevada versus Utah,” Bortolin said.

In December, for instance, Nevada did a major tax abatement with Redwood Materials, a battery recycling company, which received an even bigger abatement from South Carolina. The company is still doing business in Nevada but is doing more in South Carolina, Bortolin said.

While some argue that tax breaks are given to people who do not need them — such as billionaires like Musk — the economic development office has done surveys of businesses and learned that they would not have come to Nevada without the incentives it received, Bortolin said.

$65.8 million in tax cuts

As of Thursday, Bortolin did not have a complete application for Tesla. The state works with a consultant and goes through the application to make sure it conforms to Nevada law. Once state officials and Tesla agree on the details of the application, it is formally posted on the website three days ahead of the public meeting, and the whole document can be scrutinized by the public, Bortolin said.

“It’s not like we’re withholding information that we could give you today, because that’s just not the case,” Bortolin said. “We’re actually still going through the application, making sure that this company, you know, in this case, Tesla, whether they will even receive this abatement.”

While details of the tax abatement request are secret until Feb. 27, Bortolin said Tesla plans to make a similar application as its original application for its Gigafactory in Storey County, with an adjustment to require the company to continue to pay the portion of the sales tax that supports local schools.

The Fiscal Year 2022 report of Tesla’s capital investments made by the Governor’s Office of Economic Development shows Tesla received tax abatements totaling $65.8 million, including $14.6 million in payroll, $8.1 million in real property tax and $30.2 million in personal property tax. Tesla had a projected 10-year investment of $3.5 billion and hired 6,309 qualified employees.

Transparency issues?

Across the country, there have been calls for bans of nondisclosure agreements signed by public officials for economic development projects, with arguments that the public should be able to provide input into the use of public resources and receive information about businesses planning on building in their community.

The practice drew criticism in 2020 when Amazon received more than $100 million in tax breaks from University Park, Illinois, to build a distribution center. Thanks to a nondisclosure agreement, the company’s identity was not revealed until after the deal was completed. Similar situations have happened across the country.

“If a company wants to keep its information private, it should not be applying for special deals with the state,” said Geoffrey Lawrence, director of research at the Nevada Policy Research Institute.

The institute respects a company’s desire to keep certain information and strategic initiatives confidential, Lawrence said, “but when you’re looking for a targeted tax incentive or subsidy of some type, by nature you have to abandon that desire of confidentiality.”

Across the country, there have been moves to ban public officials from signing nondisclosure agreements with companies involving economic development projects, and Lawrence thinks that is a move in the right direction.

“In Nevada, we’ve made progress on tracking and reporting public subsidies that are granted through GOED and local economic development agencies,” he said. “That’s been an ongoing desire of the Legislature,” regardless of which party has been in control.

“This move certainly flies in the face of legislative intent at least,” Lawrence said.

Gov. Joe Lombardo’s office declined to comment, but after announcing the partnership with Tesla, Lombardo said on Twitter, “Economic development matters. I’m proud to declare that Nevada is back open for business, effective immediately.”

Bortolin said the agreement process is transparent. His agency was named the “most transparent economic development authority website of all state economic development websites in the nation” by the watchdog group Good Jobs First, a nonpartisan research center promoting accountability in economic development, because it discloses all the information for the public once the application has been finalized, he said.

“Once the application is formal, all of the documents … are put on our website and everybody can view them,” Bortolin said.

Contact Jessica Hill at jehill@reviewjournal.com. Follow @jess_hillyeah on Twitter.