If you listen to the local politicians and talking heads, the wisdom of luring Tesla Motors to the Land of Enchantment isn’t even a question.
Gov. Susana Martinez, her Economic Development Secretary Jon Barela and editorials in the Santa Fe New Mexican and Las Cruces Sun-News all call the proposed $5 billion, 10 million-square-foot, lithium-ion car-battery factory a game changer for New Mexico’s lagging economy.
All of this, however, begs the question: How far backward is New Mexico—which is suffering more from leftover Great Recession damage than its neighbors—willing to bend in order to bring a new employer to town? Tesla says it’s also considering building the factory in Texas, Arizona and Nevada. Martinez last week floated the idea of calling a special legislative session to come up with the right incentives for the car company.
Howie Morales, a state senator from Silver City and contender in the June Democratic Party primary election for governor, says he supports a special session for Tesla.
“Tesla is an opportunity that comes around maybe once every four years,” Morales tells SFR.
But he laments that the administration should be more forthcoming about the private negotiations with Tesla so far.
Economic Development spokeswoman Angela Heisel tells SFR that any disclosure of the state’s talks with Tesla could jeopardize negotiations.
Traditionally, New Mexico has lured out-of-state companies with upfront tax subsidies, a practice that raises questions for Fred Nathan, executive director of the Santa Fe-based analysts at Think New Mexico.
“I hope we don’t get into a race to the bottom with these other states with subsidies on the front end,” Nathan says.
Nathan’s organization is generally opposed to offering tax breaks to out-of-state companies before the actual job creation begins, which he argues is a tactic too many states rely on for economic development. He cites New Mexico’s recent subsidies for Spaceport America, which, three years after opening, still hasn’t launched a commercial rocket into space.
“The Spaceport is sort of typical of how New Mexico has tried to attract jobs,” Nathan says. “At last count, taxpayers were on the hook for $212 million. How many jobs has this created?”
Paul Gessing, executive director of the pro-market think tank Rio Grande Foundation, also speaks against Spaceport-style subsidies. While he’s not opposed to tax exemptions or allowing the company to use public land for a cheap price, Gessing says he’s not in favor of incentives that could be unrecoverable “if things went badly for Tesla.”
Gessing adds that although New Mexico’s economic realities may require churning up special incentives to get a company like Tesla to locate here, “it’s generally speaking bad economic policy to have to do this for every company that comes sniffing around.”
That’s a point that Alan Webber, another candidate in the Democratic Party primary for governor, drives home in his take of the situation.
“I don’t think it really demonstrates a command of the economic development field that you are ordering a legislature back into session to concoct a package of goodies for one particular investor,” says Webber, a Santa Fe resident who’s also a co-founder of Fast Company magazine and former editor of the Harvard Business Review. “It really sends a signal to outside economic interests that New Mexico is desperate and playing a very desperate game.”
"It really sends a signal to outside economic interests that New Mexico is desperate"
Webber says he favors remedies to attract Tesla, a company that emphasizes renewable energy in its business plan, with ideas such as reinstating the state’s solar energy incentives that were cut last fall and creating tax credits for consumers to buy electric cars.
Attorney General Gary King, also running for governor, says the Legislature, if it goes into special session, should consider beefing up higher education programs that could reduce costs for training Tesla’s workforce. He adds that he favors tax breaks “associated with milestones.”
Lawrence Rael, another candidate in the Democratic Party primary for governor, supports a special session but stresses that the incentives should focus on training a local workforce and hiring locally.
“If the state is going to make an investment, the company has to invest on the same level,” he says.
New Mexico’s ability to woo Tesla also depends on what other states do.
In 2007, Tesla announced plans to build an electric car factory in Albuquerque that would have employed roughly 400 people. Then-Gov. Bill Richardson, in return, had his administration promise the car company $20 million in incentives. Yet within a year, Tesla pulled out and instead built the car factory in California, which countered New Mexico’s offer with $100 million in sales tax relief, among other much more lucrative incentives.
“I think that they couldn’t resist the cash that the governor of California offered them,” says Fred Mondragon, a former Economic Development Department cabinet secretary under Richardson.
Mondragon, who now does international trade work in the solar and wind power industries, says a few things are different this time. For one, both Los Alamos National Laboratory and the University of New Mexico are working more on fuel cell technology that electric car companies are using. He also points to how the state attracted the Fraunhofer Center for Sustainable Energy Systems to open a photovoltaic solar factory in Albuquerque two years ago.
But he’s skeptical that New Mexico can outbid wealthier states like Texas and Arizona or beat Nevada’s proximity to Tesla’s headquarters in Silicon Valley. “Just knowing what I know other states have to offer, I’m not that optimistic,” he says.