NPRI: Subsidies for Tesla “fundamentally unjust"

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Updated: 9/04/2014 7:14 pm
RENO, Nev. ( & KRNV) – In an open letter to Governor Brian Sandoval, the Nevada Policy Research Institute (NPRI) warned they may pursue legal action as a result of potential tax incentives that may be offered to Tesla in the wake of naming Nevada as the site of its new gigafactory.

The letter, from NPRI President Andy Matthews, criticizes these potential incentives, saying Nevada would be “betting hundreds of millions of taxpayer dollars on an unproven enterprise.”

Matthews goes on to say it is “fundamentally unjust for government to use its powers to financially reward” companies like Tesla by offering them government subsidies.

Matthews concludes the letter saying that NPRI would consider legal action over the constitutionality of any legislative decisions made, if they deem it necessary.

In today's press conference announcing Tesla's move to the Silver State, Director of the Governor's Office of Economic Development Steve Hill noted that any incentives Tesla receives will be performance-based. If they don't do what they say, those "incentives don't exist."

Any government subsidies will be decided by a special legislative session, to be called at a later time.

To read the letter in its entirety, see below.

Dear Gov. Sandoval,

It was with genuine excitement that we at the Nevada Policy Research Institute and many other Nevadans yesterday learned that Tesla had decided to build its new battery factory in Nevada. We are no doubt in agreement that private business investment in a free-market economy provides benefits to a wide range of stakeholders.

In America, business owners or investors risk their own money with the goal, but not the guarantee, of creating a return on investment. The result is that Americans have new jobs available to them, and state and local governments receive additional tax dollars to provide essential services and lower tax rates.

The biggest winners from this free-market process are the very consumers who ultimately determine which companies will succeed or fail.

Thus, it was with the antithesis of excitement that we, along with many other Nevadans, read news reports that you are preparing to call a special legislative session next week to fund this proposed private factory with massive government subsidies.

In contrast to the profound intelligence operating within free markets, government attempts to pick economic winners and losers are inherently benighted and unfair — as well as unconstitutional in Nevada.

Yes, the promise of a company investing up to $5 billion in Nevada is very appealing. But betting hundreds of millions of taxpayer dollars on an unproven enterprise is extremely risky. Just today, for example, the Wall Street Journal reported that, surprising the conventional wisdom, demand for electric and hybrid cars is declining, driven down by multiple factors. And, of course, in just the last few years, taxpayers lost hundreds of millions of dollars after federal politicians gave handouts to green-energy companies such as Solyndra and Abound Solar.

Government subsidies make taxpayers assume the risks of business ventures while being deprived of the financial rewards that willing stockholders receive for bearing those risks.

Even when government-subsidized businesses do return some nominal profits, hidden behind those profits are always the unseen opportunity costs imposed on everyone else.

At root, it is fundamentally unjust for government to use its powers to financially reward the “connected” at the expense of those not so well connected. This is why Nevada's founders expressly prohibited state subsidies to private companies in Article 8, Section 9 of Nevada's Constitution. It reads:

    The State shall not donate or loan money, or its credit, subscribe to or be, interested in the Stock of any company, association, or corporation, except corporations formed for educational or charitable purposes.

Thus, to use government to designate a few financial winners — and many financial losers —undermines the rule of law. What is needed is a single set of rules for entrepreneurs: a common law. To breach that principle — especially when calling a special legislative session for the benefit of one company — is to foster a system where the politically powerful are even more advantaged over everyone else.

That is not the America which has prospered in a free-market economy. That is a country where companies will increasingly ignore consumers and increasingly shift their focus to pleasing politicians.

Government officials should be careful to avoid undermining the fundamental principles of our government and economy — such as the rule of law and the separation of powers — in pursuit of short-term and often hypothetical economic and political gains. No business is worth sacrificing the principles that have built America’s economy and that allow innovative small-business owners to compete on a level playing field against larger companies.

Nevada citizens understand the importance of the state constitution’s prohibition on government giving money to private companies. Three times in the last 25 years, the Legislature asked voters to soften this prohibition, and each time the electorate rejected these efforts by wide margins.

As you know, sometimes elected officials, knowingly or unknowingly, pass laws violating the Constitution and force organizations, like NPRI, to bring litigation in order to defend these fundamental principles.

For instance, in 2011, lawmakers passed and, as Governor, you signed a bill creating the Catalyst Fund, which provides state subsidies to a select few private businesses.

Earlier this year, the Nevada Policy Research Institute’s Center for Justice and Constitutional Litigation filed suit against the Governor's Office of Economic Development (“GOED”) and the unconstitutional Catalyst Fund for violating Article 8, Section 9. That suit is seeking to prevent GOED from giving over 1 million taxpayer dollars to SolarCity, which, incidentally is also owned by Tesla's Elon Musk.

As no details have been officially released as of yet about the incentives for Tesla, and with the official announcement coming this afternoon, we wanted to share these reasons why government subsidies are poor public policy. Further analysis from NPRI will be forthcoming on that aspect of this issue, but I urge you not to propose unconstitutional government subsidies that would leave the state exposed to the potential for legal action.

NPRI will be available to assist you and the Nevada Legislature to evaluate any proposals that may be passed in a special session to ensure that they meet constitutional muster.

Governor, even when we've disagreed, we at NPRI have always respected the enthusiasm you've brought to the job of leading our state. Nevertheless, the rule of law must always be adhered to and defended vigorously.


Andy Matthews
President, Nevada Policy Research Institute
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