It’s not a done deal yet, but Tesla certainly seems to be homing in on Travis County southeast of Austin as the site of its next US factory. The company has an option to purchase 2,100 acres there, but has not yet exercised it according to a Musk tweet on June 18 and Tesla is still “considering several options.” The negotiations are ongoing, with Tesla’s interests being represented by an entity known as Colorado River Project LLC, a division of Tesla apparently created to keep public scrutiny of the process out of the public eye while negotiations are proceeding.
Officially, the only document pertaining to the proposed new factory is an application filed by Colorado River Project with the Del Valle Independent School District, according to a report by the Austin Statesman and made made public by the Texas comptroller’s office on Thursday. According to Tech Crunch, under chapter 313 of the Texas Tax Code, school districts are allowed to give property tax breaks for economic development projects. Tech Crunch also points out that there may be other tax relief measures being considered at the county, city, and state level in order to attract Tesla to the area. Here is a relevant paragraph from that chapter 313 filing:
“For a project to succeed, it must also have an acceptable rate of return to secure the necessary capital and compete in the automobile industry against some very capable competitors that have been longstanding industry players. Therefore, local and state tax incentives serve a critical role in getting the project approved and operating successfully. This is especially critical in Texas due to the high level of real and personal property taxes relative to other states. Since school taxes are the largest component of property taxes, the Section 313 tax limitation is especially critical to create a level playing field between Texas and other states vying for this project. Therefore, obtaining the 313 limitation is a determining factor in the decision whether to locate the projects in Texas.”
And just how much of a tax break is Tesla seeking? According to CBS Austin, the deal, if approved, would cap the taxable value of the land at $80 million for 10 years. According to the Texas comptroller’s office. However, the actual value of the property during that period will be just under $600 million. At the current tax rate for the Del Valle ISD, the difference between what it will collect under the terms of the deal and what it could expect to collect without the tax abatement is $68 million.
In exchange for the 10 year tax abatement, Tesla will agree to build a new 4 to 5 million square foot factory that would employ 5,000 workers, 25 of whom would earn more than $74,000 a year.
Theory Versus Reality
There is nothing inherently wrong with a local community dangling financial incentives to lure a business to locate in the area. Nevada offered Tesla $1.3 billion in incentives to build its first gigafactory in what was once a little used industrial park. Today, that investment has spurred an explosion of growth. With Tesla acting as a magnet, other businesses have relocate to the area as well. The State of New York basically gave Tesla a factory valued at close to $800 million for free if it would bring jobs to the economically depressed Buffalo area.
Every politician since Julius Caesar has been smitten by the allure of creating jobs, but let’s be clear. The Del Valle ISD will be expected to educate the children of the workers at the new Tesla factory. Who will pay the salaries of the teachers and the cost of building new schools? Isn’t the idea of starving the local school district of revenue at a time when its mission is expected to expand self defeating?
One “solution” is that people living in the Del Valle school district will wind up paying higher taxes to support the schools because Tesla will not be paying its fair share. That will include the people employed at the Tesla factory, but it’s not clear how much extra in tax revenue newcomers are expected to create.
It is interesting how so-called conservatives scream about government interference in business and how they want a level playing field but rush to gorge themselves at the public trough every chance they get.
Elon Musk could pay the entire cost of running the Del Valle schools out of his own pocket and never miss the money, but instead he will be hailed as a job creator who did it all on his own, proving the American Dream still works and glorifying the benefits of the capitalist model.
There’s more to the story as well. More jobs mean more need for police, fire, and first responders. More roads, more traffic signals, and more public employees. All those expenses will be borne by the people of Travis County. People always celebrate the benefits of new employment opportunities, and there are many, but few ever mention the increased financial burdens on the community that come with those new jobs.
It’s not that incentives are bad, necessarily, it’s that few ever talk about the other side of the coin, the extra burdens communities take on to support the new businesses they attract. A full and fair discussion of incentives should include both.
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