Subsidy City: Elon Musk Knows How to Wring Money Out of Municipalities. Is New York Next?

New York, beware. Elon Musk knows how to squeeze governments for subsidies.

Earlier this month Tesla Motors, which Musk heads as chairman and CEO, got Nevada to cough up $1.3 billion—yes, B as in billion—to help subsidize construction of a plant in Reno that will manufacture batteries for Tesla’s electric cars. Musk did so in a very public, brazen move in which he pitted five states against one another to see which one would ante up the most generous subsidy package. Nevada officials dug deep, swallowed hard and came up the “winner” (so to speak).

Musk is also chairman of SolarCity, which is in line to cash in on the Buffalo Billion program. In June SolarCity bought Silevo, a fledgling solar panel manufacturer that had previously committed to building a plant in Buffalo. The state had already agreed back in November to build and equip plants for Silevo and Soraa, an LED lighting manufacturer, at a cost of $225 million, but since purchasing Silevo, SolarCity executives have floated the prospect of a bigger plant employing more people— which, of course, would require more government assistance.

How much more, and what type of assistance, nobody is saying. SolarCity officials have been mum—in public, anyway—and Gov. Andrew Cuomo has not gone further than to say that accomodating the company would involve an expanded incentive package.

At one level the refusal by company and state officials to discuss specifics is understandable. But also ominous, given the company’s ravenous appetite for government handouts, and the fact that SolarCity has not made an iron-clad commitment to building in Buffalo.

Consider this July 22 report in ValueWalk, an online investment website: “Several other cities across the country—including locations in California and Texas—are also under consideration as the site for SolarCity Corp’s new solar-panel facility.”

Also consider the carefully chosen words Musk and two other SolarCity honchos published in announcing their purchase of Silevo in June: “We are in discussions with the state of New York to build the initial manufacturing plant, continuing a relationship developed by the Silevo team.”

Translation: The location of the plant apparently is in play. Advantage: SolarCity.

And as Musk showed with the Tesla project out west, he is not shy about exploiting his upper hand.

There is a lesson in this for New York, according to Greg LeRoy of Good Jobs First, the subsidy watchdog that has been bird-dogging the Tesla deal in Nevada. While SolarCity is not Tesla, Musk has an important role in each company, and the carmaker has displayed “a real skill to get a state to overspend on a trophy deal,” said LeRoy.

The $225 million deal on the table in Buffalo is “generous, there’s no doubt about it,” LeRoy said. “I would urge the state to be cautious as to what else it does.”

Musk has the governor right where he wants him, however.

As he has done with all of the Buffalo Billion projects, Cuomo has raised expectations with his chest beating over SolarCity’s purchase of Silevo. The announced projects do have the potential to generate investment and employment in the long run, but thus far they have in fact produced only a handful of jobs, nearly three years after the governor announced his Buffalo Billion initiative.

Cuomo faces re-election in November, and while Republican Rob Astorino doesn’t pose much of a threat, the governor clearly wants to have a deal with SolarCity to tout. More precisely, he doesn’t want to have to explain his failure to deliver.

So overpay he might.

In doing so, he would undermine what many consider the fresh thinking behind his approach to the Buffalo Billion. Rather than doling out subsidies to companies in the hope that something good would happen—which passed for economic policy for more than a generation—Cuomo has sought to replicate the model used in Albany to seed a nanotechnology industry.

In a nutshell, the approach spends public money to build and equip facilities that attract anchor tenants—and, in turn, smaller companies—to form a critical mass. We’re talking some 50 companies, and 15,000 nanotech jobs, in and around the Albany region.

There has been a downside, as the state’s investment of $1.3 billion hasn’t been enough to satisfy some companies. They’ve wanted additional subsidies, and in some cases they’ve gotten them. GlobalFoundries, for example, received a state subsidy package in 2006 worth $1.4 billion.

The Global deal amounted to old-fashioned smokestack chasing, a strategy panned in economic development circles that involves government not so much attracting jobs as buying them, at a huge cost to the public treasury. There’s plenty of evidence of this strategy in Western New York, such as the sweetheart deal state and local officials offered Yahoo! to locate a data center in Lockport. That deal added up to more than $2 million a job—for not that many jobs.

Few if any regions can afford to pony up for subsidies with this kind of price tag. Certainly not Western New York, which is desperate to expand its tax base to take pressure off its homeowners and businesses, who pay some of the highest property tax rates in the nation.

Thus, it will be interesting to see what kind of deal Cuomo strikes with SolarCity. Yes, it would add jobs. But at what cost to the public treasury, and at what burden to the local taxpayer?

Jim Heaney is the founder, editor and executive editor of Investigative Post, a nonprofit investigative reporting center focused on Buffalo and Western New York.