Here in high tax New York, the City continues to grow and prosper (although at a slower pace than low tax places like Texas and Florida), but upstate is a different story. Who exactly wants to take on a tax burden almost as high as New York City, only to find yourself living, for example, in Utica? In the upstate region, the population has been in absolute decline since 2010, and according to data compiled by the Empire Center, the decline only seems to be accelerating in the more recent years. What to do?
For our New York City-dominated, progressive political culture, the idea of cutting taxes and regulations and trying to create a good business climate upstate is completely beyond the pale. That leaves as the main alternative the idea, essentially, of bribing companies to move to, or remain in, upstate locations. In other words, crony capitalism.
Not that we are the only state engaged in this idiotic practice, but the scale of it in New York is quite breathtaking. Compared to a total state annual budget of about $147 billion, of which about $105 billion comes from state funds and only $75 billion from all taxes, the state government lavishes about $8 billion per year on what are euphemistically called "economic development initiatives." The annual $8 billion puts New York in the number one spot among the states for such largesse, which I guess should surprise no one. Look into the matter, and you find that there are many dozens of projects and grants and handouts -- and yet you struggle to find even one that is anything other than a total failure.
Here is a round up dated June 7 from the Democrat & Chronicle (an affiliate of USA Today). The headline is "NY spends $8B each year on job programs. So where are the jobs?"
New York's economy . . . pours at least $8 billion a year — more than any state in the nation — into dozens of job-creation programs that haven't met their goals. A six-month-long investigation by the USA Today Network in New York found myriad problems with the state's economic-development efforts, ranging from under-performing programs to a lack of transparency on how taxpayers' money is spent. And despite the spending, the labor force outside New York City continues to shrink.
The investigative report is loaded with one dispiriting example after another. I'll give you just a taste:
In late 2015, New York announced a sweeping agreement to save four Kraft-Heinz production plants across upstate, vowing to invest $20 million to save the 940 jobs. Now, less than two years later, [in] the small town of Campbell in the Southern Tier . . . [e]fforts are teetering to keep open a Kraft cheese plant in the community of fewer than 3,700 people, and the company announced in May it will continue to look for a new buyer until August, leaving 330 jobs in the balance. . . .
In December, Austrian computer chip maker ams dropped plans for a multi-billion technology campus in Utica with SUNY Poly. A nearly $5 billion SUNY Poly deal with IBM and other computer-chip makers ended in 2016, and now some of the equipment from the sprawling nanocenter in Albany is being auctioned off. In Batavia, unrelated to SUNY Poly, a massive yogurt plant owned by Muller Quaker Dairy with Pepsi shuttered last year after three years and after hoping to create 200 jobs, leaving one of the largest dairy producing plants in the nation vacant.
And so forth. But all of this pales next to the Big One, known as the "Buffalo Billion," which is the state-funded effort to turn around the economy of the state's second largest city with a big billion bucks of taxpayer loot. I previously reported on how it was going in two posts last year, one in July and the other in September. Things were bad then. But, you won't be surprised to learn, they have since gotten far worse. A guy calling himself Montana Skeptic has a long write-up June 26 at a site called Seeking Alpha (requires registration). The post is titled "Tesla Has Stiffed New York State On The Riverbend Factory."
To jog your memory, I'll repeat some of the background. Super crony capitalist Elon Musk somehow convinced the credulous New York functionaries to devote some $750 million of the "Buffalo Billion" to just one facility -- a brand new, (supposedly) state-of-the-art factory to make nifty-difty solar panels and solar roof tiles. The facility is called the "Riverbend Factory" after its location along the Buffalo River. To avoid getting the taxpayers on the hook for things like losses and loan guarantees and liabilities, our sophisticated representatives decided on a structure where they would just build the factory at complete taxpayer expense and lease it to Musk's company SolarCity for $2 per year. Well, actually, the lease was not with SolarCity, but with an essentially asset-free sub of SolarCity called Silevo. SolarCity (actually Silevo) then made a series of promises to New York, the most important being to hire and retain 4,900 employees and to spend at least $5 billion in capital, operating expenses, and other costs over ten years.
It seems that in December 2016 SolarCity (and its parent Tesla) basically bailed on the deal, and proceeded to sign a series of agreements with Panasonic under which Panasonic would take over and operate the factory, making who knows what. There have been public disclosures of the deal, including in SEC filings. No reason is given for SolarCity bailing, but Montana Skeptic suspects that the reason is that they could not get the technology to work. A statement about the transaction from Governor Cuomo (which Montana Skeptic calls "utter nonsense") somehow spun the transfer to Panasonic as a good thing for New York:
[T]his agreement further cements Western New York’s position as a national leader in clean power technology and cutting-edge innovation.
The Gov omitted just one small thing from his effusive praise of the agreement: Panasonic explicitly declined to assume any of SolarCity/Silevo's obligations to the state, including the business about the 4,900 jobs and the other business about the $5 billion investment. Here is the paragraph from the Panasonic agreement:
It is understood that (Panasonic) has no direct obligations or rights under the (Riverbend Agreement). If SolarCity is required to reimburse, refund, or otherwise return any financial benefits received under the (Riverbend Agreement), Tesla will have the sole obligation to pay such amounts directly to (New York State).
But of course, those obligations of "Tesla" are actually obligations of Silevo. Good luck collecting on any of that!
Who knows, Panasonic may even succeed with this venture. It might help that they are paying way below market rent, but we don't know because the amount of rent that Panasonic is paying to Tesla is not disclosed. Anyway, where we are now is that the New York taxpayers are completely out $750 million, and we have a completely speculative upside that maybe Panasonic will hire some people or make some investment. Great!
By the way, Montana Skeptic discloses in his article that he is short Tesla. You may want to take that into account in evaluating his version of the events. However, as far as I can see, in this situation Tesla has taken New York State to the cleaners.