Courtesy of Tesla, Inc.
Tesla’s Gigafactory Texas just east of Austin. Tesla received state and local tax breaks, totaling roughly $64 million, to build Giga Texas.
On April 7, Tesla hosted a grand-opening party at its newest factory, the $1.1 billion, four-million-square-foot Giga Texas in metro Austin. Billed as a “cyber rodeo,” the invite-only event featured fireworks, live music, and a late-evening appearance by Elon Musk, sporting a black cowboy hat and aviators, who boasted about his company’s “great parties.” Expecting significant congestion and delays from the 15,000 invited guests, the neighboring Del Valle Independent School District sent its students home early.
Tesla received state and local tax breaks, totaling roughly $64 million, to build Giga Texas. Supporters of the project claimed that the new factory, one of the country’s largest, was a once-in-a-lifetime opportunity that would transform the region. A coalition of labor, environmental, and community organizations railed against the rushed, closed-door negotiations but failed to stop the project.
Corporations excel at overselling economic benefits to state and local officials, and Tesla is no exception. Last year, Tesla struggled to meet the job creation targets at its Buffalo factory, which had been repeatedly revised and relaxed. A scathing 2020 New York state comptroller report concluded that the weaker requirements “undermined the intent of the project.” The factory, advertised as the largest solar panel manufacturing facility in the Western Hemisphere, has been a quiet failure, as Tesla has shifted its focus away from solar panels and roofing. Over $200 million in unwanted manufacturing equipment, purchased by the state government, was recycled and resold.
There was no mention of the Buffalo factory in any of the 2021 Tesla earnings calls or its annual stockholder meeting. “After an exceptional year, we shift our focus to the future, Texas and Berlin,” Musk said on the 2021 fourth-quarter earnings call. Could Austin face a repeat of Buffalo’s experience: grandiose promises of jobs and other economic benefits that fizzle out and leave local and state officials behind to deal with the fallout as the company moves on to focus on its future?
Tesla wrangled tax incentives to build its Texas factory through two separate programs, each named for their section in the state tax code: Chapter 313 and Chapter 381. Tesla has pledged to create 5,000 jobs at Giga Texas and provide employment and internship opportunities for Del Valle’s students and Travis County residents. Notably, the City of Austin did not give Tesla any incentives, nor would Tesla have likely wanted them, as the city has one of the most rigorous and transparent economic incentive programs in the country.
Chapter 313 is a tax limitation program that allows school districts to cap the amount of property tax that companies pay through a ten-year limitation on their taxable property value. Del Valle ISD agreed to cap Tesla’s property value at $80 million, providing the company with an estimated savings of $50.4 million over 15 years. The state government not only reimburses districts for their lost tax revenue, but school officials can also request supplemental payments from companies—and Tesla agreed to pay the district nearly $1 million annually. It was a no-brainer for a small school district in one of the most underdeveloped areas of the county.
Elon Musk, Amazon’s Jeff Bezos, and other billionaire CEOs frequently pit cities against each other in order to rake in big-ticket incentives and more benefits.
Chapter 381 incentives allow counties to provide grants, loans, or tax abatements to companies. The Travis County deal initially saves Tesla an estimated $14 million, with greater savings the more Tesla invests. Before Tesla bought the land, a gravel mining facility on the site paid $6,400 in property taxes. The Travis County agreement has more guardrails. Tesla must invest 10 percent of its rebate in community programs, strive to achieve zero-emission energy ratings, and hire women and people of color. Yet the deal’s language is grounded in “good faith” agreements that have no teeth, effectively letting Tesla off the hook.
Musk, Amazon’s Jeff Bezos, and other billionaire CEOs frequently pit cities against each other in order to rake in big-ticket incentives and more benefits. Austin faced off against Tulsa—which even repainted an iconic statue of an oil worker to look like Elon Musk. But all signs pointed to Austin. “Every insider that I knew thought that Austin was going to happen,” says Nathan Jensen, a University of Texas–Austin government professor who studies economic development incentives. Musk saved billions of dollars by moving to Texas and later admitted that key employees did not want to move to Tulsa. According to a 2018 W.E. Upjohn Institute for Employment Research study, incentives only sway between 2 and 25 percent of firms to a particular location.
There has been a recent increase in deals greater than $50 million, says Greg LeRoy of Good Jobs First, and “the power dynamic has always been very corporate-dominated.” If tax incentives are ineffective strategies for job creation and economic growth, then why do cities and states continue to offer them? According to Jensen, incentives are one way for state and local politicians to take credit for an investment that may have already been in the pipeline. “The advice that I would give most [places] is you set up guardrails ahead of time,” says Jensen. “These companies are particularly good at minimizing the downside.”
Tesla soon showed that it was looking out for Tesla. The company has amended its initial agreement in order to expand the facility tax-free, and company representatives refused to consent to independent, third-party monitoring of the construction site. Emily Timm, co-founder and co-executive director of the Workers Defense Project, a statewide organization for construction workers, was part of the coalition pushing for robust community assurances. “When you make a commitment like that, but don’t commit to the monitoring and oversight, it’s only as strong as the piece of paper it was written on,” Timm says.
Considering Tesla’s record of OSHA violations, monitoring potential safety issues and wage theft on the construction site was of critical importance to Timm. Community opposition also centered on the $15 minimum wage. According to MIT’s Living Wage Calculator, $15 an hour is not a living wage for Austin households with children or one nonworking adult—home values in the Del Valle community where the factory is located have increased by nearly 60 percent since January 2020. (The agreements were approved in July 2020.) Del Valle has been neglected by local officials for generations. The area has unsafe roads, poor access to public transit, internet, and water, and no grocery stores or hospitals. Del Valle ISD, which is majority-Hispanic, reports that 88.9 percent of its students are economically disadvantaged and 44.3 percent have limited English proficiency.
Tesla’s hiring practices have also raised concerns. The Austin-based Texas Anti-Poverty Project met with Tesla representatives regularly in 2021. Tesla announced early on that employees must have a good command of spoken and written English, a serious barrier to local hiring in an area where many companies provide on-the-job English-language training for Spanish-speaking workers. Following pushback, Tesla collaborated with Austin Community College to set up a manufacturing-specific English-language class. Only 15 students enrolled, and Tesla did not commit to interview anyone who completed the class. When TAPP members continued to press for better solutions to language issues, Tesla stopped responding to their queries. The group hasn’t met with Tesla since last fall and did not receive an invitation to the cyber rodeo party.
Community advocates are stuck playing catch-up—and learning what to do differently the next time around. “Most of what we’re trying to do is find ways to convince [Tesla] that it’s in their best interest to do things, even though the contract doesn’t call for them to do that, and that’s hard,” said Bob Batlan, a TAPP member.
Giga Texas differs from Buffalo’s RiverBend factory in certain respects. The RiverBend factory was part of former Gov. Cuomo’s Buffalo Billion project, an unusually expensive public-private partnership, and received a whopping $950 million in subsidies. Rather than negotiating directly with New York state officials, Tesla inherited the incentives after it acquired SolarCity in 2016. The company finally exceeded its meager 1,460-job goal last year, at a cost of more than $610,000 per job. But the Buffalo case highlights problems that are already playing out in Austin: a reliance on undemocratic, closed-door negotiations, no oversight or accountability, shallow community engagement, and staggering costs for mediocre jobs. (Tesla did not respond to the Prospect’s requests for comment.)
Tesla is not the only culprit. “I don’t think they are any worse than [any other] bunch of hyenas that are running around ripping off state and local governments,” said John Kaehny, executive director of the watchdog group Reinvent Albany. But Elon Musk, currently engaged in a high-stakes fight over control of Twitter, is not just any corporate CEO—he is the richest man in the world.
The cult of personality that surrounds Musk’s perceived genius obscures the fact that Tesla derives substantial benefits from government subsidies that it does not need. “Having noticed the way they do business, I sensed that Elon Musk is the biggest con man since Donald Trump,” says Del Valle community leader Richard Franklin III, a member of the regional Hornsby Bend Alliance, who was active in the Tesla negotiations.
Communities in Texas are beginning to catch on. In a bipartisan push, state lawmakers let Chapter 313 expire this year. Skyrocketing rents and home prices have led Austin residents to question the wisdom of the city’s frenetic pace of development. Two progressive Democrats, Bob Libal and Susanna Ledesma-Woody, challenged incumbent Travis County commissioners who had signed off on the Tesla deal. Both candidates lost in the primaries, although Ledesma-Woody lost by only one percentage point. Whether state and local officials and voters smitten by fragile job pledges will move to oppose future deals, assert their own interests, and disrupt the big business of economic development remains to be seen.
