From the Good Ideas File: Knowing the cost in Reno

A lot of people have been weighing in on the debate over the Tesla incentives deal with Nevada, but I wanted to share this article as both a valuable insight into what exactly that deal included and as an exceptional example of how to make those costs transparent, tracing out the potential impacts clearly and about as objectively as possible.

Unfortunately, or perhaps necessarily, that clarity is coming from the newspaper doing an outstanding job of fiscal reporting, rather than from the economic development people.

 

Take a look at how the Reno Gazette-Journal lays out each of several elements of the incentive package:

Tesla factory rendering

From Reno Gazette-Journal

1) Description of type of incentive (loan, grant, infrastructure, etc.)

2) Estimated cost of incentives; conditions and requirements on Tesla in order to get it.

3) What rules have been changed compared to the way these programs typically work, and

4) Bottom Line Impact — not just on the state, but the potential cascading impacts on other industries, local communities, etc.

Now, I’m not privy at all to the negotiations, and I know barely anything about Nevada’s incentives programs, so I’m going to be quick to say that I have no idea whether the facts here are accuate or not.  That’s not the point of sharing this with you.

 

What I do want you to notice are two underlying lessons here:

1) Economic development incentives don’t exist in a vacuum.  If you give money to a business, that is money that is going to have to come from somewhere or not be available for something.  It’s an opportunity cost.  Pure economists understand opportunity costs as a basic element of how economics works.  It’s the principle that we sometimes sum up as There’s No Free Lunch.

Economic development people too easily forget or sidestep that — or write it off as someone else’s problem.

No wonder economic development is developing a credibility problem.

 

2) More the case now than ever: if you don’t disclose the tradeoffs, if you don’t demonstrate the costs and the benefits for all your residents and businesses and elected officials and the world to see, someone else will do it — and they will not do it the way you want.  This article talks about the costs, but it doesn’t address how those costs weigh against the value of the expected benefits.  I’m sure the economic development minds who crafted the deal know a lot about the expected benefits.  But because they did not themselves lay out the costs AND the benefits, someone else did it, but without that second part.  Which does nothing but make it look like a costly rip off for everyone else who will be affected.

 

Now, you might think that this wouldn’t happen in your state or community because, frankly, we’re not used to seeing this level of local journalism in most parts of the country anymore.  But the thing that has really changed is that anyone with an Excel spreadsheet and a decent command of Google searching can put this research together in a couple of hours.  You have a whole hell of a lot of those types around.  And they can put their findings across to more people than read your local fishwrap before you know what has happened.

So, let’s be pragmatic (cynical, even): You gotta lay it out.  You have got to make a case for the costs and the benefits of any incentive, whether it’s a local loan or a Tesla deal.  And you gotta do it, and do it clearly, and do it honestly, and do it well.  Otherwise, someone else is going to do it for you…or to you.  Guess it depends on you.

 

Big kudos to reporter Anjeanette Damon and the Reno Gazette Journal editorial staff for one of the best pieces of government finance reporting I may have ever seen in a general interest newspaper.  

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