So I returned from my recent hiatus to find a growing amount of chatter about City Hall’s efforts (or lack there of depending on whom you talk to), to lure electric car maker Tesla Motors to the old Boeing 717 plant in Long Beach.

Council member Gerrie Schipske has been up in arms about the lack of attention shown to the firm’s “interest” in Long Beach and the Press-Telegram recently opined “what’s not to like about this gift to the local economy?”

Well, certainly on the face of it, the ol’ Gray Lady of Long Beach (the P-T) may be right.

The Silicon Valley-based Tesla has said that it will shortly choose between Long Beach or Downey as the site of a new manufacturing plant for it’s $57,500 Model S all-electric car.

The firm has promised upward of 1,200 jobs to be created by the production facility. CEO Elon Musk, founder of PayPal, has promised to fill many of these jobs from the local labor pool. Add to this the additional property and sales taxes generated by such a facility and the windfall seems all too obvious. Last but not least may be the incalculable boost to the city image as a center of “green” manufacturing.

However, this lithium-battery lined cloud does have a down side–you and I, as taxpayers, are basically subsidizing the entire Tesla operation.

You see, while Tesla may be good at producing electric cars that look good and go further on a charge than even those on the drawing boards of Detroit automakers, the firm is also very good at something else–dipping into the public coffers in the form of grants, loans, incentives and direct subsidies borne by the American taxpayer.

So far, and much to their credit, Long Beach city officials have said that there are no city incentives or breaks to give to Tesla. However, as Tesla’s history shows, the firm is good at playing the “public trough” game.

In 2007, Tesla looked as though it was ready to locate a plant to build the firm’s still-on-the-drawing-board Model S, then code-named the Whitestar, in Albuquerque, New Mexico–the same car Tesla says it “may” build in Long Beach.

With the same promises of economic vitality and new jobs from Tesla, New Mexico offered up some sizable incentives during its negotiations with the car maker. Then-Gov. Bill Richardson offered to buy 100 of the proposed vehicles for the state fleet sight unseen (to the tune of about $500,000). The state also offered up a high wage job tax credit to Tesla, a manufacturer’s investment tax credit as well as assistance from the state’s Job Training Incentive Program. In addition, Governor Richardson committed $7 million in state funds over two years to be used by the Albuquerque county government for building and infrastructure investment related to the Tesla facility.

Richardson and New Mexico United States Senator Jeff Bingham (then chair of the Senate Energy and Natural Resources Committee) even promised to work directly with Tesla officials to craft state and federal legislation that would add further government tax breaks and “incentives” to people buying cars such as the Tesla Model S or the firm’s $110,000 Roadster model.

After initially reporting it would move to New Mexico, Tesla backtracked, saying it needed to complete the full design of the Model S before making a decision on the plant location.

Media reports at the time said that California Gov. Arnold Schwarzenegger stepped into the fray at some point, wooing Tesla back to the Golden State with an offer of tax credits and a free 10-year-lease on a publically-owned site in San Jose.

However, due to a stipulation in the $465 million in federal government low-interest loans the firm accepted in June of this year, Tesla is required to retrofit an existing factory for its manufacturing plant–not build one from scratch.

After finding no acceptable retrofit location in San Jose, Tesla turned its eyes toward Southern California, citing the region’s Enterprise Zone tax incentives.

Enterprise Zones were created by state and federal legislation in the late 1970s to attract businesses to areas that needed jobs through the use of tax credits and other incentives. Originally conceived as temporary boosts to local economies, the Zones were typically slated to last five to ten years. However, many have become nigh permanent institutions. For example, the Long Beach Enterprise Zone, renewed most recently in 2006, is now set to expire in 2022. At least in the case of Tesla, these Enterprise Zones appear to be an attractive lure.

In June 2008, after deciding against Albuquerque, Telsa released a list of the criteria to be met by any potential winner of the California factory site. These included as self-described key factors: a favorable tax environment, ability to expand without regulatory hassles, Enterprise Zone credits, construction incentives and loans or loan guarantees.
And the Enterprise Zone lure can be quite lucrative.

Based on current tax rules, Tesla could be eligible for up to $25 million in taxpayer-supported incentives through the Enterprise Zone program. These include an employee hiring credit that could amount to $14.4 million over five years, a $20 million sales tax credit on equipment and property purchased for the proposed facility, and a $140,000 business deduction over five years. These do not include two additional incentives, a net operating loss carryover and a net interest deduction for lenders (that are both literally impossible to figure out without consulting an IRS tax official).

However, this is only the tip of the iceberg when it comes to taxpayer support of the privately-held Tesla.

Tesla plans to produce 20,000 Model S cars a year at the proposed plant. If federal subsidies for purchasers of Tesla cars remain in place, this would cost taxpayers another $7,500 per car in incentives, or $750 million over the first five years of full output at the plant.

These direct “incentives” do not include any future low-interest loans or outright grants from local, state or federal government entities that may be dangled as a lure.

And don’t forget the $364 million of $465 million in low-interest federal loans Tesla plans to use for the new plant (through a loan from a 2007 Bush-era US Department of Energy program for advanced vehicle technologies that the firm does not have to start paying back until mid-2012). Keep in mind that since the firm will receive a portion of this money before they have to pay it back, and at sub-market interest rates, the taxpayers are subsidizing the loan package even though it may eventually be paid back.

Add all of this up and Tesla could receive as much as $1 billion dollars in taxpayer support over the next five to seven years.

Let me repeat–Tesla could receive as much as $1 billion dollars in taxpayer support over the next five to seven years.

This for what Tesla claims will be 1,200 jobs and the production of a car with a sticker price surpassing the average Long Beach family’s annual income by more than $10,000.

Now certainly the plant is going to be built someone and some community will benefit. Could Long Beach use the jobs? Of course. Could Long Beach use the additional tax base? Assuredly. But it is important to balance this against the fact that each of those jobs and general fund dollars comes with additional tax burdens to each and every taxpayer in Long Beach (which it should be noted will be paid by city taxpayers regardless of where the plant is located).

The more productive question for City Hall to ask is whether or not Long Beach residents should aid in the subsidization of another car maker, even if it is producing jobs and good-looking all-electric vehicles.

Let’s hope that if Tesla does choose Long Beach for it new plant, it is not at the cost of further resident tax dollars. Let’s hope that City Hall sticks to the “no incentive” attitude and perhaps asks Tesla (to paraphrase JFK), “ask not what Long Beach can do for you, but what you can do for Long Beach.”

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