Public funding for private development projects is a bad deal, even according to state governments’ own numbers. A new Wall Street Journal report shows that even the world’s richest people are not immune from the lure of other people’s money—nor are they particularly good stewards of it.
The paper reported on a solar panel factory in Buffalo, New York, operated by SolarCity, a company co-founded by Tesla CEO Elon Musk. When the factory was announced in 2013, then-Gov. Andrew Cuomo offered to help out. At the time, the state hoped to revitalize Buffalo as a manufacturing hub, planning “to incubate a handful of small startups in promising economic niches.”
Instead, the state blew its entire budget on one project, pledging $750 million to build a 1.2 million-square-foot factory, which it would lease to SolarCity for $1 a year, plus another $240 million to purchase manufacturing equipment. It further agreed to exempt the facility from property taxes in its first 10 years, a savings estimated at $260 million.
At that time, the federal government also covered 30 percent of the cost of solar installations through grants and tax credits; in 2015, SolarCity reported having received $497.5 million in direct grants, though the Los Angeles Times estimated that the payout could actually have been as much as $1.5 billion.
In exchange, officials expected the Buffalo factory to create as many as 5,000 jobs and attract further development to the area. Musk promised that by 2020, the factory would make enough products to cover 1,000 roofs per week. But barely a decade since the deal was struck, the factory averages 21 installations per week, and the only new business that has moved into the area is a single coffee shop. And while Tesla reported in February that it had created 1,700 jobs—as the Journal notes, “enough to meet its obligations to the state and avoid a $41 million annual penalty”—the majority of those are Tesla employees who don’t work on solar projects. The state has adjusted the terms of the deal 12 times in eight years, lowering job requirements and extending deadlines.
The Journal article adds that Cuomo’s “spokesman defended the project, saying the factory site has more jobs on it now than when it was an empty lot where a steel mill once stood,” though it’s arguable whether $1 billion for 1,700 mostly unrelated jobs is, in fact, better than nothing.
E.J. McMahon, founding senior fellow of the fiscally conservative Empire Center for Public Policy, told the Journal that the Buffalo project could be “the single biggest economic development boondoggle in American history,” adding that “the state became a direct investor in that project under the worst possible terms.”
This is far from the first sign of trouble: In 2016, Tesla acquired SolarCity, which was out of cash with over $3 billion in debt. In 2018, Oregon clawed back $13 million after it found that SolarCity, now known as Tesla Energy, had overstated the costs of several projects in order to qualify for tax credits. New York auditors later wrote down $883.8 million in state investment after determining that “it will not likely receive the direct financial benefits associated with ownership of the manufacturing facility and equipment.”
The enormous expenditure on a private company is dispiriting for many reasons, not the least of which is Musk’s public rhetoric on subsidies. In the past, he has spoken quite eloquently about the problems with taxpayer funding for private projects, saying in 2021 that “the role of the government should be that of a referee, but not a player on the field.” And yet he and his companies have benefited significantly from government largesse, to the tune of billions of dollars since 2010.
But while Musk’s record is disappointing, his rhetoric is right on the money: “Government should try to get out of the way and not impede progress.” If only policy makers would listen.