Learning the Right Lessons From the Fight over Tesla’s “Gigafactory”

September 4, 2014

The announcement that Tesla has selected the state of Nevada over other western states for its new “Gigafactory” will undoubtedly reignite the debate about whether California is unfriendly to businesses. Critics will likely point to policymakers’ inability to secure a California location for the new manufacturing plant as another indicator that tax and regulatory policies drive businesses and jobs out of the state. However, it’s worth taking a step back to look at what lessons can really be learned from this experience, and what policymakers should consider moving forward.

First, site-location decisions are about more than just taxes or regulations. Where businesses locate depends on a multitude of factors, including the availability of skilled workers, shipping and transportation costs, and the quality of public services. This is further borne out by the fact that one region in Texas is reported to have offered Tesla almost $800 million in subsidies and tax breaks and still did not convince Tesla to locate there — and this reported offer far exceeded the $500 million that Tesla requested. While we will learn more specifics in the coming days about the reasons why Tesla chose Nevada, it is unclear that Nevada has the capacity to offer a similar upfront deal, considering that this would represent a substantial share of the state’s total $6.4 billion budget.

Second, California will still see some economic benefit from a Tesla factory located in Nevada. In our open letter to policymakers, signed with stakeholders from other western states, we emphasized that states have an interest in cooperating given that the automotive industry spans across states and cities. As the Sacramento Business Journal reports, a Tesla factory in Reno could help the Sacramento region because warehousing and supplier companies could locate along the Interstate 80 corridor. This speaks to the need for states to be more transparent and cooperative in their approaches to economic development, since Nevada taxpayers may end up paying for a decision that could benefit California anyway.

Finally, it’s worth pointing out that California’s job growth is outpacing the national average, and this includes jobs from companies expanding in or relocating to California. While we have written extensively about how California’s economy remains difficult for many of California’s workers, the state’s high unemployment rate is more about the historic losses incurred during the recession rather than California’s economic growth being comparatively weak. Companies like Mercedes have expanded operations in California, and the state is adding an average number of new jobs each month that is four times what the Tesla plant would have directly provided in total, if the new factory met expectations.

With these things in mind, what should policymakers do? It’s understandably frustrating to engage in a public fight over securing jobs that would benefit a community, only to “lose” that fight. However, policymakers should not learn the wrong lessons from this experience: that California needs lower taxes or needs to offer even costlier deals to individual companies. Research consistently shows that tax cuts at the expense of public investment are not the best means by which to spur job growth. Enhancing public services and investing in a skilled and educated workforce remain the preferred long-term strategies. For instance, with the amount of public subsidies California was considering for Tesla — estimated to be around $500 million – the state could have tripled this year’s increase in General Fund support for the California State University system. It’s this type of investment — and similar ones that create the foundation for future growth — that will promote broad-based economic prosperity in the future.

— Luke Reidenbach

 

 


New CBP Report: Making the State’s Economy Work Better for Low- and Mid-Wage Californians

September 3, 2014

Earlier this week, we released our annual Labor Day report, taking a look at the latest employment and wage trends, what they mean for workers and their families, and some key implications for public policy.

Beyond Recovery: Making the State’s Economy Work Better for Low- and Mid-Wage Californians shows that while our state has regained the number of jobs it lost during the Great Recession, the current economic expansion follows decades of wage stagnation that has meant diminished opportunities for many California workers. The report also shows that low-wage earners account for a growing share of the state’s workers overall.

In sum, Beyond Recovery underscores that simply recovering from the Great Recession will not be enough to ensure a mix of jobs that makes broad-based economic growth possible. The report highlights a number of ways that state policymakers could help broaden economic opportunity for California’s workers and their families. These include investing in services that help Californians find and keep stable employment, broadening access to high-wage careers by rebuilding support for California’s public higher education system, and ensuring that low-wage jobs pay adequate wages.

Our Labor Day report received media attention across the state. Midday Edition on KPBS in San Diego featured a segment on the report, during which CBP Policy Analyst Luke Reidenbach, the report’s author, discussed its key findings. The report also received coverage in the Los Angeles Times, San Francisco Chronicle, Sacramento BeeCentral Valley Business TimesInland News Today, and others. (Read our full press release.)

In the coming weeks and months, look to this blog and our website for further commentary on California’s economy and labor market and how state budget and policy choices can lay the groundwork for greater economic opportunity across the wage spectrum.

 Steven Bliss

 

 


An Open Letter to Five States’ Officials About Tesla Motors

August 26, 2014

The announcement earlier this year by Tesla Motors that it planned to establish a major electric-car battery factory in one of five western states has set off a bidding war among officials in these states. Yesterday, CBP Executive Director Chris Hoene joined with leaders at Good Jobs First and peer organizations in the other states to direct an open letter to state officials calling for greater openness in the process, strong accountability measures, and cooperation — not competition — among the states.

August 25, 2014

There is no question that state officials should place a high priority on boosting employment and fostering economic opportunity. But recently our states have been pitted into a race to the bottom from which no real winner may emerge. Tesla Motors’ proposed “Gigafactory” — undoubtedly a valuable source of economic growth for its eventual home state — has been offered to you in an unusual public auction, with the opening bid set at $500 million in subsidies. Since Tesla has chosen to make the process public, we write as unified voices from Arizona, California, Nevada, New Mexico, and Texas to argue that our states have more to gain from cooperation than from competition.

We call upon you to communicate and cooperate across state lines to strike a fiscally responsible deal that is fair to residents and businesses alike. It is time to break the harmful pattern of one state “winning” a high-profile competition, with other states left believing they need to offer even larger tax breaks to win future deals.

Overspending on Tesla — or any other company — could be a net-loss game in which fewer public resources are then available for investments in areas that benefit all employers, such as education and training, efficient infrastructure, and public safety. All state and local taxes combined equal less than 2 percent of a typical company’s cost structure, but lost tax revenue comes 100 percent out of public budgets.

What’s needed are smarter deals, recognizing that all of our states could potentially spend $500 million on other vital public services. Any agreement struck must be fully transparent — no law requires you to negotiate with Tesla or any company behind closed doors — and, furthermore, should include robust provisions for disclosing actual costs and benefits over time. Our states’ residents should feel confident that there are strict performance requirements and money-back guarantees to ensure Tesla delivers what it promises.

Tesla might even be receptive to a multi-state dialogue. The iconoclastic company, internationally known for innovation, could help chart a new path in how economic development is done. The automotive industry — with its far-flung supply chains and 50-state market — is a poster child for the idea that states are interdependent and that the main goal is the long-term growth of American jobs, not any single state’s ribbon-cutting.

We call upon our elected officials to seize this rare opportunity: talk to each other, let the public into the process, and when the time comes, strike a smarter deal that will preserve the tax base for the benefit of all.

Signed,

Diane E. Brown, Arizona PIRG

Chris Hoene, California Budget Project

Bob Fulkerson, Progressive Leadership Alliance of Nevada

Javier Benavidez, Southwest Organizing Project (New Mexico)

Craig McDonald, Texans for Public Justice

Greg LeRoy, Good Jobs First


For Local Labor Markets, the Public Sector Is Still a Drag

June 23, 2014

After more than four years of sustained job growth, California has nearly regained the number of jobs lost during the Great Recession. On top of this, the economic recovery is now also reaching a growing number of metropolitan areas and industries across California. However, while all major metropolitan areas have now experienced net job growth over the past four years, this growth has been uneven both across the broad regions of our state — with the Greater Bay Area generally faring better than the Los Angeles and San Diego regions — and within each region. Moreover, some weaker parts of the California economy — most notably the public sector — are continuing to act as a drag on overall job growth.

The below table highlights both the strengths and the weaknesses of California’s current recovery. It shows the percent change in the number of jobs between the first quarters of 2010 and 2014 for each major metropolitan area and select industries. Metropolitan areas are grouped by region, and within each region the metros are sorted by the level of overall job growth during the past four years.

One notable takeaway from this table is that public sector job losses weigh heavily on nearly all metro areas in California. Even as the private sector has expanded and added jobs across a variety of industries over the last four years, the number of public sector jobs — which includes jobs in public education as well as with cities and counties — still remains below the 2010 level in most metro areas.  Statewide, public sector jobs were down 2.5 percent in first quarter of 2014 compared to four years prior.

Click on the table image to see how your metro area is faring in the economic recovery.

— Luke Reidenbach


Increased Student Loan Debt Creates Ripple Effects That Could Hinder Economic Growth

May 29, 2014

Our recent Budget Brief on funding for higher education, From State to Student, shows that a growing share of students graduating from California’s public four-year institutions — the California State University (CSU) and the University of California (UC) — are doing so with higher levels of student loan debt, partly due to an ongoing shift of higher education costs from the state to students and their families. At UC, for example, undergraduates who took out loans graduated with an average of nearly $20,000 in student loan debt in 2011-12 — a level that is almost $3,000 higher than in 2006-07, after adjusting for inflation.

This trend is certainly not unique to California. Nationwide, an increased share of young adults are taking out student loans to help pay for their higher education. Furthermore, the average amount owed in student loans by those who do borrow has also risen. In only a decade, from 2003 to 2013, the percentage of 25-year-olds with student loan debt increased from 25 percent to 45 percent, while the average balance owed nearly doubled from around $10,600 to $20,900.

Of course, student loans aren’t necessarily bad. They can help bring higher education within reach of many low- and middle-income students and are a sound investment in one’s future. Also, some programs, such as federally subsidized low-interest student loans, help provide critical access to higher education for millions of young Americans, including many CSU and UC students. And, we know that college graduates have significantly higher average lifetime earnings and face lower unemployment rates than do those with only a high school diploma. In fact, over the past generation only Californians with bachelor’s degrees, on average, made strong wage gains, providing clear evidence that a four-year college degree is closely tied to economic opportunity and mobility.

However, the high level of student loan debt could actually be stifling the nation’s economic recovery. A new report by the Federal Reserve Bank of New York shows that, with escalating education costs contributing to soaring student loan debt, young adults — particularly those with student loans — are significantly more likely to hold off on purchasing homes, cars, and other big-ticket items than they were a decade ago. Worsening the situation is the high unemployment and underemployment rates that young college graduates continue to face. The combination of economic uncertainty and increased student loan debt burden has reduced the amount of money that many young Americans are willing and able to spend on a variety of purchases — thus creating a drag on overall consumer demand.

It’s not just that declining state support for CSU and UC may be creating ripple effects that threaten California’s economy in the short term. Failing to invest in higher education could put our state’s long-term economic future at risk. California is projected to face a shortfall of 1 million college graduates by 2025. Furthermore, a study last year by the Economic Policy Institute (EPI) demonstrated that states with a well-educated workforce are more likely to have strong economies and foster broadly shared prosperity.  The report noted that:

“(P)roviding expanded access to high quality education and related supports — particularly for those young people who today lack such access — will not only expand economic opportunity for those individuals, but will also likely do more to strengthen the overall state economy than anything else a state government can do.”

To help strengthen pathways to economic opportunity for low- and middle-income Californians, policymakers should rebuild state support for CSU and UC and recommit to providing an affordable, quality higher education that is accessible to all eligible Californians. Last week, both of the Legislature’s budget subcommittees on education voted to significantly augment CSU and UC funding above modest increases in the Governor’s proposal. This would represent a step in the right direction.

— Phaelen Parker


Strengthening California’s Adult Education System Means Targeting Local Needs

March 4, 2014

California’s adult education system is a vital resource for millions of low- and middle-income individuals, helping them obtain the basic knowledge and skills necessary to advance in their careers and actively participate in civic life. The Senate Committee on Education and the Assembly Committee on Higher Education recently held a joint informational hearing to discuss the future of California’s adult education system and the challenges that many adults in need of additional skills face in climbing the economic ladder.

CBP Executive Director Chris Hoene testified on the importance of a robust adult education system for local economies, and he provided the committees with county-level data on poverty, educational attainment, and English-language proficiency. These data offer different ways of thinking about how California’s adult education system can better help the people it serves and help regional economies grow and prosper.  The data on English-language proficiency and educational attainment are presented below, while the data on poverty was highlighted in a previous blog post.

SideBySide

(Educational Attainment table with full county data and map — PDF)

(English Language Proficiency table with full county data and map — PDF)

These data highlight the importance of California’s adult education system to local needs. Specifically:

  • Some California counties need to focus on adult education services for English learners. While adult education is often tailored to adults without a high school degree, a significant share of these students are also English-language learners. In some parts of California roughly a third of adults could be classified as English learners, meaning they speak English less than “very well.”
  • Investing in education is a key strategy to promote economic growth in a region, and a robust adult education system should be part of that strategy. The alarmingly high rates of poverty in many California counties underscore the need for investments in workers’ skills and education. Some regions may want to make significant investments in their adult education system as a way to promote long-term economic growth.

You can view the entire testimony, including a more detailed discussion of the data that was presented to the committees, here.

— Luke Reidenbach


A Closer Look at Job Creation in California’s Regions

September 20, 2013

California’s job market has been growing for more than three years now, but not all regions in the state are seeing this growth. As we explained earlier this month in Uneven Progress, unemployment remains in the double digits in a majority of counties, most of which are in inland areas. To follow up on that analysis, we looked a little deeper into which industries are growing in California’s metropolitan regions.

The above infographic shows job growth by industry between the first half of 2010, when the economy began adding jobs, and the first half of 2013, and regions are listed in order of the fastest-growing job markets to the slowest. The state’s fastest-growing metro areas — San Luis Obispo, San Francisco, Napa, and San Jose — have seen broad-based growth across a diverse set of industries. Notably, the industry category that includes construction has seen large increases in the number of jobs, and other industries such as financial activities and, in the case of San Jose and San Francisco, information services (which includes many Internet-technology-related jobs), also have seen gains where other areas in the state have not. Not surprisingly, the state’s slower-growing regions are still experiencing either declines or little growth in multiple industries.

This chart also shows the continued legacy of budget cuts in the public sector. The Great Recession led to a sharp drop of tax revenue for state and local governments, which meant layoffs and furloughs for public sector workers even as the job market began to recover. The number of jobs in government declined across nearly all metro areas in this three-year period, putting a drag on cities’ recoveries.

Given these regional disparities, and the data released this week on poverty in California, it is clear that this economy isn’t reaching large groups of Californians.

— Luke Reidenbach