The new Tesla facility in Buffalo was supposed to house a huge solar-panel operation, the largest one in the Western Hemisphere, but the project hasn’t turned out as planned. “It was a bad deal.” writes The Wall Street Journal (July 7, 2023).
But we have written about government incentives many times in this blog and discuss them in detail in Chapter 8 of our text, Location Strategies. When NY’s then-Gov. Andrew Cuomo, cut the ribbon in 2015, he proudly stated: “This is too good to be true.” It seems he was right.
New York paid to build a quarter-mile-long facility with 1.2 million square feet of industrial space, which it now owns and leases to Tesla for $1 a year. It also bought $240 million worth of solar-panel manufacturing equipment. Tesla said that by 2020 the Buffalo plant each week would churn out enough solar-panel shingles to cover 1,000 roofs. It is, however, averaging just 21 installations a week. The suppliers that Cuomo predicted would flock to a modern manufacturing hub never showed up. Auditors have written down nearly all of New York’s investment.
The state has agreed to amend the terms of its subsidy 12 times over the years, including by reducing the number of jobs to be created in manufacturing and shifting deadlines to accommodate the company. “In terms of sheer direct cost to taxpayers, this may rank as the single biggest economic development boondoggle in American history,” says a think tank founder.
Buffalo, once an engine of manufacturing, has stagnated for generations as industrial companies headed south. Previous efforts at renewal largely fell flat. In 2012, Cuomo said he wanted to spend $1 billion in state taxpayer money to turn Buffalo around.
America’s governors are swept up in an arms race of awarding packages of taxpayer money to attract industrial megaprojects. Last year, states gave each of eight company facilities more than $1 billion in tax breaks and other aid. In Wisconsin, a factory by Taiwan’s Foxconn that was to employ 13,000 workers in exchange for some $3 billion in state subsidies sits mostly empty. Suburban Virginia offered tax breaks to win a competition for Amazon’s “second headquarters,” but much of that project is on hold.
Classroom discussion questions:
- What incentives do governments often offer companies to entice relocation?
- What are the major factors that companies consider when making location decisions? (Hint: see Chapter 8 in your Heizer/Render/Munson text).
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