SolarCity deal is a rich subsidy package

Reporting, analysis and commentary
by Jim Heaney, editor of Investigative Post

My first blush impressions of the SolarCity deal announced Tuesday by Gov. Andrew Cuomo:
It’s a rich package. The state is committing $750 million – $350 million to build a manufacturing plant and $400 million in potentially forgivable loans to equip it – in exchange for creating 3,000 jobs, half of which would be employed by SolarCity, the other at firms in their supply chain. That works out to $250,000 to $500,000 per job, depending on how you do the math. By comparison, the subsidy package cobbled together to lure the Yahoo! data center in Lockport five years ago involved $58 million of incentives and 125 jobs – or a whopping $2.1 million per job. The costliest deal before Yahoo! was the $110 million spent to attract GEICO to Amherst. The company pledged to bring 1,200 jobs to the region, which worked out to a subsidy of $92,000 per job.

  • The state plans on making property adjacent to SolarCity a tax-free zone under the Start-Up New York program, which enables companies and their employees to avoid paying state taxes for 10 years. SolarCity and the companies it initially contracts with to reach its goal of 3,000 jobs will not be eligible for the program, but companies who get in the game later apparently will. It’s good that SolarCity and its initial suppliers will not be able to cash in, but the prospect of a tax-free zone down the road is concerning. Both Buffalo and New York State need to grow their tax bases and the governor’s strategy will hamstring that effort.
  • More than one speaker Tuesday called the SolarCity deal a “game changer.” Not really. The local job market includes more than 500,000 jobs; adding 3,000, while a good thing, does not move the needle much. A silver bullet, it’s not, but then again, there are no silver bullets. For further perspective, consider how the SolarCity plant compares with other large manufacturing facilities in the area. SolarCity’s plant would total 1.2 million square feet and 1,500 employees; the General Motors Engine Plant in the Town of Tonawanda consists of 3.1 million square feet and employs nearly 1,900 jobs, while the Ford Stamping Plant in the Southtowns includes 2.5 million square feet and about 700 employees. I doubt anyone would call the GM plant a game changer and the same holds true for SolarCity.
  • Much is being made of SolarCity’s investment of $5 billion in the project, but the number is a little misleading. It’s not a $5 ¬†billion capital investment, as many people understand “investment,” because the state is going to cover most, if not all of the cost of building and equipping the facility. Rather, the $5 billion includes payroll, manufacturing materials and the like. It’s a point worth clarifying.
  • SolarCity’s deal complicates the agreement the state reached last fall with Soraa to build high efficiency lighting at Riverbend. Cuomo said Tuesday that deal, involving some 300 jobs, is a subject of discussions between the state and company. Alain Kaloyeros, the nanotech guru and mastermind of the Buffalo Billion program, told me in an email that the “Soraa deal is alive and well.” But it appears Soraa will need to find a new location in the city to set up shop, however.
  • Depending on how you do the math, Tuesday’s announcement could mean Cuomo has burned through most of his Buffalo Billion. What’s his next move?

So, is the SolarCity deal a good one or not?

Well, there’s no denying it’s generous – quite generous. It’s not as outrageous as the deal Tesla Motors recently wrangled out of Nevada and it could have been had Cuomo agreed to grant SolarCity status as a Start-Up New York project. But still, we’re talking three-quarters-of a billion dollars and $250,000 a job. That’s big money, nearly triple the $225 million the state originally committed to at Riverbend.

Cuomo and his team did a poor job of explaining the details Tuesday. For example, there was a brief mention of the $400 million loan. Only when pressed, not once, but twice, did they acknowledge that SolarCity won’t have to repay the loan if they meet performance benchmarks. So it’s really a grant if SolarCity doesn’t mess up. I could cite other examples, but you get the picture.

What rankles me is all the hype, all the back slapping that made Tuesday’s event seem more like a campaign rally than anything else. Look, adding 3,000 jobs is a good thing. But it’s not a game changer, and Cuomo didn’t so much attract SolarCity to Buffalo as he did raid the public treasury to make them an offer they couldn’t refuse.

The thing is, you can throw that kind of money around once, maybe twice, but Cuomo’s approach is not financially sustainable. The governor said ¬†Tuesday he wants to take the Buffalo model and replicate it in other upstate cities, but it begs the question: How could he hope to pay for it?

A modified version of this post can be found in the Oct. 2 issue of Artvoice.