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Lawmakers say $500M Tesla tab might be worth it

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Copyright © 2014 Albuquerque Journal

SANTA FE – Top-ranking New Mexico lawmakers say the $400 million to $500 million the state might be asked to pony up to land Tesla’s giant battery factory wouldn’t be a deal breaker, but that plenty of safeguards would have to be built into the investment.

Tesla CEO Elon Musk last week, for the first time, publicly laid out possible financial terms for states competing to land the electric-car maker’s 6,500-job battery “gigafactory.”

“It sounds enormous,” Senate Majority Leader Michael Sanchez, D-Belen, said Friday, commenting on the state contribution, “but you have to look at what is the investment and what is the return on investment. It would be a tremendous investment on our part.

“There would have to be some strong indications they were going to stay here,” Sanchez added, saying he would support “clawback” provisions allowing the state to recover some of its invested money if Tesla’s plans were to change or falter.

“It is a tremendous amount (of money),” Sanchez said. “We would have to look at it very carefully.”

Senate Republican Leader Stuart Ingle of Portales also called the potential investment in the factory – possibly in tax breaks, land or other financial incentives – a “pretty good chunk of money.”

And if New Mexico were to move forward on such a deal, it would need guarantees from Tesla, Ingle said. “We’d need some assurance that it’s not going to be something that’s just talked about.”

Ingle noted that New Mexico is in solid financial shape, with billions of dollars in its endowment funds. “I don’t mind taking a look at anything that will bring in industry to New Mexico,” he told the Journal.

Tesla announced last week that it has broken ground at a site near Reno, Nev., as a potential location for its $5 billion battery plant, but the company also said it is still evaluating New Mexico and three other states for what it calls its lithium-ion car battery “gigafactory.”

Tesla estimates the factory would ultimately employ 6,500 people.

Musk told analysts Thursday that early estimates of between $4 billion and $5 billion to build the battery factory remain accurate. He suggested Tesla would invest between 40 percent and 50 percent of that cost. The remaining funds would come from its partner Panasonic (30 percent to 40 percent), other potential partners (10 percent to 15 percent) and state government (10 percent), he said.

The 10 percent state government participation would amount to $400 to $500 million.

Gov. Susana Martinez’s administration has been tight-lipped about the details of negotiations between New Mexico and Tesla, though Economic Development Secretary Jon Barela said last week that New Mexico remains “very much in the game” for the battery plant.

Barela also said the state has been in talks with Tesla officials as recently as last week, though an agency spokeswoman said she could not comment publicly about the possible amount of state money being sought by Tesla.

New Mexico’s state budget for the fiscal year that began July 1 is $6.2 billion. As such, a $500 million investment in Tesla would represent about 8 percent of current state spending levels.

Such an investment would also exceed the amount the state has spent on at least one recent high-profile economic development project, as Spaceport America cost $225 million in taxpayer money in 2007.

Sen. Cisco McSorley, D-Albuquerque, described the potential price tag for Tesla as “steep” but feasible in the right circumstances.

“No matter how big the package is, if there’s enough quality jobs (created) and enough return to the state of New Mexico, it could work,” McSorley said. “It has to be done in a way that protects taxpayers.”

McSORLEY: Says taxpayers must be protected (Adolphe Pierre-Louis/Albuquerque Journal)

McSORLEY: Says taxpayers must be protected (Adolphe Pierre-Louis/Albuquerque Journal)

McSorley and other Democratic lawmakers were criticized by Barela in April for penning a public letter that urged caution in luring Tesla, claiming the state has lost money in previous “trophy” deals with out-of-state corporations.

On Friday, McSorley took aim at the Martinez administration for not communicating details about a potential Tesla incentive package with legislators and the public.

“We should not be promising that amount of money behind closed doors,” he said.

Meanwhile, some industry experts have noted that New Mexico is the only state among the original finalists for the Tesla plant – Texas, Nevada and Arizona are the others – that does not have a so-called right-to-work law.

Such laws prohibit union agreements that require union membership, dues or fees as a condition of employment.

“We’re surrounded by states that have it,” Ingle said of a right-to-work law, which has been proposed in New Mexico in recent years but never enacted. “I’m sure it’s something they’re taking into consideration.”

However, McSorley noted that California, where Tesla is based and which is home to Tesla’s car assembly plant, does not have a right-to-work law and that other out-of-state companies have not voiced problems with New Mexico’s statute.

Economic Development spokeswoman Angela Heisel said she could not say whether New Mexico’s not being a right-to-work state has been brought up in discussions with Tesla.

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