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SolarCity and its Impact

A lot has been written in the past week or so about the SolarCity project in South Buffalo. A lot of it has to do with OMG THAT’S LIKE $300k PER JOB. It’s being sold as an excessive investment for dubious return.

Here’s something to consider: the state of New York is not paying a subsidy to SolarCity. Under its contract, SolarCity will create approximately 3,600 brand-new high-paying jobs in Buffalo alone.  In order to do that, the state is buying the equipment that SolarCity will use to manufacture its products, and building the factory facility. The state will own it all.

While it’s well within the populist fashion of the times to decry public-private partnerships such as these – especially given examples where the private beneficiaries fail to uphold their end of the job-creation bargain with impunity – the simple fact is that municipalities compete with each other for this type of project, and Buffalo needs to be able to compete. 

It’s not just about 3,600 jobs. It’s about the economic activity that each one of those well-paying jobs generates

Let’s backtrack for a second and talk about supply-side/trickle-down theory versus demand-side/trickle-up; I believe in the latter and not the former. 30+ years ago the country started a grand experiment, simply put that lowering the tax burden on the very wealthy would result in them amassing more wealth, and that this would “trickle down” to the economy-at-large and create great wealth for everyone. It was what George H.W. Bush in 1980 called “Voodoo Economics”. Yet the country has stuck with this notion that easing the tax and regulatory burden on the rich would bring about great things for the middle and working classes. It simply didn’t happen. In fact, the working poor stayed that way, and the middle classes have borne the brunt of this experiment in terms of less pay for more work. 

Think of it this way – we heard a great deal in the last few Presidential elections about the vaunted “job creators” – these magical John Galts who have amassed great success and wealth and who demand less regulation and more tax relief (and none of this “Obamacare” nonsense) in order to … well, it gets a bit fuzzy at this point. 

It gets fuzzy because lax regulations have simply led to poor oversight and environmental catastrophes like the chemical spill in West Virginia last year. Arguably, the public cost in money and suffering that resulted from that disaster far exceeded the cost properly to inspect and enforce health and safety regulations in the first place. 

But with respect to the ultra-wealthy “job creators” in this country – let’s say I have a fortune of $150 million. With that sort of money, my opportunity to participate in the economy is limitless. Many of the people with this sort of money pay a fraction of a percent of their income to the authorities as compared to the nut you and I pay, because the tax code is designed by these people to help these people. Let’s say, instead, that I actually earn a paycheck rather than amass a fortune through inheritance or investment, and that I make $4 million per year. Technically, I’m supposed to pay 35% or so of that money to the IRS, but through creative accounting and other loopholes, we can whittle that down substantially. But even if, hypothetically, I paid the full 35% nut to the feds, I’m still bringing home $2.6 million. What does that mean, in terms of the trickle-down theory? That I won’t get a Maybach and instead opt for an S600? That I’ll have to cut back on my NetJets account? Seriously, what is it about $2.6 million versus, say $3.4 million that will adversely affect my ability to spend? Whether you earn $2.6 or $3.4 million, you’re making all the money in the world and you can buy anything you need, and everything you want. 

By contrast, if you put an extra few thousand dollars in the pocket of someone who’s working class or middle class, you just added a new appliance, or a better car, or a nicer vacation. By giving tax relief to the middle class, you can suddenly give average people more freedom to participate in the economy, and they’ll spend it – everyone benefits.  We could simplify the tax code tomorrow and the economy would skyrocket. OK, everyone earning over $500,000 pays 35% straight up, regardless of income source – paycheck or capital gains. Anyone making $200 – 500k pays 25% straight-up. Anyone making $100k – 200k pays 17%. 50k – 100k, you pay 10%, and if you earn less than 50k you pay zero.  Add a VAT and you’ve just funded universal health care. 

But I digress. 

The state’s investment of $350 million from the Buffalo Billion and $400 million in conditional loans (payable if SolarCity does not meet milestones and goals as set forth in the agreement), will result in a massive trickle-up boost to the local economy.  You will have 3,600 households suddenly better able to afford to participate in the local economy, buying goods and services throughout the region. And let’s not forget that SolarCity has contracted to invest $5 billion in this project over the first 10 years, we’re not looking at some sort of idiotic handout. 

Although 3,600 jobs will be here in WNY, there will be 5,000 SolarCity jobs created throughout upstate New York.

Now, witness what some are now trying to peddle. Namely, local embarrassment Carl Paladino. Here’s an excerpt from an anti-Cuomo, pro-Astorino email he sent Thursday: 

Aside from the misspellings and factual inaccuracies (read: lies), Paladino claims that Texas doesn’t subsidize or incentivize businesses moving to Texas. Well, not every business wants to locate in an overheated place that doesn’t spend money on infrastructure or education.  But the idea that Texas doesn’t do economic incentives is simply a lie.  It takes a few simple clicks of the Google machine to find the Texas website where its incentives and subsidies are set forth. Now, Paladino would have you think that Musk went to Texas simply because it’s an overheated, be-rednecked Galt’s Gulch, right? Wrong

In Texas, Musk said the outpouring of support from local residents and government officials — who are supporting the project with at least $15.3 million in state funding — was significant: “We want to be in a place where we’re truly wanted,” he said.

By the way, Elon Musk – the guy in charge of SolarCity – recently located his SpacePort in Texas, but located his Tesla battery plant in Nevada. Part of the reason? Nevada’s business climate is more liberal than Texas‘. Also, Nevada and Texas competed against each other to land the Gigafactory, and Nevada’s package of $1.25 billion in tax breaks and incentives beat whatever Texas’ proposal was

The deal with SolarCity is different. The state (via SUNY) will own the factory and equipment, and SolarCity will be allowed to use it – for free – for 10 years. This will create 3,500 local high-tech jobs; 21st century jobs. Again – SolarCity will be investing $5 billion of its own money. If they don’t live up to their promises, SolarCity will be up to $412 million in debt to the state.  SolarCity maintains a big chunk of the risk, and isn’t getting a direct cash subsidy. 

Over 3,500 new, high-paying local jobs and all the economic activity that each one of those jobs generates is huge for this region. This is a big risk and a big expense, but you don’t undo 50 years of decline through recklessness or fear. 

  • Paul Buckley

    Part of trickle-down was that tax relief to business owners (not necessarily those highly-paid CEOs but more salt of the earth barbers and shop keepers and mom & pop shops) would be able to invest more heavily in their own businesses, bringing faster expansion and more employment. To the extent that they own and control all the company “stock” this has great appeal and likely works as an incentive to trade short-term gains for long term stability. Not sure that this theory works at all with publicly-traded companies whose majority ownership rarely resides inside the company.

    The use of NYS tax money to create an anchor tenant on otherwise unused land is interesting; I’m curious as to whether or not this public-private deal can and will lead to other related industrial development in the region. That measure will affirm whether or not this was a good deal.

    • Income taxes for wealthy individuals are at all-time historic lows. Many of the wealthiest Americans avoid them altogether, or pay a much reduced capital gains tax (which Republicans would love to abolish completely). While corporate taxes are not the lowest in the world, most corporations have figured out ways to avoid them completely, and they are in any event lower than they have been in previous decades. There’s very little left to cut, unless you undertake a wholesale simplification of the tax code and make it benefit the middle class – this will never happen because the middle class can’t afford lobbyists to go out and help them in this way.

      • Corporate taxes are essentially taxes on the income of people owning the corporations.

  • Tom Beecher

    I work every day in a perfect example of why the $/job argument is silly. I’m in my mid-30s, and fortunate enough to work at Yahoo in Lockport, another project that received tax incentives to locate here. Every day, I see young kids, fresh out of college, show up to work at well paying, career oriented positions. You often hear new people comment about how glad they are that we’re here so they didn’t have to move to find work. We’re not perfect, nobody is, but this is a direct reversal of the exodus of the young and educated.

    What’s a better use of tax breaks ; IDAs poaching businesses between towns, or giving people a chance to make a good honest living where they want to, while keeping some brains here at home?

    Maybe I’m biased, but I’ll take the latter.

  • Know Saint

    Carl should look on the bright side. With SolarCity’s aim to lower the price of solar panels, Carl could put some solar panels up on his buildings, instead of the juvenile rants he plasters up from time to time. Would go a long way to eliminate Paladino’s blight.

    Speaking of blight…

    On another note, does anyone think Steve Pigeon squeals on Carl Paladino to Gov. Cuomo what Carl says to Steve about the governor? And vice versa, naturally, as Pigeon ALWAYS plays one against the other.

    • Russ Andolina

      Carl’s the best. Dude is profiting wildly from all the recent development and economic rebirth and he’s writing treatsies like it’s still 1994.

  • It is a bit ingenuous to say the State is not paying a subsidy to SolarCity. Taxpayer money is being spent to reduce the operating costs of the company. On that note, it is a bit more serious than just “populist fashion” to criticize pubic-private partnerships, which is just a euphemism for a subsidy. The “everybody is doing it” argument is one of the first fallacies people are taught. The answer isn’t to keep doing it, but to end it all around. The benefits of this subsidy are speculative at best. One must consider the seen vs. the unseen. The taxpayer money being used to buy the equipment could quite possibly produce more economic good had it not been taken from the citizens of this state initially. When you add up all of the subsidies, the cost is horrific. The totality of government spending and subsidies also has a direct affect on the effectivness of trickle-down economics. Unfortunately, that practice is negatively affected by other government policies in place.

    “While you state the destination given by the State to the
    millions voted, do not neglect to state also the destination which the
    taxpayer would have given, bat cannot now give, to the same. Then
    you will understand that a public enterprise is a coin with two sides.
    Upon one is engraved a labourer at work, with this device, that
    which is seen; on the other is a labourer out of work, with the
    device, that which is not seen.”

  • Sean Danvers

    Working in a 60% taxpayer-funded development betwixt the sunny landfills of Tonawanda as I do, I have to say that the initial tax breaks are not the doom and gloom that they often times are portrayed. The breaks apply to the corporation, not the slew of local labor and expertise they hire to build and maintain their facilities and to the other ancillary trades that will service the needs of the development. As those businesses grow to meet increased demand for their services, so does their tax base.

    Of course, my company somehow hamstrung its contract to ensure that a sizeable slice of contractor work went to “locally”-based workers who operate near our corporate HQ in the South. Hopefully that will not be the case with such a NY-heavy operation like this.

    • UncleBluck

      No. It was “handed” to Ciminelli Construction of course. No competitive bid as it should be by NYS law. And the trickle up continues…..

      • wnyresident

        Why wouldn’t the project be bid out? That definately is not in the best interest of the tax payer.

      • Talk to Byron and Ciminelli about it. I wonder if Ciminelli donates to Byron?

      • wnyresident

        Well why don’t you go to the board of elections website and follow the money. I would have no issue if there was a law that could say various entities can not contribute to campaigns. Almost looks like bribery. I’ll donate to help get you elected but we would like preference on bids.. Doesn’t Governor Cuomo take campaign funds from businesses that have state contracts?

  • Russ Andolina

    Yeah I mean I get and agree with the general feeling of anti-corporate welfare but you have to balance principle with pragmatism. I wish it was different but the juice is definitely worth the squeeze here.

  • Ray Boggs

    1. Add up your lease payments and when compared to an outright solar system purchase you’ll typically find that you’ll easily be paying up to 3 times more on a $0 down solar lease versus a purchase.

    If your leasing payments total up to more than $2.25 per watt for an installed system after applying the 30% tax credit, (for example a 5 kw system x $2.25 per watt equals $11,250) then you’re probably paying too much. Way too much.

    2. You’ll typically pay so much more for a lease than a purchase that’s it’s actually you who will be over-paying for your own maintenance, monitoring and insurance not the leasing company. Why do you think so many solar leasing companies are BUYING solar systems while leasing them to you?

    3. You may have trouble selling your home because what home buyer in his right mind will want to assume your lease payments on a used, outdated system when they can buy a brand new system with the latest technology and keep the 30% federal tax credit for thousands less.

    Don’t believe it ? Well then simply type the keywords “solar lease scaring buyers” into Google and you can read many accounts of homeowners and real estate professionals reporting difficulty when trying to sell a home with a 20 year solar lease or PPA attached to it.

    4. After making 20 years worth of leasing payments, you won’t even own the system. It will still belong to the leasing company. If you want to own their system after making all those payment, then you’ll have to buy it from the leasing company at the end of your lease at fair market value.

    5. Check that quote from the solar leasing company and you’ll find that most of the time they won’t even tell you what brand of equipment they’re installing on your home. I wonder why?

    6. Most if not all $0 down solar leases include an annual payment escalator that will increase your monthly payment by up to 2.9% per year for 20 years.

    Imagine what would happen if your utility company decides to, or is ever mandated to lower their rates or flatten out their rate tier structure, like is happening in California. You could end up being forced to pay more for your electricity than if you never had signed that air tight, escalating solar lease contract in the first place.

    7. Remember, the solar leasing/PPA companies are still using Gen 1, boxy looking aluminum framed solar panels that were originally designed back in the 1970s, instead of the latest, Gen 2, Hyper X 2, one quarter inch thick, Bifacial solar panels. So you’ll be stuck with the same aging solar system on your roof without the ability to upgrade for the full 20 year term of the contract.

    Your neighbors are just going to love you at year 12 of your 20 year lease with that boxy looking superstructure bolted to your roof. If you bought your system instead, you can sell it at any time you wish and take the proceeds from the sale and upgrade to the latest and greatest equipment that will produce even more power in the same amount of space and improve your home’s curb appeal. You can’t do that with a lease because it’s not your system to sell.

    8. You’ll have to forfeit the 30% federal tax credit and any applicable cash rebate to the leasing company and you won’t get tax deductible interest on your lease payments. Only a $0 down solar loan or $0 down PACE financing can give you tax deductible interest and let you apply all of your incentives to a lower priced system for a much better return on your investment.

    Own a much lower priced solar system instead with a $0 down solar loan that offers tax deductible interest and allows you to keep the 30% federal tax credit and any other applicable financial incentive for a much better return on investment.

    • Know Saint