Corporate Welfare in Casa Grande

    Lucid motors is planning to build a new electric car manufacturing plant in Casa Grande.

"The future of Casa Grande looks brighter now with Lucid developing 500 acres near Thornton and Peters roads, according to Casa Grande Mayor Bob Jackson. He sees the company’s arrival as a catalyst that will propel Casa Grande into being a leader in technology and advanced manufacturing. There will not be any delays in this development on behalf of the city, Jackson promised, as he expressed a desire to speedily move the project forward."

     I'm so glad to hear the the municpal government won't stand in the way of honest and potentially lucrative economic development. Governments don't always behave rationally or morally.

"Pinal County offered performance-based incentives to attract Lucid to build in Arizona."

     Now, why does Pinal County have to pay Lucid to bu ild a factory in Casa Grande? Is there something wrong with Pinal County that companies have to be paid to build factories here?

"County Manager Greg Stanley said he could not discuss what types of incentives were offered, except to say they were tied to Lucid pledging to create a certain number of jobs."

     Ok, so jobs will be created. All other things being equal, that's a good thing, I think.

The county will be assembling and buying the land, parts of it owned by Saint Holdings LLC, then selling it to Lucid."

     Now, why doesn't Lucid just buy or lease it themselves? Why does the county have to get involved in the deal?

"There is only one problem with the deal — the taxpayers of Arizona are expected to pay for the purchase of the land and contribute a significant amount of money to help it get the factory built and operational. When and if everything goes as planned, the factory is expected to create 2,000 jobs in an area where many are unemployed or underemployed."

 "The land itself will cost $31.8 million. Financing the purchase over 30 years will add another $41.6 million, but Pinal County spokesperson Joe Pyritz says the plan is to lease the land after it is purchased (presumably to Lucid Motors, although the county is not allowed to say so for the record) and then sell it at the end of 5 years. That arrangement would cap the total cost of the deal at $35 million. The sale price is expected to equal the total outlay made by the county for principal and interest."

"However, first someone has to actually buy the land. County supervisors will meet in January to consider how to do that. The leading proposal is to finance the purchase by raising property taxes or imposing a countywide sales tax surcharge. Pyritz says if the supervisors decide on a tax increase, the new tax would only cover the land deal and would end once the tax funding reimburses the county for the purchase cost."

     Oh-oh. Governments don't have any money of their own. The only way they can get money is by taxation. It's their only business plan!

 "Lucid Motors will be eligible for up to $46.5 million in various subsidies offered by the state through the Arizona Commerce Authority over the next five years. Those subsidies will be coupled with certain performance targets" 

"Susan Marie, spokeswoman for the Arizona Commerce Authority is quick to point out that the total amount is far less than the $335 million in tax credits promised to Faraday Future or the $1.3 billion in similar credits promised to Tesla Motors by the state of Nevada."

     Oh-oh. If we don't hurry up and jump on this deal, some other state (or some other county) will steal it away from us! Taxpayers in other locales aren't as dull as I am, probably.
     However, there are always two sides to every story. Could it be possible that paying Lucid to build a factory in Casa Grande with state and county taxpayers' money has a downside?
     First of all, let's sum up the upside. Cui bono? Lucid shareholders will certainly gain from this deal. Lucid management and workers will become employed, which is nothing but an upside for them. The county increases its tax base. No downside for them. Casa Grande businesses may or may not benefit, depending on where and how the Lucid employees spend their money. For sure, the economy will grow, there would logically be an effect on property prices (more taxes for the county), but it's impossible to predict who specifically will benefit and to what degree.
     On the other hand, it's doubtful, for example, that residents of areas far removed from Casa Grande (as many parts of Pinal County are) would benefit much, if at all.
     The downside of what should otherwise be a win-win situation is that taxpayers, both in Pinal County in particular and Arizona in general, will be forced to subsidize the establishment of the Lucid plant.

     "The project involves a significant amount of corporate welfare. Besides the Pinal land deal, Lucid Motors will attempt to collect up to $46.5 million over the next five years in various subsidies offered by the state through the Arizona Commerce Authority."

"The five Pinal County supervisors will discuss the possible land purchase and how it will be funded on January 4 at their regular meeting in Florence. The goal is to a produce a resolution of intent for the agreement, to be voted on no later than January 19."

"'The supervisors will likely consider either a property- or sales-tax hike to pay for the land,' Pyritz says. If they decide on a tax increase, he says, the new tax would only cover the land deal and would end once the tax funding reimburses the county for the purchase cost."

"'We won't make or lose money' on the deal, Pyritz says."

     No, the county will make money, in the long run, if tax revenues increase. And by the way, is the county planning to reimburse the taxpayers for their interest-free loan to the county and Lucid after the five years are up? Nothing has been said about that! Could it be that the county will end up keeping the money? Could it be the tax will remain in place, even after the deal with Lucid has been settled?

Summary:
The new factory will create 2,000 new jobs, which means the economy will grow.
    1. But capital extracted from state and county taxpayers will mean decreased purchases of the products of other producers.
    2. The jobs created will be in Casa Grande. Benefits for Western Pinal residents and property owners? Probably, some (we can't be sure who) will be net gainers. For other parts of the county? Doubtful.
     3. Economic stimulus created by the participation of government constitutes malinvestment (defined as investment that would not have occurred in a free market) and all other things being equal, has to be liquidated in the long run. If government wants to do something to improve the economy, they can remove legal barriers to development by repealing laws that discourage business.
     4. No mention is made of paying back taxpayers for their interest-free loan to the county (and indirectly to Lucid) or of abolishing the tax after the loan to Lucid is repaid.

     Government/business alliances are not a just way to foster development. If Lucid can't obtain the necessary funds to build their factory by consensual means, that is a good indicator that it shouldn't be built.
     The involvement of the county as an economic actor is troubling. Governments, if they serve any purpose at all, are meant to provide a very limited range of functions. A government is not a business and can't be run like one. Financing economic development is for capitalists and entrepreneurs, not county supervisors who have no capital except what they can squeeze out of the taxpayer.