In December, amid mounting concerns about the viability of the electric-car startup Faraday Future, Nevada’s governor and the mayor of the city of North Las Vegas slammed the car company’s naysayers, saying taxpayers in the state are “fully-protected” from the potential ramifications a $335 million incentive deal for FF if it failed to spend $1 billion to construct a factory in North Las Vegas. The pair perhaps forgot to add a caveat: citizens are protected, but only for now.
What’s known about the tax incentive sweetener approved for Faraday by the Nevada state legislature in a December 2015 special session is this: The state approved $215 million in tax credits—contingent on the construction of a $1 billion factory, according to the governor and mayor—as well as $120 million in publicly-funded infrastructure near the factory. Things like roads, water lines, sewer pipes.
That infrastructure would be financed through bonds issued by the Nevada Treasurer’s Board of Finance. And state officials have said those bonds will be issued, so long as FF provides some form of financial security to ensure taxpayers are protected.
But if the bonds are issued and then the Faraday project goes kaput, the bill for the infrastructure bonds almost certainly would fall to Nevada taxpayers. That’s the belief of the Nevada Treasurer’s office. But Faraday hasn’t given officials much to believe in. This past year saw a series of executives depart the company, amid questions of whether it can even financially sustain itself.
“Faraday could’ve made all this press go away if they had just been transparent even in a confidential manner,” said Nevada Treasurer Chief of Staff Grant Hewitt. “Lock us in a room and say we can’t take [the documents] with it.”
For the Nevada treasurer, Dan Schwarz, one of the most vocal critics of the deal, those issues are paramount. Schwarz’s office has to deliver a recommendation on whether to approve infrastructure bonds.
But with no insight into the company’s viability, so far, his staff has been left in the dark.
To date, FF’s hasn’t offered its financial security needed to get the green-light for infrastructure bonds. But that didn’t stop Nevada Governor Brian Sandoval and North Las Vegas Mayor John Lee from slamming skeptics of the deal, particularly Treasurer Schwarz, in a statement last month.
“It is unclear whether or not the Treasurer has read the legislation or understands the agreement between Nevada and Faraday Future, but the state and taxpayers are fully protected should Faraday not meet its $1 billion investment,” the statement says.
Seething and dripping with optimism, sure, but the statement is short-sighted. Yes, if Faraday’s project is abandoned today, taxpayers are protected. But what about down the line, say, if bonds are issued to support the construction of infrastructure around the Faraday facility?
That, said Hewitt, is when taxpayers could be left on the hook.
As Hewitt said he understands it, the reason infrastructure bonds haven’t been requested from the state is that FF and Sandoval’s staff is still working to determine the cost of the various projects that are needed.
If the bonds are eventually issued, he said, they likely would be paid off using new tax revenue generated as a result of Faraday’s factory being operational. (In economic development parlance, it’s known as tax-increment financing.)
If the time comes when the Treasurer’s Board of Finance is asked to issue bonds to support infrastructure, Hewitt said the Treasurer would then have to officially assess the viability of Faraday. In other words: Can Nevada spend taxpayer money up front and be certain that Faraday’s factory will generate tax revenue to pay it back?
That determination from the treasurer is integral for the state’s finance board to decide in deciding whether or not to issue bonds for the infrastructure, Hewitt said.
“At the time we are asked to go through that process, it would be appropriate for us to ask a lot of the tough questions about revenue streams about company viability,” Hewitt told Jalopnik. “Because if a portion of this is to be paid off in a tax-increment area, which derives its revenue [from] Faraday, I think that it’s very important for the treasurer to ask questions about the viability of Faraday as a company.”
Jalopnik filed a public records request with the treasurer’s office for any document about FF’s finances, or the potential impact the tax incentive deal could have on the state, it possesses. But Schwarz’s staff confirmed it has nothing—which, Hewitt stressed, isn’t exactly unusual since bonds haven’t been requested at this point.
That’s not to say Schwarz hasn’t been asking for documents to ease his mind, however. As we reported last month, the legislature approved the $335 million deal for Faraday without any knowledge of the company’s finances. The treasurer’s office asked for a financing plan, but everything was marked confidential and wouldn’t be shared by the Sandoval’s economic office, which is overseeing the project.
“To date, no documents have ever been produced by Faraday to our office to help our treasurer get comfortable,” Hewitt said. (Messages were left for Sandoval’s office, as well as a North Las Vegas spokesperson, seeking comment.)
In a statement, a Faraday spokesperson reiterated that the second phase of construction will begin in early 2017, “and we stand by that timeline.”
“We will continue our regular communication with Nevada officials on our progress and next steps, as we have since beginning this project,” the spokesperson said. “Our manufacturing facility in North Las Vegas is fundamental to our vision of future mobility, and we remain committed to the State of Nevada in bringing the facility to life.”
Faraday’s unveiling this month at the CES conference of a production vehicle—the FF 91—revealed a car that’s incredibly advanced. And the seemingly indeterminable event at CES included a happy-go-lucky North Las Vegas Mayor John Lee, who picked a spot for the FF 91 to park itself (the successful parking demonstration of the night).
Clearly, Sandoval and Lee aren’t kidding when they express how bullish they are about FF.
But that’s their job. North Las Vegas has been a struggling community, and one of Lee’s many tasks as mayor is to bring economic development of some sort to it—even if that means showering a company with tax breaks, despite how unseemly is is.
Schwarz and the treasurer’s office has a job of their own: to make sure deals won’t screw Nevada. And if FF and its boosters can push the project along far enough—the company is reportedly adamant about launching the second phase of construction at the facility next month and believes it’ll has the financing to do so—it’s possible the state may be asked to issue bonds for infrastructure soon. Hewitt estimated it could happen as early as this summer.
So Nevada taxpayers could become relevant to the deal quite soon.
Hewitt explained the state law that created the Faraday incentive deal required North Las Vegas to use any unused revenue in its budget to payoff the bonds.
“But as we all know now, North Las Vegas is a struggling municipality and with the good work of the mayor, they’re trying to build themselves out of an economic problem,” he said. “I don’t know how much money would be there anyway.” That means if the project is scrapped midway through construction, the cost for the bonds would be borne by the state.
Even if Schwarz’s office is asked for a recommendation to assess the viability of Faraday and the bond deal, the state finance board could still go ahead and approve it anyway: Hewitt pointed out the five-member board consists of the governor, as well as two members appointed by Sandoval.
“They have the ability to vote for bonds that don’t have a favorable recommendation from the treasurer’s office,” Hewitt said. “I don’t know why they would do that, but they could do that.”