Moody's gives thumbs up to Tesla deal for local, state governments

Here's the report issued today on the Tesla deal by Moody's, which sees the deal as a benefit to governments but dlayed and/or mitigated by the abatements:


Credit implications of current events

US Public Finance

Nevada State and Local Governments Would Benefit from Planned Tesla Factory

On Thursday, Nevada Governor Brian Sandoval announced that the state had reached an agreement with 

Tesla Motors (unrated) for the electric car manufacturer to build its lithium ion battery factory, known as 

the “Gigafactory,” at the Tahoe-Reno Industrial Center in Storey County (unrated). Assuming legislative 

approval, which we expect, the factory is credit positive for Nevada (Aa2 stable) and local municipalities. 

State officials estimate that the factory will create as many as 22,000 jobs and produce a $100 billion overall 

economic effect and a $1.9 billion fiscal effect over the next 20 years.

The factory will diversify the state’s and region’s economies, which rely heavily on gaming and tourism. 

Nearby rated municipalities that will benefit from the Gigafactory include the City of Reno (A1 stable), 

Sparks Tourism Improvement District No. 1 (B1 stable), Douglas County (Aa2), Storey County School 

District (A1), Washoe County (Aa2 stable) and the Washoe County School District (Aa3 stable). However, 

the state’s proposed tax incentives of $1.25 billion will mute the financial benefit.

Nevada has one of the highest unemployment rates in the nation at 7.7% as of June and is highly 

dependent on the leisure and hospitality sector, which composes 28% of total nonfarm employment in the

state, versus a national average of 10%, and typically comprises lower-wage jobs. The state expects 

construction of the factory, slated to be completed in 2017, to produce 3,000 new construction jobs over 

three years, which will support this sector’s ongoing recovery from the housing market crash. Once 

completed, the factory will employ 6,500 people at an average wage of $25 per hour – substantially higher 

than the current regional median hourly wage of $16.09.

The state estimates that the factory will produce 16,000 indirect jobs, and increase state employment by 2% 

and employment in the Reno-Sparks metropolitan area by more than 10%. Under the agreement, the 

state’s 1.17% modified business tax on wages would be abated for the next decade, and the state is offering 

Tesla transferable tax credits of $12,500 per permanent, full-time job, up to 6,000 employees. The resulting 

increased economic activity will boost sales tax revenue, which, at 28% of all revenues, is the state’s largest 

revenue stream.

The factory site is nine miles from Reno and roughly 250 miles from Tesla’s auto manufacturing facility in 

Fremont, California. At more than 5 million square feet, the investment from Tesla and its partners 

includes up to $1 billion for the facility and $4 billion in equipment. Under the agreement, up to 100% of 

real and personal property taxes will be abated through the fiscal year ending 30 June 2024. As a result, 

local governments are unlikely to see any direct fiscal benefits from the factory for at least the next decade. 

Similarly, the 20-year abatement of sales taxes and various tax credits will reduce the positive effect on 

state finances.

However, we expect local governments to benefit indirectly from the factory’s construction through higher 

real estate values on existing property and new developments, and increases in state shared revenues, which 

are driven by economic activity and distributed based on population. Additionally, Tesla will make a $37.5 

million contribution to K-12 education beginning in August 2018, and provide a $1 million grant to fund 

advanced battery research at the University of Nevada Las Vegas.