Coyote Blog

Apparently our state government has been in another subsidy bidding war over a plant relocation, and fortunately it lost.  Why the state government pulls together Defcon 5 activity levels to bring 80 jobs to a town of 4 million is just beyond me.  But beyond my usual problems with subsidizing business relocation, which haven’t changed from this post way back when I talked about relocation subsidies in the context of the prisoner’s dilemma, I have three issues specific to our state’s efforts to attract solar manufacturers:

1. I am constantly amazed at the strategic planning that says Arizona residents should pay more taxes to promote a solar manufacturing industry because, uh, we have a lot of sun.  That’s roughly as logical as saying an FM radio maker should manufacture in NY City because they have a lot of radio stations.  I suppose you could argue it would reduce shipping costs to solar using areas, but I can’t believe that shipping costs dominate since most of the panels we buy in this country originated in Japan or Germany.
2. Companies and industries that seek subsidies are like hot money in the investment world.  Even if you attract it today, they will jump next week to another location that offers them more.  We see it in this case, as AZ bought Kyocera’s presence at one facility but can’t afford the price to get them to build this new facility.
3. The state’s approach defies all business strategy, and is making a typical novice investment approach.  Specifically, they are chasing the hot industry.  Everyone is bidding for solar plants, so the price goes way up.  This is why we have bubbles in housing and Internet, because people all pile into the same investment like lemmings.  If I were to run a government business relocation strategy (which I most certainly would never do) I would be focusing on boring stuff no one subsidizes.  We offered nearly 100% property tax abatement plus investment tax credits and can’t get a solar plant.  Instead we should be up in business hostile states like CA and NY getting rubber stamp makers and garage door manufacturers.  Surely we could get 70 jobs a lot cheaper.

The AZ Republic has an article today entitled, “Interest grows for solar plant at city landfill.”  It is telling who is interested:

It’s a sign of the growing interest in Arizona’s renewable-energy market, as solar manufacturers, civil engineers, investors and attorneys showed enthusiasm for the $1 billion project

I am quite sure that a number of solar engineering firms and parts manufacturers are interested feeding off a billion dollar project.  Now, the article tries to anticipate my concern about this being a government pork-fest by saying the project “would be financed and built by the private sector.”  This is an odd statement given this note a couple of paragraphs later:

That would help the solar company meet a strict deadline to apply for hundreds of millions of dollars in federal stimulus funds….

the economic-stimulus package provides grants of up to 30 percent of construction costs if companies can break ground by December 2010, said Brian Rasmussen of California-based BrightSource Energy Inc., a potential bidder.

So the billion dollars is privately financed, except for the real estate provided by the city and the $300 million in federal government funds and a gauranteed above-market subsidized purchase price for the power from the public utility plus any number of other government subsidies and incentives to be named later (such as government municipal bond financing).

If you move solar panels out of the Arizona desert, they are going to produce less electricity.  You almost don’t have to tell me where they are going — if they are currently close to the optimal spot for maximum solar energy production, then moving them is bound to reduce their output.

Seems obvious, huh?  So why is it so difficult to understand that when the government moves capital and other resources away from the industries where the forces of market optimization have put it, output is going to go down.

Subsidizing renewable energy in the U.S. may destroy two jobs for every one created if Spain’s experience with windmills and solar farms is any guide.

For every new position that depends on energy price supports, at least 2.2 jobs in other industries will disappear, according to a study from King Juan Carlos University in Madrid.

U.S. President Barack Obama’s 2010 budget proposal contains about $20 billion in tax incentives for clean-energy programs. In Spain, where wind turbines provided 11 percent of power demand last year, generators earn rates as much as 11 times more for renewable energy compared with burning fossil fuels.

The premiums paid for solar, biomass, wave and wind power – - which are charged to consumers in their bills — translated into a $774,000 cost for each Spanish “green job” created since 2000, said Gabriel Calzada, an economics professor at the university and author of the report.

“The loss of jobs could be greater if you account for the amount of lost industry that moves out of the country due to higher energy prices,” he said in an interview.

We all know from reading the media that the Obama administration is 1) full of brilliant people way smarter than the rest of us and 2) driven by science.  So this insightful exchange between a reporter and White House spokesman Robert GIbbs vis a vis this Spanish study should come as no surprise:

Q: Back on the President’s speech today, a Spanish professor, Gabriel [Calzada] Álvarez, says after conducting a study, that in his country, creating green jobs has actually cost more jobs than it has led to: 2.2 jobs lost, he says, for every job created. And he has issued a report that specifically warns the President not to try and follow Spain’s example.

MR. GIBBS: It seems weird that we’re importing wind turbine parts from Spain in order to build — to meet renewable energy demand here if that were even remotely the case.

Q Is that a suggestion that his study is simply flat wrong?

MR. GIBBS: I haven’t read the study, but I think, yes.

Q Well, then. (Laughter.)

In two sentences, Mr. Gibbs demonstrates that 1) He is an idiot and 2) He has no respect for science.  The correct, intelligent response would be “I can’t comment, I have not read the study yet.”  Mr. Gibbs does deserve credit for being an apparent master of the non-sequitur.  I have been trying to think of an eqivilent formulation.  The best I can come up with is to suppose someone said that “publicly funded sports stadiums generate no new economic activity and are just a taxpayer subsidy of sports owners, players, and ticket holders” and getting the response that  “how can this be when people still go to the games?”

I was afraid that all this braininess in the White House was going to eliminate the humor from Administration pronouncements but I see that won’t be the case.

The (flawed) theory of government stimulus plans is that in certain economic under-capacity situations, government spending can have a multiplier effect.

The Anti-planner shows that, as far as government spending on mass-transit is concerned, $9,150 of taxpayer subsides per rider generate about $6,100 in average savings per rider.  Every dollar of public transit spending destroys about 30 cents of value, which I guess makes it the anti-stimulus.

Update:  Yeah, I know, transit supposedly eliminates all those externalities.  But most rail transit plans typically reduce congestion by fractions of a percent, even by their builder’s estimates, while energy savings is wildly over-estimated.

Phoenix’s agreement to give a $100 million handout to a shopping mall development in north Phoenix was struck down as illegal.

A major economic-development agreement between Phoenix and the CityNorth development has been ruled unconstitutional, meaning the project may not grow into the once-envisioned second downtown on the city’s north side.

The Arizona Court of Appeals said Tuesday that the $97.4 million agreement violates the gift clause of the Arizona Constitution, which prohibits governments from granting money or credit to private entities in most cases.

In 2007, the city agreed to give the developer half the sales-tax revenue from the site. The developer, among other provisions, agreed to denser construction and to provide free parking and special spaces for park-and-ride use.

Excellent news.  This handout was engineered in a fairly smart bit of rent-seeking on the developer’s part.  There are two competing shopping mall development sites about a mile apart in a wealthy area along highway 101.  The two sites are close, but on different sides of the Scottsdale-Phoenix border, so the developers managed to get Phoenix to pony up tons of taxpayer swag out of fear that stores like Nordstrom would move to the Scottsdale development (more here).  The parking subsidy came in at around $30,000 per parking space, and the only public benefit was supposedly that other locals could use the lot, though there are no other structures not within this particular development in walking distance of the proposed lot.  Here is the enormous downside that Phoenix now faces for not being able to hand $100 million to the developers:

Representatives of the Thomas J. Klutznick Co. declined interviews but issued a prepared statement saying that, without the agreement, they will be forced to cut the density of the project.

Less density would mean fewer shops, restaurants, hotels and offices and fewer jobs, the statement said.

The company said a “less capital-intensive design” would include surface parking lots covering more than half the development. It also warned that the project will face delays.

Uh, okay.  I think I will survive.   Their problem is they wanted the taxpayer-funded garage so that they could convert surface lots in their plan to more buildings they could rent or sell.  Boohoo.  Either it makes economic sense, and they can pony up their own money, or not.  Speaking personally, fighting Christmas shopping traffic, I am just fine with lower density shopping.