Gretchen Whitmer, the governor of Michigan, was upset. Ford Motor, a business whose name is practically synonymous with Detroit, has just revealed that Tennessee and Kentucky will be the locations of a US$11 billion electric vehicle (EV) project.

Whitmer understood that more needed to be done for Michigan to compete after they successfully wooed Ford with hefty incentives. She begged lawmakers to add “additional tools to our economic toolkit to entice private investment” in a letter they received last October. They delivered two months later, giving her a $1 billion fund for corporate subsidies. A month later, Whitmer used money from the fund to secure a significant agreement with General Motors, including a $6.6 billion facility and battery plant for electric trucks.

The generous acts of Michigan, Tennessee, and Kentucky were made possible in part by the hundreds of billions of dollars in federal assistance that President Joe Biden’s American Rescue Plan pushed into US states. The funds were intended to lessen the impact of a pandemic-caused financial catastrophe that never materialized. Instead, it has left states wealthy with cash, boosting competitiveness for future automotive jobs and protecting the financial health of businesses like Ford, GM, and Panasonic Holdings, a Tesla battery supplier.

The money swirling about in the EV development frenzy runs the risk of funding gimmicks like Foxconn Technology Group’s lavishly subsidized Wisconsin television factory that never materialized.

State and local officials that are funding this EV boom claim they have put safeguards in place to prevent taxpayers from being taken advantage of to counter that risk. However, the stakes are rising since some projects now have costs per permanent employment that are eight times more than they were on average less than ten years ago.

According to data compiled by Bloomberg, Georgia agreed to forgo revenue amounting to US$212,000 per job in order to win megaprojects from Rivian Automotive and Hyundai Motor in the previous two years. Michigan is also contributing US$450,000 per GM job. Ford’s Tennessee hub will cost approximately US$414,000 for each direct job. According to a research by Tim Bartik, an economist at the WE Upjohn Institute for Employment Research in Kalamazoo, Michigan, the average per-job cost of economic incentives in the US in 2015 was roughly US$52,000, calculated in current currency.

Source: Bloomberg

Since at least the Great Depression, states have been vying for the attention of businesses. But for EV plants, semiconductor factories, and other megaprojects, the scale and severity of it presently are unparalleled.

Michael Farren, a senior researcher at the George Mason University’s Mercatus Center and an opponent of corporate incentives, said: “I have never seen the same kind of rise in subsidies everywhere throughout the US happening at the same time.” “It’s rather obvious that there is an external motivating force, and that is the relief funding from the American Rescue Plan.”

According to the report by Bartik, companies that receive incentives saved an average of 30% on state and local taxes as of 2015, a figure that has tripled since 1990. According to the same study, incentives don’t significantly predict future economic growth or states’ levels of present-day or historical unemployment.

These subsidies are seen by skeptics, of which there are many in academia and policy circles, as a waste of state funds that should instead be allocated to hospitals or schools. Due to the incentives, local governments compete with one another in a race to the bottom for gifts with uncertain returns. The employment rates and wages of EV and battery manufacturing facilities are also up for debate compared to those of combustion-engine vehicles.

According to Greg Leroy, executive director of Good Employment First, which wrote a report on the topic, “States have justified massive subsidy packages for assembly facilities in part to capture the more numerous upstream jobs, but those jobs are clearly going to diminish by a big degree.”

In May 2021, Congress allocated US$350 billion for states and municipalities. At the same time, the auto industry is undergoing a once-in-a-century transition as automakers get ready to replace the combustion engine with battery power. The Covid relief funds have severe restrictions on how local governments can utilize them, but they have helped free up funds for business incentives.

Jurisdictions have different requirements for financial disclosures, and some conceal information at a company’s request or to remain competitive with other states. The overall picture of corporate incentives is therefore incomplete.

Plans for US EV plants from automakers
Company
State
Investment
Subsidies
Jobs
GM
Michigan
US$6.6b
Ford
Tennessee
US$2.4b
5,800
Hyundai
Rivian
Georgia
US$5b
Source: DIGITIMES Asia and Bloomberg, October 2022

What is known is that states have pledged to invest at least $10.8 billion to entice these investments, according to a tally of publicly disclosed incentives by Bloomberg and Good Jobs First, and that major automakers and reputable battery producers have announced plans to invest at least $50 billion into at least 10 states to build EV assembly and battery plants since the beginning of 2021. The actual amount is very certainly lower than that figure.

Skyline City

A excellent illustration of how the full cost of an incentive package is generally not made clear to the public is the electric vehicle center that Ford and battery partner SK Innovation opted to locate in Tennessee.

An assembly factory for the new electric F-150 pickup and a battery plant will be located in Blue Oval City, a six-square-mile location an hour’s drive northeast of Memphis, and combined they are expected to generate 5,800 jobs. According to state authorities, the twin plants and their suppliers will support 27,000 direct or indirect employment once they are up and running and will contribute US$3.5 billion yearly to Tennessee’s economy. Construction will create 33,000 temporary jobs.

State officials initially indicated a $500 million financial grant for the project that needed to be approved by the legislature; later, US$884 million was reported in local press reports.

According to contract documents seen by Bloomberg, the total worth of the package—which also includes tax benefits, donated land, infrastructure upgrades, and temporary salary subsidies from the federal government—is at least US$2.4 billion.

Even that number is an underestimate. The largest government utility, the Tennessee Valley Authority, which provides an electrical subsidy, is not included.

Because certain infrastructure improvements were made years ago and some of the costs associated with workforce training are estimates, Tennessee officials claimed that Bloomberg’s calculations on incentives are “misleading.” They also contend that the new property tax revenue, even at a lower rate, is greater than what the local governments would have received in the absence of the project.

According to Lindsey Tipton, a spokesman for the Tennessee Department of Economic Development, “Blue Oval City will be transformational for West Tennessee.” We will provide financial help for future projects, but at a significantly reduced cost-per-job and more in line with a regular incentive package from our department.

Ford said that reasons other than financial incentives had a role in their choice.

The business declared in a statement that “public-private collaborations are important for the United States to be a leader in the global transition to electric vehicles.”

According to Dennis Cuneo, a former Toyota Motor executive and site consultant who has assisted automakers in choosing locations, even states that have sought to move away from incentives have given in to the pressure to compete for jobs.

He compared incentives to free agency in baseball, saying that neither practice is popular but is necessary if a team is to succeed.
Rivian and Georgia

With two $5 billion EV transactions from Rivian and Hyundai, Georgia, which has emerged as a major winner in the recent investment boom, stands to gain more than 15,000 employment. To secure the projects, the state provided incentives totaling US$3.3 billion.

According to Pat Wilson, the state’s economic commissioner, rather than putting the most money on the table, Georgia competes by assisting businesses in moving quickly with shovel-ready sites and minimal red tape. He referred to Bloomberg’s computation of per-job incentives as “terribly misleading” because it contains nondiscretionary tax credits that are included in state legislation.

In an interview, Wilson stated, “I regard the incentives that we placed on the table actually as Georgia being part-investor in these initiatives.” “We know that the salaries for those positions and the benefits they offer will trickle down and improve the well-being of families and communities across the state.”

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