States Compete to Help Finance Billionaire’s SpaceX Project

Texas offers about $20 million in incentives to lure Elon Musk's SpaceX, which would employ 600.

In a glass-walled conference room at the California headquarters of Space Exploration Technologies Corp., Chief Executive Officer Elon Musk told Texas officials he was interested in building the world’s first commercial rocket launchpad in their state -- if the state could compete.

In the months after the 2011 meeting, state and local officials gave Musk, a billionaire, what he and his lobbyists sought: about $20 million of financial incentives, laws changed to close a public beach during launches and legal protection from noise complaints. SpaceX, as the company is known, hasn’t said whether the Texas site, near Brownsville, the poorest metropolitan area in the nation, will be selected over locations in Florida, Georgia and Puerto Rico.

State and local governments often fall into bidding wars for jobs, offering tax breaks and sweeteners amounting to $70 billion annually, according to Kenneth Thomas, a political science professor at the University of Missouri in St. Louis.

“You’ve got to make sure you’re providing what everybody else is providing for tax incentives and tax breaks,” said John Baldacci, who was governor of Maine from 2003 to 2011 and regularly received requests for tax breaks.

Three years of discussions among Texas officials and SpaceX representatives culminated with the incentive offers, according to interviews. SpaceX hired lobbyists and flew a key lawmaker to its offices. Musk gave about $12,000 in campaign contributions.

Emily Shanklin, a SpaceX spokeswoman, declined to comment on incentives. Texas officials said they’re necessary to lure jobs sought by many other states.

The state stepped up its corporate blandishments in 2003 by creating a dedicated fund. It was two years after Boeing Co. decided to locate its headquarters in Chicago instead of Dallas.

The issue of government subsidies drew national attention in January as states from California to South Carolina offered billions to land production of Boeing’s 777X aircraft. Officials in Louisiana last year agreed to as much as $257 million in incentives for Johannesburg-based Sasol Ltd. to build a plant to convert natural gas to diesel fuel and other products. Rental-car company Hertz Global Holdings Inc. agreed in 2013 to move its headquarters from New Jersey to Florida after being offered $85 million in incentives.

For Texas, the second-most-populous state, where unemployment is 6 percent and 252,400 positions were created last year, SpaceX would represent a blip in the economy.

 

Left Behind

The employment potential -- including about 600 directly employed by SpaceX -- is more significant for the local economy. In the region near the launch site, at Boca Chica Beach in the state’s southernmost tip, two of five residents live in poverty. Leaders of the historically impoverished border town are seeking to make it as well known for space travel as Houston, home of NASA’s Johnson Space Center.

Some current and former Texas lawmakers say the state shouldn’t give away revenue in exchange for jobs.

“A lot of money is given to people that doesn’t benefit but a few people,” said A.R. “Babe” Schwartz, a lobbyist who served in the legislature for 26 years until 1981. “It’s good for whoever got the money and for the lobbyists who got it.”

The Texas negotiations started with SpaceX’s telling Republican Governor Rick Perry’s staff of its interest in early 2011, said Josh Havens, an aide to Perry at the time.

Perry’s office called Gilberto Salinas, executive vice president of the Brownsville Economic Development Council, which recruits businesses, as he was on his way to dinner to celebrate his son’s birthday.

Three weeks later, Salinas and four other people from Brownsville met with Musk, who also started PayPal, the Internet payment system, and Tesla Motors Inc., an electric car company, at the company’s Hawthorne, California, headquarters, Salinas said. Musk, 42, has a fortune of $9.8 billion, according to the Bloomberg Billionaires Index.

He founded SpaceX in 2002 to build and launch rockets to serve the International Space Station. The company has conducted launches at the Kennedy Space Center to supply the space station under a contract with the National Aeronautics and Space Administration and in December won the right to lease a launch pad there.

During the meeting, Musk described his dream to take people to Mars, Salinas said. He also said Texas needed to compete with other states.

“They told us, ‘You’re one of quite a few locations we’re looking at,’” Salinas said.

Salinas said he concluded the project would transform the region.

 

Hiring Lobbyists

“It made me want the project,” Salinas said. “I thought, ‘If we’re not going to go all out for this project, which one will we go all out for?’”

In downtown Brownsville, 350 miles (560 kilometers) south of Austin, aging buildings and small homes share the landscape with shaggy palm trees and oxbow lakes. The area has the lowest median household income of any metropolitan area in U.S. states, about $32,000, compared with a national average of about $53,000, according to the Census Bureau.

Economic development officials began selling the project to skeptical residents, said Salinas. At one meeting with residents to discuss the project, Salinas was mocked as Buzz Lightyear, after the character in “Toy Story” who thinks he’s a real astronaut.

The company started buying undeveloped land at the proposed site, a sandy prairie with grass and an occasional cactus.

SpaceX increased spending for lobbying. The company had one lobbyist starting in November 2011. By the end of 2012, it was paying five between $95,000 and $200,000 in aggregate, according to state records, which require that the company report only a range of expenditures.

Company lobbyists and lawyers opened discussions with state Representative Rene Oliveira, a Brownsville Democrat. They laid out what the company wanted from state and local officials, including changes in the law and incentives, he said.

SpaceX wanted the government to cover the cost of building electric and water lines to Boca Chica Beach, the proposed launch site, near where the Rio Grande empties into the Gulf of Mexico, said Oliveira.

In 2012, before the biennial legislative session, Musk and a trust in his name donated $1,000 to Representative Jim Pitts, a Republican who is chairman of the House Appropriations Committee, $1,000 to Oliveira and $3,000 to Senator Eddie Lucio Jr., a Brownsville Democrat.

 

California Trip

Pitts and his then-chief of staff, Aaron Gregg, visited SpaceX’s headquarters in January 2013. The company spent $6,803 on the three-day trip, including bills for a hotel steps from the Santa Monica beach, according to state records.

SpaceX won Pitts’s support, which was key to getting incentives approved, said Oliveira.

He “was very helpful in obtaining the commitment to spend $15 million,” Oliveira said.

Requests to interview Pitts were referred to his chief of staff, Victoria Weber, who didn’t respond to written questions. Gregg declined to comment.

As the legislative session was under way, Oliveira said he told Musk to “plant the flag” by meeting with lawmakers.

Musk heeded the advice. On March 8, he appeared at a hearing before Pitts’s committee, which oversees spending, at the Capitol in Austin. Oliveira and a SpaceX lobbyist appeared with him.

“Any support Texas can offer would be helpful,” Musk said at the hearing. While Texas was the leading candidate, “We are absolutely looking at other locations.”

Oliveira said Texas had to compete with other places. He told lawmakers that Florida had $20 million this fiscal year to recruit space-related companies.

Tina Lange, a spokeswoman for Space Florida, the state’s aerospace economic development agency, declined to comment on the value of possible incentives. Officials in Puerto Rico and Georgia aren’t publicly discussing any.

“For us to be competitive with other states, we have to make this attractive,” Oliveira told committee members. “We’ve heard numbers from other states that are pretty aggressive.”

By the end of the 2013 legislative session in May, lawmakers approved everything the company wanted, including changes to the law and $15 million for infrastructure.

Approval of incentives by the local officials is pending a final decision by the company, according to Salinas. Cameron County, where the beach is located, plans to offer tax breaks that could save SpaceX $2 million over 10 years, said County Judge Carlos Cascos, the top elected official.

The company likely will receive $3 million in incentives from the Brownsville Economic Development Council, which receives government funding, according to a person familiar with the negotiations who asked not to be identified because no final decisions have been reached.

State and local officials said they hope the incentives they put together will close the deal.

“We’ve moved forward over the past three years and done everything they’ve asked of us,” said Tony Martinez, mayor of Brownsville. “We were competitive with whatever Florida was putting together.”

 

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