Elon Musk Plays California for Tax Breaks, Then Moves SpaceX Operations to Texas

A smiling Governor Rick Perry of Texas announced that Space Exploration and Technologies Corporation (SpaceX) will build the world's first private commercial rocket launch facility on an isolated beach near Brownsville, Texas. 

Texas appear to have “bought the deal” by offering an $100 million economic incentive package. However, many Southern Californians are appalled that after multi-billionaire SpaceX Chairman Elon Musk suckered the state Legislature into a wildly advantageous crony capital tax exemption for SpaceX, Musk would take his next slurp of crony capitalist cash from Texas.

Perry announced that Texas offered SpaceX an incentive package of $15 million in cash on closing and the commitment to pump $85 million into infrastructure investments to support SpaceX’s needs in the Brownsville area. The move will initially add 300 high-paying jobs to the community that was rated the poorest city in America.

The incentives are contingent on SpaceX's formality of gaining local zoning approvals and securing the required permits. SpaceX already applied last week for several commercial building permits at Boca Chica, a beach surrounded by wildlife habitat about 20 miles east of Brownsville.

Chairman Elon Musk said, “We appreciate the support of Gov. Perry and numerous other federal, state and local officials who have partnered with us to make this vision a reality. In addition to creating hundreds of high tech jobs for the Texas workforce, this site will inspire students, expand the supplier base and attract tourists to the South Texas area.”

The move is seen as a disaster by many of the Southern California aerospace suppliers near the company’s headquarters in Hawthorne, California. SpaceX currently uses two leased orbital launch sites—Vandenberg Air Force Base, Space Launch Complex 4 in California and Cape Canaveral Air Force Station Space Launch Complex 40 in Florida. But a move to a remote part of Texas means that most Southern California suppliers will have to open new facilities and move jobs to Texas or risk losing substantial amounts of business to local vendors.

Many of SpaceX’s vendors are especially angry after leading the fight for the California Legislature and Senate to approve AB 777 in April to save SpaceX from paying millions of dollars in property taxes. The special purpose legislation exempted from taxation all property associated with spaceflight, including an “orbital space facility, space propulsion system, space vehicle, launch vehicle, satellite, or space station of any kind,” as well as components of such systems.

One would normally think that a bill that provides a tax break to companies would be warmly received by the Wall Street Journal, but AB 777 is an exception. In an editorial published in Monday’s paper, the Journal criticized the bill; the company that reportedly instigated the bill, SpaceX; and its founder, Elon Musk. “Upon his request, Democrats who dominate the legislature are moving to exempt SpaceX and other space-travel companies from California’s personal property tax,” the editorial states. SpaceX could have sought an appeal of a property tax bill it received last year for engines it built, but instead “jumped the queue and petitioned the legislature for a tax reprieve.”

The bill was seen as such an egregious crony capitalist deal for SpaceX, due to the wealth and clout of Musk, that even the normally tax-averse Wall Street Journal blasted the legislation since “The current legislation would specifically benefit SpaceX.” The Journal acknowledged that there are other exceptions to state property taxes, such as household furnishings and pets; “But, ahem, taxing a rocket and Fido aren’t equivalent. For one, it’s hard to put a price on a dog.”

The lead sponsor of the bill, Assemblyman Al Muratsuchi (D-Torrance), defended it. “Private companies like Space X are building rocket ships and creating thousands of good paying manufacturing jobs right here in Southern California. We want these companies to invest and grow in our state,” he wrote in an op-ed. “Passage of AB 777 will be one giant leap forward for this exciting new industry and for California.”

Having played the Golden State for SpaceX crony capital “goodies,” Elon Musk seems to have put on his cowboy boots and drifted on down to the Lone Star State and lassoed some more crony capital goodies. Governor Rick Perry may be smiling today, but Musk is probably already negotiating with other states to subsidize his entrepreneur activities.

The author will respond to comments by readers.


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