Business & Real Estate

Landing Tesla is latest chapter in reinvention of Reno

It seems hard to believe, in the afterglow of the Tesla jackpot, that Reno was an economic basket case just a few years ago, with even bigger problems than Sacramento.

Yet even as unemployment soared and its casinos struggled during the recession, the “Biggest Little City in the World” was reinventing its economic base. The Reno-Sparks region marketed itself to distribution and manufacturing companies, and big names like eBay and Toys R Us began opening warehouse facilities.

The latest victory exceeded anyone’s expectations. After months of anticipation, Tesla Motors Inc. last week chose a sprawling industrial park east of Reno for its 6,500-employee “Gigafactory,” which will build batteries for the electric-car maker’s new mass-market vehicle. The news sent community and business leaders grasping for ways to describe how Tesla will transform the Reno area.

“They’re going to change the course of history within this community and within this state,” said Lance Gilman, the Stetson-wearing developer of the industrial park where Tesla will build.

Gilman compared Tesla’s pending arrival with the discovery of silver in northern Nevada in the 19th century and the opening of casinos in Las Vegas in the 20th. Gov. Brian Sandoval, announcing the company’s decision at the Capitol in Carson City, said Tesla will deliver $100 billion in economic benefit over the next two decades and expand the region’s economy by a whopping 20 percent.

Tesla spurned offers from its home state of California, as well as Texas, Arizona and New Mexico. But Reno isn’t a done deal. The Nevada Legislature, set to meet in special session beginning Wednesday, must ratify an estimated $1.2 billion worth of tax breaks and other incentives offered to Tesla. Some policy experts question the wisdom of such an enormous package of giveaways, which includes complete tax forgiveness for a decade.

“I think there are more questions than answers on this,” said Andy Matthews of the conservative Nevada Policy Research Institute. “It’s important that we don’t see a rubber stamp on this.”

The deal remains a political issue in California, too. Republican gubernatorial candidate Neel Kashkari pounced on the news in his televised debate with Gov. Jerry Brown, saying Brown didn’t do “nearly enough on Tesla or any number of businesses.” Brown said Tesla wanted too much, including a “massive cash upfront payment.”

Tesla, however, said the decision was less about incentives and more about speed. California offered to streamline its environmental regulations – known as some of the nation’s most stringent – but Tesla Chief Executive Elon Musk said Nevada was the clear winner when it comes to doing things quickly. “You can be very agile,” he said.

The Gigafactory is supposed to open in 2017.

Musk’s comments were well-received in a state that has cultivated a business-friendly reputation. Nevada has no corporate or personal income tax and regulates business with a lighter touch than most states, particularly California.

“You have a group like Tesla who has validated what we have all known all along, that this is an incredible place to do business,” Gilman said.

That hardly seemed obvious during the recession. Nevada was clobbered by the collapse of the housing market. The state’s unemployment rate was often the highest in the nation, topping out at 13.9 percent in September 2010.

In Reno-Sparks, empty storefronts sprouted in downtown Reno and the region’s signature industry, gambling, faltered under the combined weight of a weak economy and competition from Northern California Indian casinos. Unemployment peaked at 14.1 percent in January 2011.

By comparison, Sacramento never exceeded 12.9 percent unemployment.

Reno leaders said they knew the casinos wouldn’t be able to lead the community out of the doldrums.

“There’s been a general acceptance here that ... this region is going to have to do something different,” said Marc Johnson, president of the University of Nevada, Reno.

Reno already had a decent base of non-casino employers. Microsoft opened a product licensing office in 1998, and Amazon.com opened a warehouse east of the city a year later. Nevertheless, many community leaders believed the region needed to work harder to build its industrial base.

“It was not a focus,” said Mike Kazmierski, president of the Economic Development Authority of Western Nevada. “We never really promoted ourselves as a business destination; we were too busy talking about tourism.”

All that’s changed. Kazmierski said the region has attracted 45 manufacturers in the past three years. Among the recent arrivals: Ardagh Metal, a food-packaging company, brought 140 jobs. Ashima Devices, a maker of aerial drones, recently announced it would move its headquarters, research and assembly facilities from Southern California, about 400 jobs in all.

“We’re getting some of these big-name companies that bring with them the recognition that knowledge-based industries can work here,” said Johnson, noting that research being conducted at his university helped rope in Ashima.

Job growth has accelerated, and the region’s unemployment rate has fallen to 7.3 percent. Even the casino industry is showing modest growth again after years of decline.

But Reno still suffers from an identity crisis. Often lost in the neon glare emanating from Las Vegas, the region had to fight for Tesla’s attention when the manufacturer began scouting the West last year for a home for the Gigafactory.

In December, Gilman got word that Tesla executives were touring sites around Vegas. He offered to make a private airplane available to bring the entourage to the Tahoe Reno Industrial Center, the industrial park he helped build outside Reno in 1998.

The Tesla people initially rejected the offer. Then they agreed to a 15-minute meeting. It wound up lasting 21/2 hours.

Gilman had quite a story to tell. Located 18 miles east of the city’s hotel towers and wedding chapels, the park is a colossus: 100,000 acres of sand and sagebrush, as big as Reno and Sparks combined. More than 100 companies do business there, from Dell computers to Diapers.com.

The site is ideal for industry. It’s just off I-80 and has its own rail spur. It’s nowhere near any residential development, making it easier to clear environmental hurdles and obtain permits. The place is so vast, an estimated 1,400 wild mustangs roam the park at will.

“No crosswalks, no baby buggies – it is a heavy-duty industrial park,” Gilman said. “A pure industrial park.”

A California transplant, Gilman, 69, is a member of the Storey County Board of Commissioners and a huge believer in Nevada. After working in real estate development in San Diego, he left his home state three decades ago because “I was worried about the costs of doing business, the regulatory environment,” he said. “They were pricing themselves out of the market.”

He said Nevada, by contrast, is stampeding to the future. He’s convinced other cutting-edge companies will follow the route to Nevada carved by Tesla, which he described as “the highest-profile high-tech manufacturing group” in the nation.

Not that Reno is completely leaving the past behind. Among Gilman’s other investments is Mustang Ranch, which he bought seven years ago. The famous brothel sits just a 10-minute drive west of his industrial park.

Gilman is unapologetic about the ranch. It employs 80 workers and generates a $4 million annual payroll. “That particular business is a great corporate citizen,” he said.

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