Towards the end of January, 2016, the Pima County Board of Supervisors announced that it had voted to build a factory for World View Enterprises. The supervisors talk as if they are running an investment fund instead of a county government. The county claims it will net over $3.3million at the end of the 20 year lease-purchase agreement. Unfortunately, a government should not be run like a business, nor should it gamble on businesses. How is it that if this was such a great investment, why would World View have to beg the county for corporate welfare? Apparently, World View has not been transparent about this fact. This Tucson Sentinel article states (emphasis mine):
The pair [World View founders] said they had major institutional investors backing the company, and were planning on installing millions of dollars worth of equipment in the new facility. They declined to specify who those investors were, and didn’t detail why they couldn’t raise private backing for the construction.
Apparently 4 out of the 5 board members thinks this is just fine, such as Supervisor Richard Elias thinking there is too much upside for the county to turn this opportunity down. So, it’s probably likely that private investors either don’t see the construction as feasible, or they are just trying to risk taxpayer money, at a lower cost to themselves, instead of their own.
There are many problems with these public-private partnerships (PPP), but to name some:
- Projects that are not feasible in the market are subsidized and lead the to the misallocation of resources
- Private risk is socialized, putting taxpayers on the hook for losses without any benefits from the upside
- Governments have an incentive to block new competition so that they can recoup their “investment”
- Governments can award cronies
Mises.org has a good article about private-public partnerships, which provides a good economic analysis of the problems with PPPs. Also this article about government loans and the risk to taxpayers is also a good read. As for awards to cronies, in the case of World View, Gabriel Gifford’s husband, Mark Kelly, is one of the key people in the company with the title of Director of Flight Crew Operations. It could be a coincidence, but suspiciously looks like political favoritism. Furthermore, the land that the county is using for the construction of the facility was purchased in 2012 as part of a buffer zone for Raytheon Missle Systems, another recipient of corporate welfare. The land was purchased from Frist Tucson Airport Investors and Donald Diamond, who is a friend of Senator John McCain and has a history of land deals with the government.
The specific details of the deal can be viewed in the Board of Supervisors Memorandum. I have gone through the memorandum to gain a better understanding of the deal, as I saw some conflicting information in news articles from various sources. What will occur is that Pima County is providing 28 acres of land that it previously purchased as well as building a factory and launch pad for World View Enterprises. The county in total is signing up to spend up to $14.5 million on the construction of the facility. In addition to the 28 acres being provided to World View, there is also a first right of refusal purchase option for World View to purchase 6 acres adjoining this 28 acres for future expansion.
Separate from the manufacturing facility, but on the same 28 acre parcel, a concrete launch pad will also be built. However, reading through the details about the building of the concrete spaceport pad is rather confusing, because there are references by World View to the Arizona Commerce Authority funding the project. However, I cannot find any more information at this time about the involvement of the Arizona Commerce Authority in the funding of the launch pad. In the end, Pima County is maintaining ownership of the launch pad as the intent is for the launch pad to be for public use, beyond just World View’s uses. In the lease-purchase agreement, it states that up to $1.5 million will be spent in the construction of the launch pad, and that the county will apply for a $1 million aviation grant from the Arizona Department of Transportation for construction of the launch pad, which will be kept by the county. Assuming the county receives the grant, it will spend $500,000 on the launch pad.
The lease-purchase agreement is in effect for 20 years after which time, World View has the option to purchase the facility for $10 from the county. There is also an option for World View to purchase the facility between year 10 and 17, if it agrees to compensate the county for the accumulated principal deficit plus interest.
UPDATE 16-FEB-2016: The Pima County Supervisors voted today to approve funding for this project.