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Foxconn jobs a boon for Wisconsin, but with $3 billion incentive deal, a steep tradeoff

Foxconn jobs a boon for Wisconsin, but with $3 billion incentive deal, a steep tradeoff

From the Foxconn in Wisconsin series
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Walker Foxconn plant

Gov. Scott Walker, shown at the White House on Wednesday announcing the Foxconn deal, is offering the company $3 bill in taxpayer incentives. He was accompanied by House Speaker Paul Ryan, R-Janesville, Foxconn CEO and founder Terry Gou, and Sen. Ron Johnson, R-Oshkosh.

Wisconsin taxpayers could pay a steep price for what state leaders call a “transformational” prize: a Foxconn manufacturing operation in southeast Wisconsin that the Taiwanese company says could eventually employ as many as 13,000.

Last week’s Foxconn news was the rare announcement that won plaudits from both parties at the Wisconsin State Capitol.

But the economic infusion promised by Foxconn carries an unprecedented pricetag: $3 billion over 15 years, or $200 million a year, in state tax incentives. That excludes local incentives to fund infrastructure improvements, details for which have not been released.

It marks Wisconsin’s biggest entry yet in the state-to-state bidding war for splashy economic-development deals, in which tax incentives are the chief currency.

The incentives would be paid only if the project materializes, which history suggests is not assured. Foxconn has a track record of delaying or failing to deliver on huge projects elsewhere.

The company pledged in 2013 to build a large plant in central Pennsylvania that never materialized. It also announced big plans in Vietnam and Brazil, only to build many years later with far-less-than-promised investments.

Of the $3 billion incentive package from Wisconsin taxpayers, $2.85 billion would come in refundable income tax credits for the company, according to terms disclosed by Gov. Scott Walker’s office last week. The remaining $150 million would be for a sales tax exemption for materials used to build the facility.

Under the state’s manufacturing and agriculture credit, Foxconn — even before the credits — would pay almost no income tax, meaning the tax credits largely would be paid in cash to the company.

Walker has said the incentive package matches similar offers made to land mega-manufacturing projects in other states.

But the amount per job that Wisconsin is offering Foxconn dwarfs incentives given for large development projects in many other states, said Timothy Bartik, who has studied state tax incentives for three decades at the nonprofit W.E. Upjohn Institute for Employment Research in Kalamazoo, Mich.

“The amount they’re paying per job is very, very high,” Bartik said. “I’m skeptical that the benefits justify the cost.”

The package subsidizes Foxconn by between about $15,000 and $19,000 per job, per year, according to state figures. Bartik said his research shows the average state tax subsidy per job, per year, for large projects is about $2,500.

Potential drain

on state budget

Such incentives could be a drain on the state budget.

According to a study commissioned by Foxconn and provided by the state’s jobs agency, Wisconsin Economic Development Corp., the state could pay out as much as $74 million a year more in tax credits than it would collect in new tax revenues from the project. That’s based on the roughly $190 million annual cost of the income tax credits, compared to an estimated $116 million a year in new tax revenue the facility’s operations would generate, according to the study.

There would be other benefits to public coffers: $65 million in new tax revenue per year would flow to local governments, the study predicts. It says a one-time windfall of nearly $500 million in state and local tax revenue could come from the facility’s construction.

Other questions include how much of the project’s benefits would spill over into Illinois — it’s expected to be located in Racine or Kenosha counties — and whether it could prompt homegrown businesses to demand their own lucrative tax breaks.

The Walker administration argues investing in Foxconn will bring a rich return. It envisions new jobs not just at Foxconn, but for construction workers to build the facility, for Foxconn suppliers and for businesses at which those workers spend their wages.

Including all those elements, Foxconn predicts the facility’s ongoing operations could support 35,000 new jobs. Such jobs also could remain long after the 15-year tax incentive period expires, project supporters argue.

The administration has stressed the incentives would not be paid unless the company delivers on creating as many as 13,000 jobs and investing $10 billion in the facilities’ construction.

“It’s not like they’re going to get $3 billion upfront,” said Mark Maley, spokesman for WEDC, which would administer the incentives.

There’s little doubt state leaders swung for the fences to land what would be the biggest economic development prize in Wisconsin’s history — and what would be one of the largest manufacturing campuses on earth.

Walker, speaking Thursday in Milwaukee, called the project “bigger than anything we’ve done before.”

“But if you want to play in the big leagues, it’s comparable with just about every other major financial incentive like this for a major project anywhere — not only in this country, but around the world,” Walker said.

Chaaron Pearson, an expert on economic development tax incentives at Pew Charitable Trusts, said tax incentives are the most potent tool state officials have to woo potential businesses. But the complexity of such deals makes it virtually impossible to make “an apples to apples comparison” between them, Pearson added.

Broken promises

in Pennsylvania

Maley cited three projects as comparables for Foxconn:

The amount of tax incentives Wisconsin is offering could be the difference between Foxconn’s latest pledge and ones they’ve broken before.

In an interview with the New York Times this week, the company said previous projects never came through because Pennsylvania and countries seeking projects had not given the company the incentives it considered necessary.

In 2013, Foxconn said it would build a Pennsylvania plant to employ 500 workers at an investment of about $30 million.

UW-Madison economist Steven Deller said it’s encouraging that Walker’s office has pledged certain safeguards for taxpayers, including clawback provisions for the state to recoup tax credits if Foxconn stops operating or leaves the state.

But other questions remain, Deller said, starting with the facility’s expected proximity to Illinois. Many of its suppliers and workers may come from south of the state line, meaning the economic impact to Wisconsin could be significantly diluted, he said.

Deller also said a deal of this magnitude may cause manufacturers already in the state to seek their own incentive package to stay put.

“I could see Mercury Marine, I could see Ashley Furniture, come in and say: ‘Where’s ours?’ ” Deller said.

State Journal reporter Molly Beck contributed to this report.

Jobs: Foxconn consultant makes rosy employment prediction. C1


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