Will Foxconn Deal Fight Poverty?
Legislative language suggests this. What are the deal’s true aims and costs?
An outsider presented with the proposed Foxconn legislation and having no other information about it might conclude its primary aim is addressing economic distress in Wisconsin. The bill requires the Wisconsin Economic Development Corporation to designate “tier 1” and “tier 2” counties and municipalities. In doing so, it can consider (1) the unemployment rate, (2) the percentage of families with incomes below the poverty line, (3) the median family income, (4) the median per capita income, and (5) “0ther significant or irregular indicators of economic distress, such as a natural disaster or mass layoff.”
The same themes appear in language allowing the establishment of an electronics and information technology manufacturing (EITM) zone. In determining whether to designate an area as a zone, WEDC would have to consider “Indicators of the area’s economic need, which may include data regarding household income, average wages, the condition of property, housing values, population decline, job losses… the rate of business development, and the existing resources available to the area” and “the effect of… other initiatives and programs to promote economic and community development in the area, including job retention, job creation, job training, and creating high-paying jobs.”
However, I am not aware of any mention of poverty reduction in the discussion. One would expect some analysis of the likely effect. At the very least, I would expect some analysis of the home ZIP codes of people at the time they were hired at the Amazon and Uline facilities which are located in the area where Foxconn would locate. That analysis could give a rough approximation of the effect on poverty of the Foxconn facility and would, I estimate, take less than a day.
I suspect that the real motivation behind the economic distress language is not concern about poverty. Instead, it’s meant to create a legal fig leaf to disguise the fact that, for all intents and purposes, the bill is a private bill aimed at subsidizing a single company, Foxconn, to convince it to build a plant in one of two counties. Yet nowhere does the bill utter the words “Foxconn,” “Racine,” or “Kenosha.” There is a reason for this; authors of Wisconsin’s constitution plainly dislike bills to benefit one person or entity. The Wisconsin legislature employs highly skilled bill drafters who know that by employing generic language they can guard against a constitutional challenge.
The same legislation offers another example of language that seems generic but is actually targeted at helping one private business. It would add a new section, 238.399 (5) (f), to the Wisconsin statutes that adds another a new category to the business eligible for enterprise zone credits:
No more than one financial services technology business that, after completing a competitive corporate relocation process, retains its corporate headquarters in this state and retains at least 93 percent of its full-time employees in this state who were identified as being full-time employees of the business in the base year, as determined by the corporation.
Only those in the know would spot FISERV as the only beneficiary of this verbiage. Compared to the Foxconn part of the bill, the aid for FISERV, capped at $10 million is chicken feed. As the New York Times headlined its article on the Foxconn agreement, Wisconsin’s Lavish Lure for Foxconn: $3 Billion in Tax Subsidies.
Just how lavish is the lure? According to the Legislative Fiscal Bureau’s analysis of the Foxconn bill, the company would gain two refundable tax credits. First, Wisconsin would reimburse Foxconn for 15 percent of its capital expenditures for the Wisconsin plant. This credit would be capped at $1.35 billion. The second would pay for 17 percent of Foxconn’s payroll and be capped at $1.5 billion. The next graph shows the LFB’s projection of the cost of these two credits.
Because the Manufacturing and Agriculture Tax Credit would leave Foxconn with little or no tax liability even before the new credits kicked in, these credits would result in cash payments to Foxconn, rather than a reduction in its tax liability. At the peak, between 2022 and 2026, about 2 percent of Wisconsin’s state revenue would go to Foxconn.
The LFB, by necessity, makes a number of assumptions in its projection. One is that the average annual salary is $53,875, as estimated by Foxconn. Another is that all capital spending takes place in the first seven years, at which point the capital spending credit hits the cap. A third is that by the fourth year employment reaches the estimated maximum of 13,000.
It is unclear how many jobs will actually be created by the Foxconn deal. While a fact sheet from the WEDC flatly asserts “it will employ 13,000 workers,” the more cautious LFB inserts “up to” in front of that number. Although Foxconn would need to hire around 13,000 workers to get the full credit, there is no requirement that it do so.
It appears that the hiring of 3,000 workers is a firmer commitment from Foxconn. Foxconn’s president has been quoted as desiring to more fully automate his plants. It has been suggested that if Foxconn heavily automated its plant, the number of employees could be radically reduced. In this scenario, the payroll tax credits drop substantially but the capital expenditure credits continue, shown in the next chart.
In this case the total cost of the credits would go down, but the cost per job would rise. The next graph shows the annual cost per employee of Foxconn payments under three scenarios: (1) assuming the LFB’s projections are met, and Foxconn hits 13,000 jobs in the fourth year, shown in red; (2) assuming that employment takes seven years to reach its peak of 13,000, in sync with capital spending, shown in green; and (3) assuming employment levels off at 3,000 rather than 13,000, shown in yellow. While the third strategy reduces the state payments to Foxconn (as shown above), the payment per job created increases substantially (as shown below).
Over the entire 15-year period under the LFB’s assumptions, Wisconsin would pay Foxconn a total of $218,516 per job created. If, instead, the number of jobs topped out at 3,000, the cost per job would rise to $546,958. It should be remembered that the total cost is likely to be substantially higher when sales tax exemptions and things like training and infrastructure costs at both the state and local level are factored in.
WEDC’s fact sheet describes the Foxconn proposal as “transformational.” In its words, “Foxconn is bringing the future of manufacturing to the U.S., and Wisconsin will be the leader.” This term has been picked up by other supporters of the Foxconn tax credits.
Certainly the proposal is very large, but one has to worry that the enthusiasm it has generated reflects nostalgia for the Allis-Chalmers era of very large employers who hired lots of people. Does this nostalgia for past economic success get in the way of carefully analyzing the Foxconn deal, and doing this in the context of a sophisticated analysis of what it will take to move Wisconsin into the new economy?
More about the Foxconn Facility
- Walker picks Foxconn over Wisconsin schools and roads - State Sen. Jennifer Shilling - Sep 18th, 2017
- Governor Walker Signs Wisconn Valley Special Session Bill into Law - Gov. Scott Walker - Sep 18th, 2017
- The State of Politics: Mr. Gou – Your Turn - Steven Walters - Sep 18th, 2017
- Governor Walker Applauds Legislature for Approving Wisconn Valley Special Session Bill - Gov. Scott Walker - Sep 14th, 2017
- Governor Walker Releases Statement on Bipartisan Senate Passage of Wisconn Valley Special Session Legislation - Gov. Scott Walker - Sep 12th, 2017
- WEDC’s Poor Jobs Accountability Record Makes Foxconn Deal a Scandal Waiting to Happen - Citizen Action of Wisconsin - Sep 11th, 2017
- Op Ed: Foxconn Deal Suspends Judicial Rules - Wisconsin Democracy Campaign - Sep 11th, 2017
- GOP Puts $3 Billion Foxconn Thumb on Scales of Justice - One Wisconsin Now - Sep 5th, 2017
- Op Ed: Foxconn Multiplier Overstates New Jobs - William L. Holahan and Charles O. Kroncke - Sep 2nd, 2017
- Walker administration misleads on environmental rollbacks for Foxconn - State Rep. Katrina Shankland - Aug 31st, 2017
- Murphy’s Law: Newest Deal Shows Foxconn Flaws - Bruce Murphy - Aug 29th, 2017
- The State of Politics: Would Democratic Governor Kill Foxconn Deal? - Steven Walters - Aug 28th, 2017
- Op Ed: Illinois Loves Our Foxconn Deal - State Sen. Kathleen Vinehout - Aug 26th, 2017
- Biking: Foxconn, Biking and State Roads - Dave Cieslewicz - Aug 25th, 2017
- Op Ed: Foxconn Should Embrace Green Goals - John Torinus - Aug 24th, 2017
- Washington State Representative Offers Warning for Wisconsin on Foxconn - One Wisconsin Now - Aug 24th, 2017
- Murphy’s Law: Paper Peddles Bogus Foxconn Report - Bruce Murphy - Aug 23rd, 2017
- Representative Lisa Subeck Calls on Joint Finance Committee Co-Chairs to Focus on Budget, Prioritize People over Profits - State Rep. Lisa Subeck - Aug 22nd, 2017
- Governor Walker Highlights Opportunities Foxconn Brings for Wisconsin’s Healthcare Industry - Gov. Scott Walker - Aug 22nd, 2017
- The State of Politics: Foxconn Biggest Deal in State History - Steven Walters - Aug 21st, 2017
- Statewide Online Tool Assists Wisconsin Companies Seeking to Do Business with Foxconn - Gov. Scott Walker - Aug 21st, 2017
- The Senate Must be The Grownups in the Room… Again. - State Sen. Tim Carpenter - Aug 21st, 2017
- Op Ed: The Many Broken Promises of Foxconn - State Rep. David Bowen - Aug 20th, 2017
- Rep. Goyke Statement on Foxconn Special Session Bill - State Rep. Evan Goyke - Aug 18th, 2017
- Wisconsin Budget: Foxconn Could Take Till 2058 To Pay Off - Jon Peacock - Aug 18th, 2017
- Governor Walker Releases Statement on Bipartisan Assembly Passage of Wisconn Valley Special Session Legislation - Gov. Scott Walker - Aug 18th, 2017
- Republican Agenda Puts Corporate Welfare Package for Taiwanese Company Ahead of our Public Schools - State Rep. Dianne Hesselbein - Aug 17th, 2017
- Rep. Sinicki Votes No on Foxconn Package - State Rep. Christine Sinicki - Aug 17th, 2017
- Statement from Rep. Barca on the Assembly Passage of Foxconn Bill - State Rep. Peter Barca - Aug 17th, 2017
- Facts on Foxconn Trump Proponents’ Protestations Deal Would Benefit Wisconsin - One Wisconsin Now - Aug 17th, 2017
- Foxconn Debate Cheat Sheet - State Rep. Gordon Hintz - Aug 17th, 2017
- $3 Billion Foxconn Boondoggle Sells Out Wisconsin’s Future to Foreign Corporation - State Rep. Lisa Subeck - Aug 17th, 2017
- Op Ed: How to Get a Better Deal From Foxconn - John Torinus - Aug 17th, 2017
- Data Wonk: Will Foxconn Deal Fight Poverty? - Bruce Thompson - Aug 16th, 2017
- Governor Walker Moderates Foxconn Roundtable Discussion in Green Bay - Gov. Scott Walker - Aug 16th, 2017
- Op Ed: Where Will Foxconn Find Workers? - State Rep. Gordon Hintz - Aug 16th, 2017
- Vukmir: The time is now for Foxconn - Assistant Majority Leader Leah Vukmir - Aug 15th, 2017
- Foxconn tax break could exceed $1 million per job - State Sen. Jennifer Shilling - Aug 14th, 2017
- Paul Ryan Challenger Opposes $3 Billion Corporate Handout to Foxconn - Cathy Myers - Aug 14th, 2017
- The State of Politics: 10 Tough Questions About Foxconn Deal - Steven Walters - Aug 14th, 2017
- Dana Wachs Announces Opposition to Foxconn Package - State Rep. Dana Wachs - Aug 13th, 2017
- Campaign Cash: Did Foxconn Lobby Illegally? - Wisconsin Democracy Campaign - Aug 12th, 2017
- Statement from Rep. Barca Regarding Republican Amendment to Foxconn Bill - State Rep. Peter Barca - Aug 11th, 2017
- Statement: Amendment to Special Session Assembly Bill 1 - Wisconsin Assembly Speaker Robin Vos - Aug 11th, 2017
- Op Ed: Renegotiate the Foxconn Deal - Matthew Flynn - Aug 11th, 2017
- Murphy’s Law: Walker’s Desperate Deal With Foxconn - Bruce Murphy - Aug 10th, 2017
- Foxconn Deal Flounders in State Legislature - One Wisconsin Now - Aug 10th, 2017
- If ‘Ifs’ and ‘Buts’ Are Candies and Nuts We’ll Have Foxconn Deal Paid Off in 2043 - One Wisconsin Now - Aug 9th, 2017
- Rep. Shankland: Statement on Foxconn Analysis - State Rep. Katrina Shankland - Aug 8th, 2017
- Foxconn Fiscal Analysis Deeply Troubling for Wisconsin Taxpayers - State Rep. David Crowley - Aug 8th, 2017
- Statement from Rep. Barca on New Fiscal Analysis of Proposed Foxconn Deal - State Rep. Peter Barca - Aug 8th, 2017
- Rep. Hintz Statement on Foxconn Cost to Taxpayers - State Rep. Gordon Hintz - Aug 8th, 2017
- Campaign Cash: Bill Has $10 Million Giveaway to Fiserv - Wisconsin Democracy Campaign - Aug 8th, 2017
- Wisconsin Veterans Chamber of Commerce Calls For Foxconn Project to Include Disabled Veteran Owned Businesses - Wisconsin Veterans Chamber of Commerce - Aug 7th, 2017
- Wisconsin Budget: The High Cost of Foxconn - Jon Peacock - Aug 4th, 2017
- What Does the Foxconn CEO Say About His Employees? - One Wisconsin Now - Aug 4th, 2017
- Foxconn Hearing: Big Promises, Little Details, Lacks Transportation Plan - State Rep. David Crowley - Aug 3rd, 2017
- One Wisconsin Now Testimony on Foxconn Subsidy Legislation - One Wisconsin Now - Aug 3rd, 2017
- No Guarantees to Prevent Wisconsin Tax Dollars From Subsidizing Illinois Jobs in Foxconn Deal - One Wisconsin Now - Aug 2nd, 2017
- Unnecessary to Sacrifice Natural Resources for Foxconn - Wisconsin League of Conservation Voters - Jul 31st, 2017
- Statement from Rep. Barca on Foxconn Developments - State Rep. Peter Barca - Jul 28th, 2017
- The Contrarian: Walker’s Reelection Now A Certainty - George Mitchell - Jul 28th, 2017
- Eyes on Milwaukee: Foxconn Loves Wisconsin, Walker - Jeramey Jannene - Jul 27th, 2017
- Governor Walker, Foxconn Founder and CEO Terry Gou Sign Memorandum of Understanding in Milwaukee - Gov. Scott Walker - Jul 27th, 2017
- REALTORS® Welcome Foxconn - Greater Milwaukee Association of REALTORS® - Jul 27th, 2017
- MATC Statement on Foxconn - Milwaukee Area Technical College - Jul 26th, 2017
- Statement from Rep. Barca on Foxconn Economic Development Announcement - State Rep. Peter Barca - Jul 26th, 2017
- Milwaukee County Executive Chris Abele Statement on Foxconn Announcement - County Executive Chris Abele - Jul 26th, 2017
- Global High-Tech Manufacturer Foxconn Announces $10 Billion Investment, Will Create 13,000 Jobs in New Wisconsin Campus - Gov. Scott Walker - Jul 26th, 2017
- Foxconn Frenzy: Proceed with Caution - State Sen. Chris Larson - Jul 26th, 2017
- Shilling cautious on Foxconn announcement - State Sen. Jennifer Shilling - Jul 26th, 2017
- Op Ed: Loss of Talgo Train Hurts Foxconn Deal - James Rowen - Jul 20th, 2017
- Mayor Barrett Supports Siting Foxconn Facility in Southeastern Wisconsin - Mayor Tom Barrett - Jul 17th, 2017
- On the Air: How Likely Is It Foxconn Will Create 10,000 Jobs? - Urban Milwaukee - Jul 13th, 2017
- Murphy’s Law: Walker Building Yesterday’s Economy - Bruce Murphy - Jul 13th, 2017
- Eyes on Milwaukee: Foxconn Lands in Milwaukee - Jeramey Jannene - Jul 10th, 2017