Newest Deal Shows Foxconn Flaws
Walker spends 11 times more per job on Foxconn than Haribo candy company?
Take the subsidy to Mercury Marine awarded by Gov. Jim Doyle in 2009, when the company threatened to move its manufacturing plant in Fond du Lac to a plant in Stillwater, Oklahoma if it didn’t get wage concessions from workers. The union did make concessions and the state agreed to award the company $70 million in state tax credits if it kept its nearly 2,000 jobs in Wisconsin.
The Doyle administration typically gave tax credits of up to 7 percent of payroll, with the idea that the state would be repaid over a period of 10 to 15 years from income taxes paid by workers. In the case of Mercury Marine, the company later spent $20 million to expand the Fond du Lac plant (in 2012) and has increased the work force there to 3,200, after closing the plant in Stillwater.
When Republican Scott Walker became governor, he soon announced he would replace the Department of Commerce with a public-private partnership called the Wisconsin Economic Development Corporation. The WEDC has been an unmitigated disaster that has generated more negative headlines than anything else Walker has done. As for what the metrics were for WEDC, that was never clear.
A May 2017 Legislative Audit Bureau report found that of hundreds of millions in tax credits, grants and loans authorized since 2011, the agency “cannot be certain about the number of jobs actually created or retained as a result of any awards.” In fact only 12.5 percent of the awards “even had an expected result of job creation or retention.”
But the Walker Administration’s recently proposed subsidy for the Haribo candy company at least has some specific metrics that constrain the deal. Haribo, the German manufacturer of gummy bears, chose Pleasant Prairie in Kenosha County as the site of its first North American plant. The Walker administration is offering up to $21 million in refundable tax credits if the company invests $220 million in the plant and maintains the full-time jobs it creates through 2028, as Rick Romell of the Milwaukee Journal Sentinel has reported.
“Haribo expects to employ 385 people at a new, 500,000-square-foot factory in Kenosha County,” Romell reports. “The contract with WEDC calls for the company to hire 50 full-time employees by the end of 2019 and add 50 to 80 a year through 2024” until it reaches 385 employees. To get the full subsidy, it must meet those requirements, according to Mark Maley of the Wisconsin Economic Development Corporation.
That’s a cost of $54,545 per job, a lot pricier than the Harley and Mercury Marine deals.
But still a great deal compared to that for Foxconn, which will give a $3 billion subsidy for 13,000 jobs, or $230,000 per job. That’s 4.2 times more subsidy per job than the Haribo deal.
But the Haribo deal is based on the number of jobs the company creates. The Foxconn deal gives the company a 15 percent tax credit on all capital expenditures it makes for seven years, up to a total of $1.35 billion, even if that money is being spent to add robotics and reduce employment. The company says it will start with 3,000 jobs and grow that to 13,000, but there is no requirement this happen and no penalty if it doesn’t. If just 3,000 jobs are created, the company will collect $1.35 billion plus $345 million in a payroll tax credit and $139 million in promised sales tax exemptions, for a cost to taxpayers of $611,000 per job, or 11 times more per job than the Haribo deal.
What possible justification is there for spending so much more on just one company? The Foxconn subsidy is 35 times bigger than the largest state subsidy ever awarded. The $3 billion amounts to a contribution of $585 per person for every adult in the state.
The only policy rationale for such an off-the-charts subsidy is that Foxconn will transform southeastern Wisconsin into a mini-Silicon Valley that leads the way in creating the next generation of flat panel screens. But Foxconn has already made the decision to create such a factory complex elsewhere — in Guangzhou, China.
Foxconn has already broken ground on this huge plant, which is expected to be operational by 2019, according to an eye-opening story by Journal Sentinel reporter John Schmid, whose long suit is international economics. Foxconn CEO Terry Gou envisions the plant as the company’s strategic base: “The industrial campus will be the world’s most advanced and largest of its kind, the company says. Its engineers and designers ‘will develop innovative display screens, smart TV’s, electronic whiteboards and other cutting edge display products,’” Schmid reports.
And the assembly employees there are likely to earn the equivalent of $8,000 a year, one-seventh of the average pay Foxconn claims its Wisconsin workers will earn, and about one-fourth the likely starting salary, which is $30,000, the lowest it can pay and still get a state payroll credit. In short it makes no economic sense to do any production in Wisconsin.
In short, Foxconn will do the minimum production necessary in Wisconsin to keep the Trump administration from slapping tariffs on its exports to the U.S. And given the opposition of many Republicans in Congress to creating a trade war, it’s likely there will never be such tariffs and the Wisconsin plant will never be needed.
For state taxpayers, that would be the best news. The worst would be that Foxconn creates a plant with as few employees as possible, while collecting as much of Walker’s massive subsidy as it can.
Economists often talk about “opportunity costs”: what possible projects are you losing which you could spend state dollars on that might present greater opportunities. The Haribo deal is a classic example. As pricey as it is, seven more such deals would create more than the minimum 3,000 jobs promised by Foxconn, at a cost of $168 million, not a couple billion.
Research has repeatedly proven that smaller companies create most new jobs in America, which is why some states emphasize aid to start-up companies. Imagine having a $3 billion fund to help back the most promising start-up companies in bio-tech, alternative energy and other growing industries. Foxconn will likely use up all possible state economic development money for an entire generation, until the 2040s or later, all to create a backstop for Terry Gou in case a trade war occurs. Good for him, terrible for Wisconsin.
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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