Walker’s Desperate Deal With Foxconn
No governor in state history would have offered such a massive giveaway.
Back when Gov. Jim Doyle was offering tax incentives to companies like Harley Davidson and Mercury Marine to convince them to expand in this state, I questioned a Department of Commerce official about their rationale.
In essence, the department took a look at the number of jobs to be saved, the average wage earned and how much those employees would pay in state income taxes. The tax incentive was 7 percent of the company payroll for up to nine years and the workers were paying an average of slightly more than 5 percent in income taxes, so the state would be made whole in about 12 years. And that doesn’t include the corporate income tax that also would be paid.
The Commerce Department had a bipartisan history of this sort of approach, but Gov. Scott Walker, offering little rationale, replaced it with the Wisconsin Economic Development Corporation, where any sort of deal seems to be made. A 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 contract awards “even had an expected result of job creation or retention.”
But the Foxconn deal offers much more than this. The company also gets a 15 percent tax credit on all capital expenditures it makes for seven years. Since Foxconn, due to Walker’s Manufacturing and Agriculture Tax Credit, will pay little or no corporate tax, probably none of this giveaway will be recovered. Indeed, the company is being given “refundable tax credits,” meaning these are cash giveaways, not tax reductions.
But the deal offers much more than this. Foxconn will get a state and local sales tax exemption on the cost of all building materials, supplies, and equipment and landscaping and lawn maintenance services, estimated to be worth $139 million.
But the deal offers still more. Local governments will be pressured to create special Tax Incremental Financing districts, and the subsidy is expected to be so massive that the Foxconn bill provides an exemption from the state law limiting the size of such districts and lengthens the statutory payback period from 20 to 30 years.
But the deal offers still more. The bill would exempt Foxconn from some state requirements on: (1)discharging dredged or fill material into a wetland; (2)water quality certification related to discharges into wetlands; (3)construction, placement, or maintenance of bridges or culverts in or over navigable waters; (4)construction, dredging, or enlargement of an artificial water body that connects with an existing navigable waterway; (5)grading or removal of topsoil from the bank of a navigable waterway; (6) public utility projects consisting of high-voltage transmission line relocations.
In short, Foxconn will be able to operate as a kind of outlaw company that can simply ignore laws that regulate every other business or individual in the state. And that is because it promises to create up to 13,000 jobs in return for accepting $3 billion in tax subsidies or $585 per person for every adult resident in this state, not including the additional TIF subsidies, which have yet to be tallied.
And what guarantee is there that Foxconn will create 13,000 jobs? None. The company could collect $345 million of the maximum $1.5 billion payroll credit for just the 3,000 jobs it promises to start with and grab the sales tax exemptions and TIF subsidies while using the $1.35 billion tax credit on capital expenditures to automate the factory and gradually lower the employment even further. With no penalty. And given the company’s reputation for embracing robotics at ever opportunity, that is surely the most likely result.
And the cost to the state under this scenario would be $611,000 per job, not counting the TIF subsidies and environmental costs.
As for the jobs it promises, how many will be family supporting? Foxconn claims the average wage paid will be $53,875, but what guarantee is there of this? None. And even if this does turn out to be the average, that could easily mean half the workers earn less than this. How much less? One clue is provided by the legislation, which says the payroll tax credit applies for jobs earning at least $22,620 if the company is in a tier I county or municipality or $30,000 if in a tier II county or municipality. The lower figure is below the poverty line for a family of four while the higher figure is at about 130 percent of the poverty line.
These details come from a recent Legislative Fiscal Bureau analysis, which concludes the state could recoup the massive Foxconn giveaway by 2043. Leaving aside that this is a quarter-century, an entire generation from now, how can the money be recouped when it is far more than the combined taxes paid by workers and the company? The answer is that the Foxconn plant will spin off other jobs from suppliers, construction companies and the like that it uses. But if we followed this approach for every company in Wisconsin, it would wipe out all the corporate and personal income taxes paid in this state. That doesn’t seem like a sensible way to build an economy.
The Fiscal Bureau cautions that the data on the spin-off jobs is “speculative” and based on estimates from Foxconn and the WEDC. I leave it to others to decide which is less reliable.
The bureau estimates that given the proposed location for Foxconn is close to the Illinois border, perhaps 10 percent of the jobs could go to workers from that state who won’t pay Wisconsin taxes, which would extend the payback period two more years, to 2045. It also notes its analysis hasn’t reduced the value of future dollars, meaning the real dollar payback would occur even later, perhaps after 2050.
Has there ever been a worse deal proposed by a Wisconsin governor? True, the Brewers and Bucks stadium deals were massive giveaways, but this was done not for jobs but for the state’s prestige, to prevent the loss of major league franchises. A deal with Foxconn offers not prestige, but a deal with a shady operator who frequently walks out of deals, compares his workers to animals, and has created a company infamous for poverty-level wages and horrible working conditions, with riots, worker suicides and violence at the Foxconn plant in China.
Walker’s willingness to hand this company $3 billion suggests a desperation to wipe away his failed promise to create 250,000 new jobs and the state’s chronic below-average ranking in job creation. The Foxconn hype — with the dirty details downplayed — might rebrand him as a big-time job creator. As for state legislators in the Racine-Kenosha area, they may find it hard to oppose his plan.
But for every other legislator in the state, Republican or Democrat, there is no reason to vote for this unprecedented giveaway for a few thousand jobs, following a game plan that if applied to all businesses, would bankrupt the state and destroy its environment. This isn’t a sound conservative solution to economic development, it is fiscal liberalism run rampant.
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- State Reviewing Foxconn Jobs Report - Erik Gunn - Jul 23rd, 2020
- Foxconn Hosts Smart Manufacturing Web Conference, Launches iAI Institute - Foxconn Technology Group - Jul 10th, 2020
- Foxconn Will Make 10K Ventilators - Corri Hess - Jun 19th, 2020
- Medtronic and Foxconn Partner to Increase Ventilator Production - Foxconn Technology Group - Jun 18th, 2020
- Foxconn Audit Delayed Two Months - Erik Gunn - Jun 3rd, 2020
- Back in the News: Foxconn’s Profits Plunge By 90% - Bruce Murphy - May 19th, 2020
- Foxconn to Assemble Procedural Masks in Wisconsin for Pandemic Relief - Foxconn Technology Group - Apr 20th, 2020
- Murphy’s Law: Foxconn Squeezes Evers - Bruce Murphy - Apr 15th, 2020
- Foxconn Says It Earned Tax Credits - Corri Hess - Apr 9th, 2020
- Back in the News: Foxconn Plant Will Make Ventilators - Bruce Murphy - Apr 8th, 2020
Read more about Foxconn Facility here