Bruce Murphy
Murphy’s Law

Foxconn Deal Gets Even Worse

$4.1 billion handout will deliver even less benefits, more costs than imagined.

By - Mar 6th, 2018 12:17 pm
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Foxconn signing. Photo by Graham Kilmer.

Foxconn signing. Photo by Graham Kilmer.

Could the Foxconn deal get any worse?

That seems hard to imagine, given that the total cost, as I reported, has risen to nearly $4.1 billion, all to get a $9 billion plant built. That’s a cost of $1,774 per household in Wisconsin.

But new documents released to the media by the Walker administration shows the plan has a huge loophole. As a story by the Milwaukee Journal reported, Mark Hogan, chief executive officer of the Wisconsin Economic Development Corporation, warned the administration that neighboring states could pick off the indirect jobs generated by Foxconn at companies that provide it with supplies.

Given how high the subsidy for Foxconn is, Wisconsin can’t afford to offer any tax incentives to suppliers of the Taiwanese company, but other states could, wrote Hogan: “it is likely a neighboring state may be willing to provide these incentives.” And those subsidies would help companies in neighboring state to underbid Wisconsin businesses in providing supplies to Foxconn.

In fact, “a good portion of the suppliers appear likely to be out-of-state,” warned state Department of Administration policy analyst Brian Quinn in a memo.

Those indirect jobs have been a big part of the justification for the huge Foxconn subsidy, yet these memos suggest many won’t be created in Wisconsin.

That in turn, would affect the Legislative Fiscal Bureau’s estimate of how long it would take for the state to break even on the subsidy. The Bureau’s report tallied the costs of the project against the expected jobs and income taxes paid by those workers and estimated it would take until 2042-’43 for the state to break even. But if 10 percent of the new jobs were filled by Illinois residents the pay-back period would be delayed until 2044-’45.

But what if the percentage is much higher? The total payback from Foxconn included the Bureau’s estimate of 22,000 indirect and induced jobs that would be created, based on an economic multiplier of 2.7, “consistent with the multiplier for the industry and the average for the Wisconsin manufacturing sector,” as one expert notes.

But the multiplier is likely to be well below the average if surrounding states are subsidizing potential suppliers to Foxconn, and end up getting “a good portion” of the jobs created, as Walker administration experts predict.

All of which could alter the payback period predicted by the Bureau, as LFB analyst Rob Reinhardt conceded in response to a question from Urban Milwaukee. He pointed to the report, which noted: “The use of alternative assumptions, particularly regarding the number of new jobs that would be filled by Wisconsin residents, would significantly affect the outcome of the analysis.”

Such a scenario was anticipated by the Chicago Sun Times, which wrote a gleeful editorial thanking Wisconsin for “the beautiful gift” to Illinois, noting the Foxconn deal “would cost our state nothing, yet up to half of the new jobs could go to our residents, while O’Hare Airport would get the new international travel business.”

A second problem noted by Walker administration experts in the recently released memos is that the Foxconn deal sets a new standard for subsidies that all companies will demand. Buried in a Journal Sentinel story is another prediction from policy analyst Brian Quinn: “Existing major employers, especially in other parts of the state, such as the northeast and western portions of the state, will likely ask for significantly larger assistance than they have in the past, as will prospective new employers.”

Indeed, the Walker administration has already offered the same per-job subsidy to Kimberly-Clark that Foxconn is getting, signaling other companies that this is the new standard: a level of subsidy that is unprecedented in state history, and will be difficult to sustain. “Given the scale of the resources that will be tied up in this (Foxcoon) project,” Quinn wrote, “providing any significant assistance to (other) employers may prove difficult.”

Future companies may also demand the kind of free utility connections that Foxconn is being offered. The current plan calls for American Transmission Co. to construct a $140-million project to provide electrical power to the Foxconn plant, enough power to serve 170,000 households. ATC would run high-voltage power lines “to a new substation it would build along Racine County Highway H just east of the Foxconn campus,” as the Journal Sentinel reported, and We Energies rate payers would pay for this.

Normally a new distribution line to a business is paid for by that company. Thus, developers like Barry Mandel and Peter Renner have been charged for such lines, notes Milwaukee Ald. Bob Bauman.

But a transmission line, such as the one from Wausau to Duluth, serves all the households in the area and is charged to all ratepayers. The Foxconn transmission line, however, isn’t being built for other households, but only to serve one mega-company. So why are We Energies rate payers being charged for something that doesn’t benefit them?

That’s the question being asked by the Milwaukee Common Council, which approved Bauman’s proposal to have the City Attorney contest this deal when it comes before the state Public Service Commission.

But the Walker administration clearly supports this huge additional subsidy for Foxconn, creating yet another precedent for giveaways to companies from average taxpayers.

It is remarkable to see what has happened to a Republican governor, who ran on a platform of lower taxes, but is giving more of our taxes away to private companies than any governor in state history. As a result, Walker has had no money for transportation and has spent $1.3 billion less on state highways than his Democratic predecessor Jim Doyle, for whom roads and highways were a low priority.

And the situation continues to get worse. The latest figures show the state will now have $70 million to $90 million less for other highway projects in the state after allocating the money for roads serving Foxconn. The negative impact of this massive giveaway just keeps growing.

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Categories: Business, Murphy's Law, Politics

34 thoughts on “Murphy’s Law: Foxconn Deal Gets Even Worse”

  1. Jake currently of the MKE says:
    March 6, 2018 at 12:22 pm

    WI Republicans proving everyday their deeply held principles of letting the free Market decide and Fiscal conservatism was one fat lie that their supporters will defend.

  2. PMD says:
    March 6, 2018 at 12:40 pm

    Take this and combine it with the new polling on Foxconn, and it’s bad news for Walker and Republicans. Are they in a room right now working on their messaging to deal with it? What will it be?

  3. radiodog says:
    March 6, 2018 at 12:46 pm

    Surprised?

  4. Terry says:
    March 6, 2018 at 12:48 pm

    This Republican nightmare continues to snowball…Career Politician Scott Walker and Republicans FOXCONNED Wisconsin! Iceberg ahead! Republicans are drunk on power and barreling straight for it! Abandon ship while you can. Wisconsin is going down hard and fast thanks to Walker and Republican’s EPIC IDIOCY.

    Dump Walker 2018
    Dump ALL Republicans 2018

  5. Jake formerly of the LP says:
    March 6, 2018 at 12:53 pm

    Isn’t it funny how the more that comes out about,this boondoggle, the worse it looks?

    The best thing that could happen for this state’s fiscal and economic future is for Foxconn to back out and go elsewhere, And use the savings to FIX THE ROADS.

  6. Guy4Life says:
    March 6, 2018 at 2:20 pm

    Yes it could get worse, Foxconn could decide to not come here… then you have nothing to whine about.

  7. Troll says:
    March 6, 2018 at 2:27 pm

    Foxconn will be so large they have stated 150 supplier s will open shop in southern Wisconsin. Corning is planning a $1 billion dollar investment near Foxconn. Let’s write the rest of the story, please.

  8. PMD says:
    March 6, 2018 at 3:12 pm

    I heard it’s actually 1,150 suppliers and a $10 billion investment.

  9. Jake formerly of the LP says:
    March 6, 2018 at 3:37 pm

    Guy/Troll- You bet I wouldn’t be complaining if Fox-con didn’t come here. We wouldn’t be throwing billions of dollars down the drain to a foreign corporation that is taking business away from,homegrown companies that won’t automate all their,jobs in the next 20 years.

    And our environment doesn’t have to,be wrecked in the process, and potholes could actuakkt be filled. That’s a total win!

    But don’t worry, there is plenty of other Walker/WISGOP incompetence and corruption to clean up even if Foxconn were to go away.

  10. ERIC J. says:
    March 6, 2018 at 3:56 pm

    -Four lane toll booths into and out of all FOXCONN properties.

  11. ERIC J. says:
    March 6, 2018 at 4:02 pm

    The FOXCONN / Corning story is already a year old. Any updates ??
    -I think everyone in Wis. thinks the FOXCONN deal” is set in stone”. Time for Corning to make a move .
    – ( Maybe they’re waiting for a bigger subsidy $$$$$$$$$$$$$$ from the Walker administration.)

  12. Joe says:
    March 6, 2018 at 4:09 pm

    By Golly – I think Walker has given the word Boondoggle a new meaning. Instead of receiving $800 million from the feds to build a HSR he wants to give $4.5 billion away to a foreign company and pay for jobs created in other states. Now what’s a hit em below the belts campaing hit for this boondoggle?

  13. Rich says:
    March 6, 2018 at 4:46 pm

    Now what’s a hit em below the belts campaing hit for this boondoggle?

    Sadly, probably only roads. Which could play well out-state since there won’t be any fresh concrete outside of SE WI for a few years. Anything else in the budget won’t hit home; the average Walker supporter sees all of that as “wasted spending on poor people anyway”.

  14. Troll says:
    March 6, 2018 at 4:46 pm

    A lot of this subsidy is FoxConn not paying corporate taxes for a duration of time. Foxconn will dwarf the Amazon second corporate office and a lot of blue cities and states are competing for it. Which makes me wonder if Tom Barrett were Governor and he pulled this off would the media be calling him a genious. Nothing but glowinv reviews for a trolley that only Potawotomi and the taxpayers of Milwaukee are paying for.

  15. Rich says:
    March 6, 2018 at 4:51 pm

    A lot of this subsidy is FoxConn not paying corporate taxes for a duration of time.

    False. Many deals had been structured this way. Now that we’re “post M&A credit” and manufacturers in general already don’t pay taxes, a significant portion of this subsidy will be direct payments of cash.

  16. Troll says:
    March 6, 2018 at 5:31 pm

    We subsidize teachers that prey on students, we subsidize cops that shoot unarmed black men, we subsidize sheriff’s that dehydrate inmates, librarian s that view pornography at work, Amazon gets subsidizes to bring food to your doorstep and apparently Foxconn is where we draw the line.

  17. mike says:
    March 6, 2018 at 5:50 pm

    I’m generally pretty conservative, but there’s a handful of clearly high value projects in south east Wisconsin that the GOP & Walker continually block, that’s really turned me against their agenda. Obviously we should have a rail connection between Chicago and Madison via Milwaukee. Obviously passanger rail should be re-established between Kenosha & Milwaukee connecting to Chicago-Metra. Obviously, 794 should be boulevarded through downtown & developed with tax paying properties.

    Those projects, which would go a long way towards making Milwaukee & south east wisconsin a really terrific place, (while supporting home-grown growth) would be pocket change compared to this handout.

  18. Jake says:
    March 6, 2018 at 7:59 pm

    Troll is way to entertaining to be a real right winger.

  19. John says:
    March 6, 2018 at 8:26 pm

    I think the fine-toothed comb of people on the Wisconsin side of the transaction was missing several dozen teeth. Geez, what a bunch of amateurs.

  20. Bro4Life says:
    March 6, 2018 at 10:00 pm

    As long as an In-N-Out Burger gets built, I’m cool

  21. Will says:
    March 7, 2018 at 3:28 am

    A Taiwanese company gets 4.5 billion dollars of Wisconsin taxpayers money with our environmental standards thrown in the trash. Walker doesn’t care what happens with this deal,.he and his family are not from Wisconsin and are also living off the hard working taxpayers of this state. Walker and gang will be long gone when thi’s mess and all the other corrupt dealings are totally realized.. Walker says Wisconsin is broke, I say broke over and over to beat it into shallow heads of people who fell for it. Now he’s borowing billions for roads and taking billions out of education. Walker is the best scam artist.

  22. Wisconsin Conservative Digest says:
    March 7, 2018 at 8:14 am

    Fight for great jobs between states, it is dog eat dog and Foxconn is the worlds biggest catch as it is magnet for other companies to come. Loss of KC, Allis Chalmers was disaster for this state and now we have reversed course. As the deal proceeds with HQ downtown, more in Mukownago and others we will see that SE Wisconsin will be HQ fro Tech in Midwest.

  23. Timothy J Haering says:
    March 7, 2018 at 8:26 am

    Lighten up, Francis. We’ve already gulped the ice cream, it’s too late for your fussing about brain freeze. “NOwhere man, don’t worry. Take your time, don’t hurry.” It’s tranformational. Heimlich turned into a “beautiful butterfly.” I wonder what Wisconsin will become.

  24. ERIC J. says:
    March 7, 2018 at 8:46 am

    Walker and S.E. Wis. could have had the Kenosha casino ( 3000 jobs) for the cost of a lawsuit. That likely would not have gone anywhere near the billion dollar mark. But he was unable to make that commitment during his presidential fiasco.

  25. Kathy D. says:
    March 7, 2018 at 9:25 am

    Excellent article, Bruce. Keep it up!

  26. JC says:
    March 7, 2018 at 10:10 am

    This is like drafting a first round pick, putting him on a bad defense and then calling him a bust in preseason. I guess people need to write about something, but try to look at the big picture. The paper industry, foundries and farms have been dying off for 20 years. FoxConn is not only building a significant plant which brings new manufacturing technology to WI, but they are also developing a long presence in North America with a desire to develop new technology. It absolutely comes with risk, but if people actually worked together, we could mitigate those. However, it seems to be more important to fight it at every turn and sadly by others to even actively try make it a failure as being right seems to be more important in our culture then disagreeing and still working together to try and succeed.

  27. Mandi says:
    March 7, 2018 at 10:39 am

    Walker should be named the “Welfare Governor.” Corporate welfare, that is, over citizen well-being every time.

  28. Jeff says:
    March 7, 2018 at 11:12 am

    Thanks for all these REAL NEWS insights, Bruce. Very useful summary of the frightening implications of the Governor’s deal.

  29. Wisconsin Conservative Digest says:
    March 7, 2018 at 12:12 pm

    Headlines in Milwaukee 3/7 and before: Bus routes link to jobs in Milwaukee to Foxconn allowing under employed workers, families in Milwaukee to have jobs.
    Next the new HQ down town will be big boost to Milwaukee and down town.

    The Left is opposed to jobs for the Milwaukee’s families so they can keep them on welfare and stamps.

  30. PMD says:
    March 7, 2018 at 12:27 pm

    WCD your right-ing rhetoric doesn’t work here. As the MU poll makes clear, Republicans aren’t widely supportive of the Foxconn deal either. Why is that? Are they opposed to jobs?

  31. old baldy says:
    March 7, 2018 at 2:10 pm

    JC:

    “farms have been dying off for 20 years”.

    FYI: WI has 1.27+ million dairy cows that produce 30+ billion pounds of milk. WI produces $1.65+ billion of corn, $940+ million of soybeans, $816+ of hay. Total annual value of all ag products (2017 USDA) last year was $11.7+ BILLION. Maybe you should re-think that unsubstantiated comment.

  32. Wisconsin Conservative Digest says:
    March 13, 2018 at 2:20 pm

    Left just hates to see Wisconsinites get jobs.
    This get better every day as realtors in area buy up by developers and other companies,
    The Foxconn HQ downtown, the new facility in Mukwonago and more to come.
    Wisconsin will be Tech HQ for Midwest and will draw tons of new jobs, companies, etc. Businesses hate the illinois nuts like those that are on this site, who have ruined Illinois.

  33. ERIC J. says:
    March 13, 2018 at 2:37 pm

    WCD :
    -Left just hates to see Illinois people get WISCONSIN jobs.

    Illinois HAS ITS OWN BUSINESS INTERESTS. Do you see mass migration of Illini to Wisconsin ? Isn’t Walker trying to recruit residents of Illinois to come here ?? Why would we want them if they are such deplorables ?????.

    -Why don’t you write Walker and tell him to go resurrect the casino he lost us ?

  34. Wisconsin Conservative Digest says:
    March 15, 2018 at 2:00 am

    Fox Conn is greatest business deal in our history.
    This will energize Wisconsin bringing in new ideas, new talent, new peoel new and better jobs turning Wis. into the Tech center of Midwest.

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