Foxconn Deal Gets Even Worse
$4.1 billion handout will deliver even less benefits, more costs than imagined.
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.
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.”
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?
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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- Back in the News: Foxconn Landing Google Contract? - Bruce Murphy - Nov 23rd, 2020
- Op Ed: Mistake? Foxconn Was a Whopper - John Torinus - Oct 30th, 2020
- Murphy’s Law: What Foxconn Will Cost Taxpayers - Bruce Murphy - Oct 28th, 2020
- Campaign Cash: Vos Hit By Surge of Outside Spending - Wisconsin Democracy Campaign - Oct 26th, 2020
- Will Foxconn Pay Taxes Pledged to Racine County? - Corri Hess - Oct 24th, 2020
- Murphy’s Law: Why Foxconn Won’t Leave Wisconsin - Bruce Murphy - Oct 21st, 2020
- Foxconn Founder Terry Gou Addresses Foxconn’s Wisconsin Investment - Foxconn Technology Group - Oct 19th, 2020
- Back in the News: The Foxconn Deal Was Never Real - Bruce Murphy - Oct 19th, 2020
- Two years after Trump put a shovel in the ground, Wisconsin is still waiting on Foxconn to come through - Democratic Party of Wisconsin - Oct 19th, 2020
- Back in the News: Foxconn Won’t Get State Tax Credits - Bruce Murphy - Oct 12th, 2020
Read more about Foxconn Facility here