Bruce Murphy
Murphy’s Law

What Foxconn Will Cost Taxpayers

Total expected costs are $1.34 billion for a project that’s a total bust.

By - Oct 28th, 2020 05:20 pm
Foxconn's groundbreaking ceremony in Wisconsin in June 2018, brought out then-U.S. House Speaker Paul Ryan, President Donald Trump, then-Gov. Scott Walker, Foxconn Founder and CEO Terry Gou and Christopher Murdock. The company can receive cash payments from the state because it has other refundable tax credits. It has no taxes to reduce because a manufacturing tax credit virtually eliminated them. Photo from the White House.

Foxconn’s groundbreaking ceremony in Wisconsin in June 2018, brought out then-U.S. House Speaker Paul Ryan, President Donald Trump, then-Gov. Scott Walker, Foxconn Founder and CEO Terry Gou and Christopher Murdock. The company can receive cash payments from the state because it has other refundable tax credits. It has no taxes to reduce because a manufacturing tax credit virtually eliminated them. Photo from the White House.

It was back in May 2018 that Foxconn began to hint it would not be building the factory it had promised Wisconsin in a contract signed the previous fall. By July it was evident the company would be scaling down from a Gen 10.5 LCD fabrication plant to a Gen. 6 plant. 

That meant the promised manufacturing campus of 20 million square feet, with a $10 billion capital investment, would be scaled back greatly, to one-third or one-fifth the original projection, experts suggested.

Yet the administration of then-governor Scott Walker continued to move full speed ahead and Assembly Speaker Robin Vos (R-Rochester), who represents much of Racine County and portions of Mount Pleasant, insisted that Foxconn would deliver “a $10 billion development project, 13,000 careers and new opportunities throughout Wisconsin.”

And so state and local officials spent lavishly to provide infrastructure for a promised mega project that was far from assured and that ultimately came in at one-twentieth of the promised size, a one-million-square-foot campus that has done no manufacturing, provided no real jobs and recently received a permit to change the plant’s intended use from manufacturing to storage. 

The state spent $30 million on a new two-mile road east of I-94, to be called “Wisconn Valley Way,” and aimed at easing traffic congestion near Foxconn’s plant from those 13,000 or more employees that were expected. The state also spent $134 million to widen and improve roads, including Highway 11 and County KR and Braun Rd., two local roads that were turned into state highways so they could get state funding. 

Meanwhile the Village of Mount Pleasant and Racine County have created a plan to spend $911 million to transform the area for the expected mega project. The plan was to buy thousand of acres of land. But some homeowners balked at the price being offered and so village officials decided to pay “for the assessed value of homes plus an additional 40 percent and $50,000 per additional acre of property,” as the Racine Journal Times reported. The village also paid for any relocation costs, and reimbursed the property owner if they obtained their own assessment during the negotiation process.

The plan also called for adding tons of new infrastructure: 42 miles of new water pipes, 26 miles of gas pipes and 28 miles of telecom wire to serve “the eighth wonder of the world” President Donald Trump had promised. As of December 31, 2019, the plan’s estimated costs had been cut to $808 million, with all the money for road improvements having been spent, but some reductions in the cost of land acquisition and water and sewer improvements. $256 million had been spent by the end of last year.   

Mount Pleasant’s annual budget is just over $15 million, yet the village and Racine County (whose budget was $151.6 million at the time) jointly approved a spending package of $911 million, a figure 60 times higher than the village’s budget. 

Needless to say, this was a massively risky venture and so the State of Wisconsin agreed to reimburse 40% of the expenses if these local governments can’t meet the costs. That would transfer more than $364 million of the costs from local to state taxpayers. 

But the mega-plant would also need new infrastructure for the massive electrical needs, it was decided, and so the state pushed American Transmission Co., a publicly regulated company which provides electrical connections in this region, to construct  high-voltage power lines and a new substation. 

Though the entire project was for Foxconn, none of it would be paid for by the company. Instead the entire cost would be charged over a 40-year period to rate payers of five utilities in the region served by ATC: We Energies, Wisconsin Public Service, Alliant Energy, Madison Gas & Electric and Superior Water, Light and Power. The plan was approved by the state Public Service Commission, whose three members were all appointed by Walker.

Moreover, the $117 million is being repaid over 40 years, which would include an undisclosed amount in interest costs on money borrowed or bonded to pay the upfront cost. Even at today’s low interest rates, that likely to add another $250 million to the total paid by rate payers.

And American Transmission Co., it should be noted, has continued with the installation of this unneeded infrastructure even as Foxconn has repeatedly down-sized its plans.  

Some $5.3 million was paid to consultants on the Foxconn project, including $196,000 paid by the Wisconsin Economic Development Corporation, which would be an added cost, and some $5.1 million paid by Racine County and the Village of Mount Pleasant, which may or may be part of the $911 million allocated for the project.

In addition there are untold hours of work put in by state and local officials on this project whose costs will never be tallied. But even without that, the total upfront costs are massive, including $972 million in state and local taxes and about $367 million in fees charged to customers of state regulated monopolies under a state approved plan. That makes a total of $1.34 billion charged to the citizens of Wisconsin. 

And that does not include $252 million the state spent on widening I-94 from six to eight lanes from College Ave. in Milwaukee County south to Highway 142 in Kenosha County. While this was a project that was expected to be done eventually it was fast tracked by the Walker administration, once again because it would be needed to handle all that traffic created by the high-tech manufacturing colossus Foxconn had promised. Citizens in counties with roads that are falling apart might question that priority. 

None of the state spending or utility fees need ever be reimbursed by Foxconn. Its deal with local officials in Racine County does require the company to pay $30 million a year in property tax payments, but not until 2023. That gives a company known across the globe for walking out of deals two more years to plot its departure. 

Correction: The story originally reported the cost the local cost for Mount Pleasant and Racine County was $911 million: that has been reduced to $808 million.

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5 thoughts on “Murphy’s Law: What Foxconn Will Cost Taxpayers”

  1. kmurphy724 says:

    1.44 Billion. Thanks Scotty.

  2. steenwyr says:

    Thanks for the math. I suggest revising “no real jobs” to “no net new jobs” — the (unnecessary) work performed by construction companies is “real”, just misplaced and that opportunity cost is an added travesty for state tax/ratepayers.

  3. Mark Nicolini says:

    This is a very important analysis as it lays waste to Walker’s “not to worry response” that State tax credits are performance-based.

    As Mr. Murphy’s analysis shows, hundreds of millions of local and State government costs are not subject to these “claw back” provisions. It’s baffling to me that the Biden campaign hasn’t raised this issue in its Wisconsin campaign.

  4. Thomas Martinsen says:

    Yo Mark,

    “Con” is part of Foxconn’s name. The con-man in chief supported this shady deal. The Biden campaign could use this story as an example of how cons have been bastardly legitimized in politics in recent years.

  5. Alan Bartelme says:

    We also need to remember the AWOL GOP state legislators who loudly supported this deal.

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