Washington, DC—(ENEWSPF)—March 23, 2018
By: Alex Provan
In late 2017, Foxconn, the Wisconsin Economic Development Corporation (WEDC), and Wisconsin Governor Scott Walker came to an agreement where Wisconsin will provide almost $4.5 billion in incentives and Foxconn will build a large manufacturing facility in Point Pleasant Wisconsin. Governor Walker has presented this agreement as a win for the people of Wisconsin that will generate billions of dollars of investment and thousands of high paying jobs. The incentives package is among the largest subsidies provided for a foreign based firm.
Foxconn is an electronics manufacturing company based in Taiwan and is associated with serious anti-worker management practices. The incentives package includes $2.85 billion in statewide tax incentives, $764 million in local government incentives, $139 million in state sales tax exemptions, and another $717 million in construction costs and grants. The deal also includes an expedited environmental permitting process and a dedicated liaison at the WEDC. In return, Foxconn must invest at least $9 billion in capital, and employ 10,200 people at an average compensation of $59,600, including benefits. Both Foxconn and Walker claim that overall 13,000 people will be employed and $10 billion will be invested. Foxconn has made similar promises in the past. In 2013 they claimed that they were going to build a $30 million plant and hire 500 people in Harrisburg Pennsylvania. Despite seeking incentives from Pennsylvania and already having a local office, the plant was never built. All said, Foxconn continues to make demands of the Wisconsin government as time progresses.
The WEDC’s Track Record
The Wisconsin Economic Development Corporation, or WEDC, is the agency negotiating the terms of the contract with Foxconn. All 50 states have an agency devoted to recruiting businesses to their states. These agencies are typically empowered to provide business support and in some instances can give tax credits and monetary grants. In most states, this agency is a cabinet level or a fully public agency staffed by public service workers. In Wisconsin, this is not the case. In 2011, a bill promoted by Walker and several consulting firms turned the Wisconsin Department of Commerce into the WEDC. The WEDC is funded by public money; however, the board is controlled by the private sector. Forward Wisconsin a private entity did similar work to the WEDC on a non-exclusive basis from 1984 – 2007. It worked in conjunction with the Wisconsin Department of Commerce but was dissolved due to performance issues.
There have been several high profile instances of companies not delivering on promised jobs or capital investment after they received incentives from the WEDC. Early after its inception the WEDC bungled several high-profile incentive packages. In 2012, the WEDC gave $20.9 million in tax credits to the Fincantieri Marine Group to create 800 jobs. They only created 652. They also gave $18.3 million in tax credits to Kohl’s to create 3000 jobs; they only created 473. In another instance, they gave $717,000 to Kestrel Aircraft company to create 665 jobs but in the end only 23 were created. These high profile incidents prompted legislative auditors to suggest that WEDC adopt more rigorous contract enforcement processes.
After these supposed corrective actions, WEDC’s widespread incompetence and underwhelming performance continued. Of completed deals, 51 percent of companies given tax incentives underperformed their required job targets. Out of $148.2 million given as tax incentives, $93.2 million of those tax incentives (or about 63 percent) went to companies that underperformed. (This money does not include money spent on infrastructure-enhancing grants, or job training for workers who never end up being employed.) Even as the agency attempted to strengthen its enforcement policies, this track record continued. As of 2018, many businesses are still underperforming on their job creation targets.
The WEDC has made 177 completed deals with businesses that included capital investment as a required deliverable. 34.4 percent of businesses that received incentives failed to meet their capital investment requirement. At least $41.9 million in tax incentives or around 36 percent of capital investment tax incentives were given to entities that failed to meet capital investment requirements.
While claiming to provide greater flexibility for business recruitment programs, the WEDC is astonishingly inefficient when it comes to implementing incentive programs at a relatively small scale. The largest planned award that the WEDC negotiated prior to the Foxconn deal was the failed deal with Kohl’s. While only $18.3 million in tax credits were given out, they had planned to give out $62.5 million. The planned state tax exemptions for Foxconn — $2.85 billion worth — are about 45 times larger than the Kohl’s deal. The greater flexibility produced by the WEDC seems to be expressed through a lack of transparency, and a greater amount of mismanagement. There is no reason to think that the WEDC and Scott Walker can effectively manage a large scale incentive process when they have not effectively managed them at a smaller scale.
The Politics and Economics Behind Foxconn
The money spent on the Foxconn project will affect the state’s economy for the next several decades. The massive amounts of subsidies could create a higher tax burden and could divert resources from other state projects, especially because the deal would not begin to be a net return to the state until around the 2040s.
Even supposing that Foxconn employs the full 13,000 they say they will, if they fully meet capital investment requirements, the deal is far more expensive than is typical for incentives packages negotiated by the WEDC. For economic development programs that require job creation and capital investment, the WEDC, on average, plans to spend around $12,400 for each job created. The Foxconn incentive package would cost around $200,000 per job if only the tax credits are taken into account. That number rises to well over $300,000 if all aspects of the incentive package are included. This number could continue to rise if Foxconn does not follow through on its obligations, or if it continues to extract concessions from the WEDC and Governor Walker’s office (as they have already begun to do). Further, while Foxconn gets a large package of free land, infrastructure subsidies, and tax breaks, local businesses do not get the same. On top of that, Foxconn is not required to source materials from inside the state, so it will potentially bypass in-state suppliers.
The Foxconn Deal would place unnecessary strain on the local economy. It will give a large foreign corporation a huge subsidy at the expense of everybody else. This unfair transfer of state funds happens as 27% of roads are in need of repairs, and schools need $800 million in additional capital funding. It is important that state economic development programs are transparent in their implementation, and that all contractual obligations are adequately enforced. Further, it is important that the Wisconsin government meet current funding obligations before smokestack chasing.
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