The $3 billion incentive offered by Gov. Scott Walker to convince Taiwan-based Foxconn Technology Group to build a massive plant in southeastern Wisconsin is an enormous commitment from taxpayers.
We recently found out just how significant that obligation is going to be. According to a Legislative Fiscal Bureau report, Wisconsin taxpayers won’t get a return on their investment in Foxconn for 25 years, or until 2042, from the state taxes paid by Foxconn employees, employees in the company’s supply chain and employees of induced jobs created by the economic impact of the Foxconn plant.
When I heard that news, I immediately asked myself how old I will be in 2042. Answer: 67. Wow.
Walker says the Foxconn deal is a “once-in-a-lifetime” economic opportunity for the state. It is going to take a huge portion of our lifetime to pay for it.
The question then is…will it be worth it?
Walker says “absolutely.” He points to Foxconn’s commitment to spend $10 billion to build a 20 million-square-foot plant and $10 billion in salaries that will be paid by Foxconn ($700 million a year starting in 2021, according to the Fiscal Bureau) over the 15 years the state subsidy will be paid to the company. In the governor’s “pay as you grow” plan for Foxconn, the company only gets the tax incentive if it makes its capital investment and for hiring up to 13,000 employees.
What makes this deal such a big fiscal challenge for the state is the fact that Walker and Republicans in the Legislature have already reduced state corporate income taxes for manufacturers to nearly zero. So the incentive that will be paid to Foxconn is not a tax break; it’s cash payments the state must come up with.
But the Foxconn deal is “bigger than future tax revenues,” Walker said. It’s an opportunity to transform the state’s economy into a high-tech electronics manufacturing hub, he says.
For the state, there is significant risk in this deal. Who knows what will happen to Foxconn’s business in 25 years?
“Technological advances and changes in Foxconn’s market share, operating procedures or product mix could significantly affect employment and wages at the proposed facility over time,” the Fiscal Bureau report states.
But the Fiscal Bureau acknowledges its analysis focuses only on the impact of Foxconn on the state treasury and “does not account for other benefits to the state’s economy and residents.” The state tax credit for the company’s capital expenditures, and the sales tax exemption included in the deal, have a value of $1.5 billion to induce the company’s $10 billion investment. That results in a “leverage ratio” of $6.70 of private investment for each $1 of public outlay. The payroll credit results in a 5.9 to 1 leverage ratio just for Foxconn’s payroll, and is even higher if you include the indirect and induced jobs created.
“Most state expenditures do not result in private investments of this nature,” the report says.
