Outside the Box: Wisconsin taxpayers need to pull the plug on this con of a Foxconn deal

0
77
views

In July 2017, Wisconsin Governor Scott Walker and President Donald Trump announced the third-largest economic development incentive package in U.S. history: $3 billion of incentives for Foxconn to build a $10 billion, 1,000-acre factory complex that promised to employ 13,000 workers.

Critics of this proposal were many, with economists offering nearly unanimous criticism of the structure and financial wisdom of this plan. I am one of those early critics and outlined why an incentive package that essentially paid more than 100% of workers’ wages for several years failed to meet any standard of common sense.

The initial details on the Foxconn 2354, +1.06%   deal were, at best sketchy. But it’s gotten worse: bigger subsidies, fewer jobs and a payback period for taxpayers that now stretches into centuries rather than decades. All this suggests it’s time for Wisconsin to pull the plug on the deal.

The original deal guaranteed 3,000 direct jobs from the Taiwanese company’s nearly $10 billion investment in a factory that would build panels for 75-inch televisions. That is an investment of a bit more than $3,000,000 per worker, which is in line with most advanced manufacturing firms. If Foxconn creates 13,000 jobs — the headline-grabbing total promised last year — the investment per worker would fall to less than $700,000 per worker, which is very low for a modern advanced manufacturing facility. This almost certainly suggests that the 13,000 job count includes non-Foxconn workers.

Company officials have admitted as much, saying that many of these jobs would be outside of Racine, near where the factory is being built, and indeed outside Wisconsin. Moreover, the state’s own fiscal analysis admits these are “multiplier jobs,” not direct employees of Foxconn. These are some supplier jobs, but also the doctors, construction and retail jobs potentially created by 3,000 Foxconn workers.

And now Foxconn says it will build smaller panels there and robots will do that most of the manufacturing, which is what many critics of the plan argued from the outset.

Wisconsin taxpayers should be incensed at what now appears to be a bait and switch about the actual jobs numbers, but it gets even worse.

The incentive package has ballooned well past $3 billion. Good Jobs First, an organization that keeps close accounting of tax incentives and other subsidies, reports that the total for Foxconn has grown more than 50% to $4.8 billion from Wisconsin, with another $16.4 million coming from the federal government. At the same time, Foxconn’s promised investment dropped from $10 billion to $9 billion. It didn’t make its own estimate on jobs.

No matter what job and incentive numbers you believe, this deal shocks the senses. At the low end, the Wisconsin Budget Project, a budget think tank, estimated the cost per job at just under $220,000. At the high end, it’s $587,000 per job. These are for jobs that will pay an average of a little more than $53,000 per year. To be clear, this means Wisconsin taxpayers are paying between a third and all the wage bill for Foxconn for more than the next decade.

Still, the final indignity to Wisconsin taxpayers comes from the state legislature’s own fiscal analysis of the deal. This analysis concluded that the state would not break even on tax incentives for more than 25 years. Dismal as that is, the estimate relies on the most optimistic suite of conditions, including the astonishingly hopeful assumption that all the 13,000 workers would reside in Wisconsin. They won’t; the state line with Illinois is less than 20 miles away, and local consulting firm Baker Tilly estimates that as many as half the original 3,000 workers will live in Illinois. The legislature’s study also conveniently failed to take into account the appropriate time value of money, which means they overestimated the future value of the investment.

Neither of these are casual errors. Adjust for more pessimistic assumptions, and the breakeven date for taxpayers on a $3 billion Foxconn deal moves out several hundred years. It is obviously even worse if the subsidy is $4.8 billion.

It’s difficult to summarize all the problems with the Foxconn deal, but suffice it to say that it is bad for Wisconsin taxpayers in three big ways: The jobs numbers are misleading, the cost per job is monumental, and the breakeven period for this incentive and subsidy package is hundreds of years away. One other thing is certain: Wisconsin’s government will be forever tainted by the legacy of this deal. The reputation for honest, open government earned over generations is rightfully gone.

Read: 5 factors behind the subsidized foreign mega plant that will determine Trump and Walker’s Wisconsin legacy

I do not write to lament the mistakes of Wisconsin. I’m not a resident. I write because the fundamentally flawed approach to the Foxconn deal may be infectious, and it is incumbent upon economists to inoculate other states from this approach to economic development. This is nearly the largest and easily the worst large economic development project in U.S. history.

Finally, I need to counter preemptively the charge from the Walker administration that I am a left-wing professor gratuitously attacking his administration. I am neither a liberal nor am I attacking unfairly, and will note that my published research on Right to Work has been used by the Walker administration to argue in support of that legislation. The Foxconn deal is sufficiently bad that thoughtful men and women from all political positions should view it with growing alarm.

Michael J. Hicks is the George and Frances Ball distinguished professor of economics and the director of the Center for Business and Economic Research at Ball State University in Muncie, Ind. Follow him on Twitter @HicksCBER.