Foxconn deal raises concerns of taxpayer giveaways

by Reid Wilson - 06/28/18 11:31 AM ET

President Trump and Wisconsin Gov. Scott Walker (R) will be on hand Thursday when the high-tech manufacturer Foxconn breaks ground at a mammoth new factory, a deal expected to bring thousands of high-paying jobs to suburban Milwaukee.

But those jobs come at a steep cost to the state, which gave massive tax breaks and incentives to the Taiwanese firm in order to lure them to Wisconsin. Some watching the deal say the state will take a generation to make back the money it gave away, and they worry that the Foxconn deal could mark the beginning of a new round of taxpayer giveaways to big corporations.

“The state is grossly overspending on a very risky deal. Even by its own math, the state says it won’t break even for 25 years. In high tech, that’s three lifetimes,” said Greg LeRoy, who heads Good Jobs First, a watchdog group that tracks lavish incentive packages states and cities give to corporations.

The incentive package passed by Wisconsin’s GOP-controlled legislature, during a special session last August, will offer the company $1.5 billion to offset payroll costs and another $1.35 billion for capital expenditures. The state will give Foxconn $150 million in sales tax exemptions on construction materials, and it plans to spend a quarter of a billion dollars on road improvements near the new factory.

The town of Mount Pleasant, where the factory will be located, will offer $763 million to help pay for the project, and Racine County gave the company $50 million to acquire the land.

In total, Wisconsin, Racine County and Mount Pleasant gave the company nearly $4.8 billion in tax breaks, incentives and taxpayer dollars for improvements. If Foxconn delivers all 13,000 jobs it has promised, that works out to about $370,000 per job.

“Foxconn is a great deal for Foxconn and an absolutely terrible deal for Wisconsin,” said Richard Florida, an urban planning expert who heads the University of Toronto’s Martin Prosperity Institute. He called the deal “a complete and total waste of taxpayer money.”

But Wisconsin officials defend the deal as a huge step forward for an economy that has struggled to recover from the recession.

“The Foxconn project is a game changer for Wisconsin, with a $10 billion investment and tens of thousands of careers,” said state Assembly Speaker Robin Vos (R), whose district will host the plant.

In his State of the State address this year, Walker said the plant would give new graduates a reason to stay in Wisconsin, instead of moving somewhere else in search of high-paying work. Walker said the project would attract 10,000 construction workers from around the state, and Foxconn has already issued contracts to several companies that will help build the factory.

Trump has claimed credit for bringing Foxconn to the United States.

“I have a lot of companies moving in, big companies. If you look at Foxconn in Wisconsin, they’re coming in,” Trump told attendees at the National Federation of Independent Business meeting in Washington last week.

At the White House, Trump praised Walker for bringing the company to Wisconsin. Walker demurred, telling Trump: “You brought [Foxconn] to America. We just grabbed the ball.”

It’s not clear, however, that Wisconsin needs so many new jobs — or that they have the workers with the necessary skills Foxconn will need to fill those jobs. The state’s unemployment rate stands at 2.8 percent, the lowest recorded by the Bureau of Labor Statistics since it began keeping state-specific records in 1976.

With so few unemployed workers in the state, Wisconsin will begin an advertising campaign in neighboring states aimed at attracting younger residents who might fill those jobs.

“Why on earth would you spend that much to stimulate an economy that’s already better than full employment?” LeRoy said.

Florida said he worried that the Foxconn deal would send a message to other companies planning to build new facilities or move their operations. That message: States will pay, and sometimes overpay, if their leaders get the opportunity to brag about a big influx of jobs.

“We know that such incentives have virtually no effect on corporate location. Companies know exactly where they want to go anyway and they create fictitious competition to wrest incentives from local and state governments,” Florida said.

Other states and regions are engaged in another massive competition for a corporate relocation project with Amazon’s HQ2. The online retail giant has said it would invest billions and hire up to 50,000 workers making an average salary of $100,000 a year in the winning market, and states are offering lavish incentive packages to win the project.

While most HQ2 finalists have kept their bids secret, some have hinted at the raw amount of taxpayer dollars they are willing to spend to win the project. Maryland has offered $8.5 billion in incentives and infrastructure improvements in support of Montgomery County’s bid. Newark and New Jersey have offered a package worth $7 billion.

After years in which local economic development firms largely avoided handing out so many taxpayer dollars, the recession seems to have changed that approach.

“This kind of deal sets local economic development back decades,” Florida said of the Foxconn plant. “This along with Amazon’s HQ2 brings back the old era of wasteful and ludicrous big game hunting.”

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