Foxconn and Wisconsin’s taxpayer giveaway

 
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Have you heard the name Foxconn bandied about in the news? Maybe you know about plans to build a $10B factory somewhere in southeastern Wisconsin. "Doesn’t affect me," you say.

If that’s all you know, it’s time to sit up and pay attention because Foxconn can cost Wisconsin taxpayers $2.8B in state cash payments, and another $139M in state and use tax exemptions. When local incentives and infrastructure costs are figured into the equation, the total support package for the Foxconn project totals $4,4705B.

Economic costs aside, the project creates environmental concerns about the unsupervised destruction of wetlands, significant water draws from Lake Michigan, and air pollution standards.

What is Foxconn?

Foxconn is the trading name for Hon Hair Precision Industry Company, a multinational electronic contract manufacturing company with headquarter in Taiwan. Foxconn makes LCD panels for Apple, Google, and Amazon, among others, which makes it the world's largest contract electronics manufacturer. It’s also one of the world’s largest employers with 1.2M employees, primarily in China.

In July of this year, President Donald Trump announced that Foxconn had accepted a proposal from Wisconsin Governor Scott Walker to build a huge liquid crystal display (LCD) panel factory on 1,000 acres in rural Racine County. Foxconn’s stated intentions are to produce nearly 7M high-definition LCD panels a year for use in fields such as security, medicine, and advanced manufacturing.

Foxconn has committed to building a $9B plant over six years to make liquid crystal displays and create up to 13,000 jobs. To do that, 32M square feet of facilities will need to be built to house 3,263 pieces of equipment and will include molding and tool-and-die operations, final assembly, and "back-end packaging" of LCD modules in facilities that will require a campus totaling 32M square feet.

As an incentive, Foxconn will receive up to $2.85B in cash payments from Wisconsin taxpayers over 15 years. Foxconn also will get sales tax exemptions on construction materials used to build the estimated $150M plant. Foxconn will be eligible for other cash tax incentives if it doesn't owe taxes. What’s the likelihood of Wisconsin paying out tax incentives? Most probably, considering Wisconsin law already exempts manufacturers from almost all corporate and income taxes.

Is this starting to look like a sweet deal for Foxconn and a huge financial risk for Wisconsin?

Read on to learn about environmental threats, lost opportunity costs, and other issues.

In other terms of the deal, Foxconn must employ 5,200 workers by 2022, 10,400 by 2027, and 13,000 by 2032. Workers must be paid at least $30,000 a year, and the average annual salary must be at least $53,900. According to current poverty guidelines for 2018, $29,000 is the current poverty level for a family of five.

Wisconsin could recoup all of the tax credit money through 2022 if Foxconn lies to the state, shuts down its manufacturing operations, or moves them elsewhere or otherwise doesn’t meet its commitments. But as of 2023, the state could only recoup $965M in potential penalties and $386M by 2032.

Wisconsin also could claw back additional money — up to $500M beginning in 2023 and then steadily decreasing — if Foxconn doesn’t hit minimum jobs numbers.

About those rosy projections

A study commissioned by Foxconn projects that the ripple effect of a 13,000-worker plant would generate an additional 22,200 local jobs. A state-sponsored study estimates the plant would lead to between 12,000 and 18,100 extra jobs. But so far, no outside study has looked at whether it is reasonable to expect a Foxconn plant to employ 13,000 workers.

The Legislature's nonpartisan budget office found it would take until 2043, or 25 years, if the company does reach its predicted employment levels.  

Other state costs add up

Beyond the cash tax incentives and the lack of state tax payments, there are other government-funded costs to the building of the Foxconn facility. In fact, between state and local government incentives and infrastructure improvements, the cost of supporting the FoxConn proposal is a whopping $4.4705B.

Stated another way, Wisconsin is paying $230,000 for each job created, or 10 times more than the national average.

Here’s a look of those costs broken down by category:

  • $2.85B in state tax credits
  • $764M in local incentives (TIF District)
  • $408.3M for the expedited I-94 project (plus debt service)
  • $140M ATC project/utility costs
  • $139M sales and use tax exemption
  • $134M highway rehab
  • $20M DWD worker training and employment
  • $15M grants to local governments
  • $400,000 economic development liaison

Total Cost = $4,4705 Billion

Infrastructure costs include highway expansion and electrical grid builds. $252.4M in state bonding was authorized to pay for the nearby expansion of Interstate 94. Add interest payments and the total cost rises to $408.3M. Beyond direct spending, the state is shifting $134M from other state highway projects to do local road work for the Foxconn factory. Based on current funding levels, the condition of state roads is expected to deteriorate over the next decade.

American Transmission Co. has proposed building a 14-mile-long, 345-kilovolt transmission line, a new 345/138-kV substation, and new underground 138-kV lines to connect to a Foxconn-owned substation.

The cost of the project, estimated to be $140M, will be passed on to ATC customers, including We Energies, which is legally entitled to add those costs to its rate base.

Environmental impact

Concerned about the water you drink, the air you breathe, and preserving the land?

This deal is a real doozy.

As the Chicago Tribune put it, Foxconn finds a way to put a 7-million-gallon straw into Lake Michigan each and every day. Of those 7 million gallons a day, 5.8 million gallons, or 83 percent is earmarked for use by Foxconn. In 2008, eight states and two Canadian provinces signed the Great Lakes Compact which prohibits water from being diverted, outside the Great Lakes basin. The compact also says new diversions must be for “public water supply purposes,” which serve “a group of largely residential customers.” That certainly doesn’t seem to be the case as it applies to Foxconn.

Foxconn will be required to pre-treat its waste which will be overseen by the city of Racine, likely on a daily basis. The city will process the waste in accordance with government standards. But in the process, nearly 2.7M gallons of water, or 39 percent of the 7M used, will be lost through evaporation and the company’s manufacturing operations. Unfortunately, that figure is below the 5M gallons a day that would trigger other states that are members of the Great Lakes Compact to review the request.

About that air

Racine County’s air quality standards already exceed federal ozone limits, and the Milwaukee Journal-Sentinel and Racine Journal Times newspapers say the proposed facility will be a major new source of air pollution in the region. In fact, Illinois’ Attorney General Lisa Madigan plans to sue the U.S. Environmental Protection Agency for allowing the Foxconn plant to operate without stringent pollution controls so close to the Illinois border.
 

Public has no voice about wetlands

At the time legislation approving the Foxconn deal was passed, lawmakers were assured that the U.S. Army Corps of Engineers would retain oversight on the project. The Corps has since said it has no jurisdiction over wetlands that will be filled as part of Foxconn. As a result, the public will have no say on wetlands impacts caused by the project. In the meantime, the state Department of Natural Resources will not require Foxconn to seek prior approval for construction activity on some types of wetlands, which can retain stormwater, filter pollution, and provide habitat for wildlife.

So, Foxconn has been given permission to destroy wetlands and, even more egregious, the state has waived the requirement for a state environmental impact statement and public hearing.

 

Last, but not least

To make room for this plant, property owners are being forced off of their land, which spells potential eminent domain litigation and costs. It’s also unclear how Foxconn will find workers and what the worker shortage will spell for other businesses.

Labor shortage: Wisconsin already has a significant shortage of workers. It is unclear how Foxconn will meet demand, or what the impact will be on other businesses.

Opportunity costs: Every dollar spent on Foxconn is not available for small business development or investment in job training or education. How could this money be better spent if economic growth and opportunity are the goals?

Budget pressure: The cash payments come at the expense of other state programs, such as public schools and the UW System.  If there is a national recession, there will be cuts to these programs as the state is contractually obligated to make cash payments to Foxconn.

Risk: With a 25-year payback, what is the likelihood of LCD screens still being in demand as technology continually changes?


 

 

FoxConn Town Hall: What did you miss?

Unable to attend any of the FoxConn Town Halls that were held throughout the State of Wisconsin? 

Take a look at the presentation and get up-to-speed.

 
Judy Vollmar