Tuesday, August 8, 2017

LFB and Foxconn pt. 2- Best case, the jobs still won't be worth it

This afternoon, the Legislative Fiscal Bureau gave their 28-page analysis of the Foxconn package, including economic benefits and the taxpayer costs associated with the intiatives over the coming decades. Compared to my last post, where I discussed the cost side, I want to talk about the jobs side here.

To come up with a net cost and payback period, the LFB uses the Wisconsin Department of Revenue’s jobs scenario, which includes the best-case situation of 13,000 jobs added and kept at the Foxconn facility starting in 2021. The LFB also assumes increased economic activity, which gives a payback in increased state tax revenues.
The estimates assume that the project will require an average annual employment of approximately 10,200 construction workers and equipment suppliers earning an average total compensation of approximately $59,600 (including benefits) per year during the four-year construction period (from 2018 through 2021). Total income for these individuals is estimated at $2.4 billion. In addition, it is assumed that nearly 6,000 indirect and induced jobs will be created during the construction period, with an average total compensation of $48,900.

It is estimated that the additional construction-period jobs would generate increased state tax revenues (primarily income and sales taxes) equal to approximately 6.3% of the additional gross wages. The total increased state taxes associated with the construction period are estimated at $186.9 million.

As noted, permanent staff at the Foxconn facility are estimated to increase from about 1,000 in the second half of 2017 to 13,000 beginning in calendar year 2021. The average annual wage for these employees is estimated at $53,875, based on a headcount distribution, by job type, provided to EY by Foxconn and median wages for each occupation from the Economic Research Institute. Total ongoing payroll at the company is projected to be $13.8 million for the remainder of this year and increase to approximately $700 million annually beginning in 2021. State tax revenues associated with the additional employees and wages are estimated to increase from about $900,000 this year to $44 million annually beginning in 2021.

Indirect and induced jobs associated with the project are estimated to total 22,000 beginning in 2021, based on a multiplier of 2.7. Average annual wages for these individuals are estimated at approximately $51,000. Total ongoing wages are estimated at $1.12 billion annually, and related state taxes are estimated at $71 million per year. Smaller impacts are estimated in calendar years 2017 through 2020 as the project ramps up.
But even with all of those positive economic impacts, the LFB says the huge cost of the Fox-con means that it would take 25 years to get back to a break-even point.

We should also be skeptical that there will be 13,000 jobs at Foxconn and 22,000 additional indirect jobs, starting with the assumption that headcount will stay at 13,000 for 20+ years after the Foxconn campus is opened (remember that Chairman Gou himself said originally it would be 3,000) and consumer tastes change over time. If the 13,000 jobs do not materialize, the lower headcount will reduce the amount of the $1.5 billion jobs credits that are ultimately handed out (assuming total salaries are lower), but it also will lower the $115 million a year in extra tax revenues that the LFB estimates would come in if the rosy jobs scenario will come to pass. That lack of extra tax revenue would make it near impossible to dig out of the $1 billion hole Wisconsin taxpayers would be in for this project by 2026.

On top of that, State Rep. Mark Spreitzer (D-Beloit) rightfully asks "Why would Foxconn stop at $3 billion?"

Another thing the LFB doesn’t take into consideration is the possibility the Fox-con may hinder economic activity in other parts of Wisconsin's economy. The Foxconn development could lead to displacement of other construction that would have happened in the area, and the environmental degradation could make parts of Southeastern Wisconsin undesirable in the process. And if the labor force shrinks in other parts of the state to take Foxconn jobs, what happens to employers and businesses in that part of the state? Does their economic activity decline because some of that is funneled off to Foxconn?

And even though the yearly price tag goes down once the FoxConn facility is opened and the capital expense credits are written off, we are still tied up with several years in the near future that state government will have to operate at significantly lower funds that will have to be made up for in some way. Explain to me how the state is going to be able to pay for services and other investments around the state when we have less money to go around? The obvious answer is “It won’t,” which means significant budget cuts and/or higher taxes in other areas.

Not only will budget cuts and higher taxes on real people hurt Wisconsin's economy, but if the schools, infrastructure and quality of life suffer throughout the state because funding has been diverted to Foxconn, what is going to make people want to locate to Wisconsin to raise their families in the future? Even under the Walker Administration's rosy scenario, the Fox-con can only work long-term if it encourages people to locate to the state and grow the economy in a manner that otherwise would not have happened. Instead, Walker and WisGOP’s lack of investments in other key areas will likely limit any positive economic impact Foxconn may have.

So no, I don't see where the Fox-con will lead to major stimulative growth, and it could even take away from other areas in the state that would have otherwise succeeded. And from a fiscal side, it certainly isn't worth it, and might lead to cuts that slow things down instead of speed it up. There are many other ways that the state can spend less money than the Fox-con, get more bang for the buck, and not degrade the state's quality of life in the process.



  1. This is a good short article about economic impact vs cost benefit analysis for Fox Conn. The cost benefit analysis would look at alternative uses for the money.


  2. The Fox Con is worse than the state picking winners and losers.

    No metaphor is apt for what we are creating in this Fox Con monstrosity that afterall is concerned about profits and market share, period.