Thursday, August 3, 2017

More pointing out the big costs of the Fox-con

As the public hearing begins on the Foxconn bill (well, 3 hours of GOPper-ganda followed by the public hearing), two other bits of analysis and commentary have been released that are worthy reading as we consider this giveaway incentives package.

The first comes from Bloomberg News Service, in an editorial titled “Foxconn’s Dubious Deal.” The Bloomberg writers not only question the idea of giving money away to corporations and loosening environmental standards as a way to encourage job creation, they also question whether the jobs Foxconn claims it’ll add are even worth having.
States are also apt to loosen the rules. Among other perks, Foxconn won’t need to obtain the state permits ordinarily required to discharge dredged material into local wetlands. Nor will it have to submit to standard environmental-impact studies. Such exceptions make for irrational public policy.

One might argue, as politicians often do, that even bad jobs underwritten by taxpayers are preferable to no jobs at all. But that’s wrongheaded: If those tax dollars were freed to find more productive uses, they’d boost efficiency and growth elsewhere in the economy -- and thus create more jobs.

As it happens, Wisconsin is doing just fine. Its unemployment rate is more than a percentage point below the national average. Over the past year through June, its economy added nearly 40,000 non-farm jobs. By comparison, after all that public expenditure -- and even using hugely generous assumptions, including indirect jobs -- the Foxconn deal might yield at most 2,300 jobs annually.

And what type of jobs, exactly? Mainly, the new plant will churn out LCD flat-panel screens -- a business beset by sluggish demand, rising competition and changing consumer tastes. Worse, such jobs are highly likely to be automated. Foxconn had better hope so, at any rate, if it wants its investment to be viable. Although the legislation aims to match certain incentives to job creation, such metrics can be gamed. Other inducements -- such as a sizable sales-tax exemption -- will go on regardless, whether the work is done by humans or robots.

In short, Wisconsin’s plan is likely to help a few people in an unpromising industry find temporary work before they’re displaced by technology -- and to do so at the expense of everyone else in the state.
I’d largely agree with those points, with one main exception. I’d argue that Wisconsin isn’t doing well when compared to our Midwestern neighbors, and the rest of the country, and is instead riding the wave of the 8th year of the Obama Recovery. Why else would we need to shell out bags of cash to Foxconn to make them want to come here?

On a side note, this illustrates the double-talk that the Walker Administration engages in when it comes to the jobs situation in the state. They claim Wisconsin is thriving with full employment on one hand, but they want to give away the farm out of desperation in order to attract Foxconn. One situation should exclude the other, which should make you ask “which part is true, and which is BS?”

The Wisconsin Budget Project had a great breakdown of how the subsidies would work, and how much the final bill could be. In every case, these figures assumed that the $10 billion investment into the Foxconn facility would actually happen (an optimistic scenario to begin with), which meant that the full $1.5 billion in capital write-offs would happen. Then the Budget Project went into what would happen in various scenarios of job creation.
On an annual basis, the proposed credits would cost state taxpayers $17,273 per job per year for 15 years under the scenario of 13,000 Foxconn jobs described by state officials, but the cost could exceed $54,000 per job per year under a scenario of 3,000 jobs that last for 10 years rather than a minimum of 15 years.

On top of the very substantial cost of the new tax credits, there’s the cost of existing tax breaks for manufacturers (which would already essentially zero out Foxconn’s corporate tax liability), plus the costs of huge local infrastructure investments, the cost of prioritizing work on the I-94 corridor, potential costs to state taxpayers from making a guarantee to cover up to 40 percent of local losses from spending for the project, and the unknown costs from unprecedented exemptions from environmental regulations…

Our report addresses the misimpression some people have that the proposed state “tax credits” – which will pay up to 17 percent of payroll costs and up to 15 percent of capital expenditures – will be offsets against the corporate income taxes that will be owed by Foxconn. That is not the case; our analysis explains that Wisconsin currently has two very generous tax breaks that make it highly unlikely that manufacturers like Foxconn will owe any corporate income tax on their net profits. That means the state will be writing huge checks to Foxconn each year for the cost of the tax credits.

One positive aspect of the proposed legislation is that new tax subsidies are tied to job creation and capital spending in Wisconsin, which is not the case for the massive giveaway known as the Manufacturing and Agriculture Credit. Nevertheless, the structure of the proposed deal allows Foxconn to do very well by investing in automation and taking full advantage of the capital expenditure tax credit, rather than focusing on jobs and trying to maximize the new jobs tax credits.

Even under the state’s relatively optimistic assumptions about job growth, the proposed subsides are far greater per job created than any significant subsidy deal the Wisconsin has proposed in the past, and the numbers get much worse if we assume that Foxconn prioritizes automation. Wisconsin policymakers and state citizens need to think carefully about the different scenarios, after removing our rose-colored glasses.
This hits on a major problem with the Fox-con package- half of the state money is set aside for the building of the facility and the infrastructure surrounding it. And that’s not even counting the $250 million in borrowing for I-94, nor does it include local subsidies and land discounts that are sure to happen. We could spend $1.5 billion to fix and improve our highways for the next 3 years, employ more people, and actually end up with something that a lot of Wisconsinites and other could use while improving our economic competitiveness.

There isn’t anything in the bill that says “Foxconn must create/maintain ____ jobs for ___years.” So we could give away big bucks to pay for the new campus, and then Foxconn could staff it with robots or minimal numbers of people, and the total cost per permanent job becomes huge.

And a look at the “invited speaker” list for the first 3 hours of today’s hearing should be a big red flag to you.

If Republicans truly believed that there were few environmental issues and had full confidence that Foxconn would be held to account, you don’t think you’d see representatives of the company or the EPA there to assuage fears? Instead they chose a steady stream of right-wing hacks who would stick to the script, and when these guys are asking for massive amounts of our tax dollars to give away over the next decade, we deserve better than that.

If WisGOP is going to continue with the deception and keep trying to rush this Fox-con through without forcing the company to add nad keep a minimum amount of jobs, then we should JUST SAY NO.


  1. By the way, we are 5 hours into this "public" hearing, and we are still on the invited speakers list. Right now, we have a hack from WMC talking up this BS, because there's nothing more that WMC likes than taxpayer handouts and lower standards for work and the environment.

  2. Yeah, this is right up WMC's alley.
    Walker and WisGOP appear to be deperate, as their inability to govern is glaring.

    We could do tech development like Minnesota, but noooo! We could have a strong economy like they do.

    The REAL job creation is made in start-up and small businesses, which Walker and WMC avoid like the plague (hence our incredibly bad reputation).

    $3 billion for 3,000 - 13,000 jobs, when we have so many other budgetary needs to meet, is NO good for us working taxpayers, both now and in the future.

  3. At this point I'm pretty convinced that the purpose of all this is to keep state finances tight and so provide cover for never restoring public education funding.

    Got to provide some projects you can point to as where the money went in order to distract from tax cuts for the 1% as a cause.

    1. I think you are 100% correct. This is one last desperate money grab before it all goes belly-up, Kansas style. And they hope that reality doesn't sink in until after the 2018 elections.

      I noticed that both the UW and the Tech Colleges view the Foxconn plant as a place where they can send a skilled work force. I also noticed that the WISGOP Legislature isn't adding ONE CENT to higher ed to help those institutions, but they expect Foxconn to take advantage of them.

      And you wonder why we keep lagging behind? I think we see who the true welfare kings and queens are in this state

  4. Jebus. Even Americans for Prosperity WI is against it: