Tuesday, November 14, 2017

Even WEDC knows the Fox-con won't make its money back

Hidden in the news in light of the recent signing of Wisconsin’s contract with Foxconn to build a mega-campus in Racine County is the fact that even the Wisconsin Economic Development Corporation (WEDC) is having concerns with the deal. That was revealed as part of a release of WEDC’s staff review of the deal.

Wispolitics posted the report on its website, and summarized some of WEDC’s concerns with the deal, which ultimately was agreed to by the WEDC Board and signed by Governor Walker on Friday.
The state jobs agency pointed to the state’s break-even point under the Foxconn deal as one of the agreement’s “weaknesses,” according to the staff review board members approved last week.

Estimates from the Legislative Fiscal Bureau, as well as separate analyses from Ernst and Young, Baker Tilly and the Wisconsin Economic Development Corp. found it would take some 20 or 25 years before the boost in tax revenues and the jobs the project would create would exceed the state’s $3 billion investment…

The other weaknesses WEDC identified include: the potential for the project’s start date to be impacted by the timing of property acquisition and negotiations with property owners; Foxconn’s low profit margins compared to industry benchmarks; and a Foxconn subsidiary’s net loss in 2016.
It’s actually worse than Wispolitics is letting on. What immediately jumps out is that WEDC’s own estimates show the Foxconn development will not add as many jobs as those state consultants claimed it would earlier this year.
The WEDC final results were significantly different from the EY and BT economic impact studies in that WEDC used a more concentrated 21-county region in Southern Wisconsin as its geographic area (as opposed to the state of Wisconsin or a 100- or 200-mile radius around the project site). Using a smaller geographic footprint reduces the labor population that can be applied to the indirect and induced employment multiplier, which has a material effect on indirect and induced employment. In addition, WEDC’s analysis only factors in the effect of state income tax revenue (using an effective rate of 4.35%) and does not factor in other state revenue impacts, including sales tax and corporate income.

As a result, WEDC’s analysis shows significantly lower impacts on construction (15,639 jobs (direct and induced), $896 millon in total labor income, and $188 million in total state revenue) and operations (19,931 jobs (direct and induced), $1.2 billion in labor income, and $57 million in annual state revenue).
That impact of less than 20,000 total jobs impacted by Foxconn is a well under the 25,000+ that Baker Tilly estimated and 35,000+ that Ernst and Young had. You don’t think those consultants might have been trying to tell Walker and WEDC what they wanted to hear so the Fox-con could be sold to the public, do you? In addition to fewer jobs once the plant is open, WEDC’s analysis says the construction of the plant will raise barely half the tax revenue that the two consultants claimed, which means Wisconsin will fall into the hole from this deal deeper and faster than we saw in the Legislative Fiscal Bureau’s earlier analysis of the Fox-con.

To be fair, the LFB analysis counted on added sales taxes and the WEDC analysis does not so the gap would be less than $58 million a year between the two (the LFB asumed $115 million a year in total added tax revenue). But on the flip side, the LFB relied on the consultants’ estimates of 13,000 workers at the Foxconn facility by 2021, and the contract outline that was agreed to last week only planned on 9,100 workers to be at the plant at that time. In addition, Foxconn only needs to have 3,640 workers at the plant and in “related jobs” to avoid clawbacks.

Both of these items would delay the payback date that would come with the Foxconn, and the LFB already estimated that the state won’t break even for 25 years under the most optimistic of scenarios. In 25 years, it seems unlikely there’d be much going on at that plant anyway (especially since Foxconn can skip town in 15 without penalty).

It's going to be even worse than this

One other bit of news from WEDC’s analysis is a part that notes that most of the jobs will go to a Foxconn contractors and subsidiaries, with the claim that the average starting wage per hour will be $23.02 an hour in ALL facets. In addition to the sketchiness of using “average salary” as a gauge in general (a few high-priced workers throws that number off) the contractor part indicates another problem. Is the “average hourly wage” that is being spun by WEDC and the Walker Administration what is paid TO THE CONTRACTOR? If so, you’d figure the contractor would take some of that wage off of the top, and then pass along a smaller amount to Wisconsin workers.

In other words, a sizable amount of that “average wage” figure Walker and WisGOP keep spinning may well be going to someone who lives and works outside of the state. Keep an eye on this potential slight-of-hand going forward.

And this doesn’t even count the amount of economic activity in the state that will be funneled away and/or prevented because of so many taxpayer dollars being sent to the Fox-con, nor does it account for the healthy subsidies that are also going out from local governments in Southeastern Wisconsin.

The more you look at this scam, the more obvious it is that Wisconsin taxpayers are being taken for a ride by the Fox-con, with benefits that will never come close to covering the costs that we’re going to shell out.


  1. It’s hard to believe any business person would invest in any venture with a break even point 20 years out. I am not in business, but I think typically businesses look at getting a return on investment in 5 years or less. Assuming this is correct, I wonder what the business leaders on WEDC are thinking. Mind boggling to think this deal exists in order to help Walker get re-elected. Hopefully it back fires.

  2. Middle class guy is right on the mark.
    Jake's post is very good. This whole deal, with Walker signing it, Vos and Fitzgerald glorifying it, smells awfully bad.

    I question the existance of WEDC, and worry for Wisconsin's future, as all our tax money is going to this pipe dream.

    So much for public schools, health care, roads, taxing the rich, etc. This stinks.

    1. Both of you hit on the intelligence of the Fox-con's design. It's a Walker/WisGOP campaign stunt before the 2018 election, then have it be a major money-suck to cause "no other choice" but to cut education and other services further.

      By the way, Bradley Boy from WashCo keeps trying to waste bandwith here to spew more lies and troll BS, but I've put the Little Guy in the timeout chair.

  3. A timeout chair!! HAHA that is hilarious. Hey, if you wanna just hear nothing but circle-jerk self congratulations from your sad fellows, sounds good to me. The only real 'Time-Out' that matters is your party's, from the Legislature and the Governorship!

    1. And the needy fool walks right into it.

      Well played, Bradley Boy! Thanks for showing your (lack of cl)ass for the rest of us. And by exposing yourself as a soulless, paid hack.