Tuesday, August 1, 2017

No surprise- LFB indicates Fox-con could surpass $3 Billion

Today, we got more information on the special session bill that's going to give away $3 billion or more to try to convince Foxconn to set up shop in Wisconsin. We’ve already discussed much of the bill, but the LFB’s analysis always puts things into better focus by discarding some of the legal jargon and putting the measures into plain English. So let’s take a look and see what they have to say.

First of all, the LFB gives clarifications of what the largest tax credits are for, with $1.5 billion allowing for the write-off of 17% of the (enterprise) “zone payroll” related to the following.
"State payroll" would mean the amount of payroll apportioned to this state, as determined under the old corporate apportionment statutes. "Zone payroll" would mean the amount of state payroll that is attributable to wages paid to full-time employees for services that are performed in the zone or that are performed outside the zone, but within the state, and for the benefit of the operations within the zone, as determined by WEDC. "Zone payroll" would not include the amount of wages paid to any full-time employees that exceeds $100,000.
That’s already one red flag, because what is “for the benefit of the operations within the zone”? That sounds ripe for abuse, especially when the ones determining are part of WEDC's slush fund.

$1.35 billion more is reserved for “significant capital expenditures” that are part of development in the zone, and that is written off as 15% of costs. Now what's a significant capital expenditure, and could that include robots that could replace the need for workers? Sure seems like it to me, but the bill doesn't give specifics on what is OK beyond those three words, and leaves it up to WEDC.

Now here’s the bigger trick with all of those tax credits. Most will hit in the budgets after this one. Much of the next year or two will be site selection and other studies on environmental other impacts (well, what few studies remain after this Fox-con bill clears the path for much of the environmental oversight that would otherwise be required), and then the big-time write-offs would happen in 2019, 2020 and beyond – after the 2018 elections.

On the local side, there are many expenses that could be written off. In addition to allowing an unlimited amount of property to be subjected to a TIF district, that property could be free from property taxes for up to 30 years. And look what could be included as costs and development as part of the TIF district.
The bill would amend the current law definition of "project costs" to include expenditures or monetary obligations associated with public works or improvements within TIF districts located within an EITM zone. Further, the bill would specify that the city or village creating a TIF district within an EITM zone may incur project costs for any territory that is located in the same county as the district if the expenditure benefits the district.
Gee, with all of the environmental damage and the massive write-offs and costs that your property taxes will make up the difference for, wouldn’t it be swell to live in the communities around this development over the next few years? UGH!

But don’t worry, the state will help to bail your local community out of some of these costs. There’s a good part of the bill where it sets aside $10 million in state funding to help local communities with “costs associated with development in an EITM zone, including costs related to infrastructure and public safety.” However, the state could also be on the hook for a lot more than $10 million under this provision.
The bill specifies that, recognizing its moral obligation to do so, the Legislature expresses its expectation and aspiration that, if ever called upon to do so, it would make an appropriation to pay up to 40% of the principal and interest of a local governmental unit's obligations, if all of the following apply: (a) the local governmental unit's obligation is issued to finance costs related to development occurring in or for the benefit of an EITM zone; and (b) the DOA Secretary approves the local governmental unit's obligation before it is issued.
Lastly, here’s the information on the highway work. Unlike what has been hinted at previously, there isn’t a requirement to have the feds give an earmark for the I-94 project to have the state proceed with borrowing $252 million for work on the highway.
Although the administration indicates that these bonds would be used as the state match for a potential federal "FASTLANE” grant that would fund remaining work on the I-94 North-South corridor project, as drafted, any award of federal moneys for this project, in the 2017-19 biennium or beyond, could provide DOT with the authority to use these bond proceeds. For instance, if the state did not receive a "FASTLANE" grant, but instead received some amount of federal redistribution aid for this project, it is possible that the receipt of the additional aid could be interpreted as satisfying the criteria required to expend the bond proceeds.
Or conceivably, the state could use any amount of its federal highway block grant to match the I-94 South project. Which doesn’t sound like a big deal until you realize that this would take away from other projects throughout the state, and either require state money to fill in the difference (which we don’t have), or more likely have to delay those projects even more in favor of the Fox-con highway work.

And I haven’t even talked about the topper on the Fox-con. Notice what isn’t part of these incentives- A REQUIREMENT TO ADD JOBS. There is no minimum employment requirement in any of this, and no duration of employment is specified either, other than requiring full-time work of employees to get the 17% write-off.

So what is stopping Foxconn or others from claiming they are building the facility, spending money on “planning”, and then abandoning it in 2 years with the state out tens or even hundreds of millions of dollars? Or what is stopping Foxconn and its contractors from getting the 15% write-off for capital expenses, avoiding $150 million in sales tax for their building supplies, then filling the building with machines and robots, creating very few permanent jobs for people? We’d have to trust WEDC to step up and try to get our money back, and they have been awful at doing so over their 6-year history.

This is just the start, and I imagine we will find out more questionable items and plans as this thing is jammed through. The first public hearing is scheduled for 1:30 Thursday, with the first 3 hours reserved for “invited speakers” (read: GOP hack politicians and wingnut welfare types). But now Scott Fitzgerald and the Senate GOP say they want to take a closer look at the Fox-con package. So what comes first? This desperate giveaway, or a well-overdue state budget that already has a $1 billion deficit built into 2019 before we pay a dime out of the Fox-con.

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