Tuesday, January 16, 2018

The Fox-con rises to $4.5 billion

Before the Wisconsin State Assembly planned to meet this afternoon, Dem Leader Gordon Hintz decided to remind people of the GOP’s biggest “accomplishment” in this 2017-19 session- a Fox-con giveaway of billions of dollars to a foreign company.

With that in mind, Hintz produced an updated analysis from the Legislative Fiscal Bureau which shows that the costs of the Fox-con continues to climb.

The LFB memo includes the $134 million in state highway funding for Foxconn upgrades that the Walker Administration transferred away from other highway road projects throughout the state (click here for more info on that scam). It also includes the massive amount of additional local subsidies that were not revealed at the time of the State Legislature’s debate on Foxconn.
The Foxconn development will impose additional operating and capital costs on local governments. Some of these costs will result from providing public services directly to the Foxconn facility in the EITM TIF district, and some costs will be indirect, resulting from providing services to people and property outside, but resulting from, the development outside the district. Foxconn will be subject to any fees charged by the municipality or other local governments for services, such as for utilities. Public service costs funded through property taxes will not generally be recouped from Foxconn, since the taxes on property located inside the TIF district will be dedicated to repaying the TIF district's project costs. To the extent property in the TIF district causes those public service costs to increase, the taxes imposed to fund the services will be shifted to other property within that local government's jurisdiction, but outside the TIF district. However, by allowing tax increment expenditures to include the cost of constructing or expanding fire stations, purchasing police and fire equipment, and the cost of general government operating expenses related to providing police and fire protection services, the Act will allow the municipality creating the EITM TIF district to use tax increments from the district to cover such costs incurred outside of the district, which could help mitigate any potential tax increases on properties outside of the district.

Indirect costs will result from other development related to the Foxconn project. That development will include business suppliers to Foxconn, housing for Foxconn employees, and businesses serving those employees, and the development that will occur within the jurisdiction of the local governments hosting the EITM zone and in adjacent municipalities, counties, and states. The incremental public costs related to the development may be small initially, but they could increase as local governments are required to increase capacity, either by adding employees or infrastructure, such as roads, schools, and other buildings.

In Wisconsin, the property tax is the largest component of own-source revenue raised by local governments and will be used as the primary source for funding the costs described above. Counties, municipalities, technical college districts, and school districts are subject to fiscal controls designed to limit the annual change in property taxes.

So enjoy THAT, if you’re living in southern Racine County, as you’ll be paying for those extra costs and infrastructure. Oh, and local taxpayers will also be paying for the lawyers’ fees associated with lawsuits that result from running people off of their homes through eminent domain and other takings for the plant.

They didn't tell you about those extras, did they?

Another cost will be the $140 million that ratepayers will have to shell out for in extra electricity costs to take care of new systems that have to be put in due to Foxconn. While the LFB says the cost will be low among individual ratepayers and spread out over numerous years, couldn’t you say that about anything else? And most government spending isn’t on something that’s going to help one specific company.
Recently, it was reported that the American Transmission Company will seek state approval for a $140 million transmission line project to provide electrical power to the Foxconn manufacturing development. While it is not yet known, the transmission line project would affect the rates of residential and other electric customers. However, the cost would be spread over a large number of consumers for up to 40 years, so the impact on individual ratepayers is not expected to be significant. Further, the Act modifies current law provisions regarding public utility market-based rates to require an electric public utility providing service to an EITM zone [the Foxconn TIF enterprise zone) to file with the PSC, no later than January 1, 2020, tariffs that include market-based pricing and options that allow a new retail customer within the EITM zone to receive market benefits and take market risks for some or all of the customer's purchases of capacity and energy, provided that the PSC determines that the customer is eligible for an EITM zone credit.
That last part is intriguing as well. Does that mean Foxconn and related companies might be eligible for extra rate breaks from electric suppliers due to the fact that they’re a heavy user? Sure seems like it.

Hintz added up the price tags of these state and local subsidies, and here’s what he found as a maximum cost.

State Tax Credits $2.85 billion (combined total for jobs added and the facility being built)

Local Govt Assistance $764 million
Expedited I-94 Project (plus debt service) 408.3 million
Utility Costs $140 million
Sales and Use Tax Exemption $139 million
State and Local Road Improvements $134 million
DWD Worker Training and Employment $20 million
Grants to Local Governments $15 million
Economic Development Liaison $400,000
Total $4.4705 billion

And one other potential large cost didn’t even make it into Hintz’s list. That’s the possibility that state taxpayers may have to bail out the locals in Racine County if the Fox-con goes belly-up. Known as a “moral obligation” pledge, the State of Wisconsin has promised it will back up 40% of the potential losses, to keep local communities from being bankrupted.
The Village of Mount Pleasant has created a TIF district within the Foxconn EITM zone and anticipates the issuance of TIF revenue bonds to be backed by the state's moral obligation pledge. However, the exact size and the terms of the revenue bond debt to be issued to finance costs related to development occurring in or for the benefit of an EITM zone are not entirely known. Therefore, the potential state fiscal impact of the moral obligation pledge cannot currently be determined, and would depend on the amount of revenue bonds the DOA Secretary designates for the pledge. As an example, for every $100 million in debt issued by a local governmental unit that is covered by the pledge, and assuming an interest rate of 5% and a flat, 20-year repayment schedule, total principal and interest payments would equal $160.5 million. Assuming that no revenues from the underlying project are available to service 40% of the debt, then the Legislature could be called on to appropriate up to $64.2 million for the repayment of 40% of principal and interest costs under the moral obligation pledge.
Using that calculation, the $764 million in the Mount Pleasant TIF district would mean that Wisconsin taxpayers could owe up to another $490 million.

Granted, if the Fox-con works in creating jobs and all of the tax incentives are paid out, that $490 million bailout won’t have to be paid. But that also means the full $4.47 billion may also be out the door, tying the hands of the state financially for years. This state is screwed either way by this gimmick, and given the resources that are being diverted to the Fox-con vs other areas, it likely won’t add much more jobs compared to investments that would be far less costly.

Hintz rightfully connected the rising costs of the Fox-con to the damage that will happen to other state services in future years as a result.
“The costs of this project should alarm every Wisconsin family. This memo shows a 50% increase from the initially reported state investment. We will be pay for this now and long into the future, both in the direct costs and opportunity costs in cuts to K-12 education and the UW System in upcoming budgets.”
Hey rurals! If you follow the Politics of Resentment and complain about resources and jobs being sent to certain areas of the state vs others, you might want to know that it's not Madison and Milwaukee that are sucking you dry. It’s taxpayer-funded GOP cronyism like the Fox-con.

1 comment:

  1. I'm glad Hintz is exposing this whole sham of a deal. This is what taxpayers all around Wisconsin--let alone, the horrendous money people in Racine County will have to divey up--with this supposed "job creator."

    Rural communities have every reason to complain (yet are they in Racine County?), and job development should not be railroaded to benefit the chosen few.

    Foxconn will hamstring our State budget for years to come--spending on resources that don't benefit those that are not elites--just like the Fed budget is dominated by military spending.

    With this as the plan, I question the future viability of Wisconsin and the U.S. There's only so much tax $ to provide to productive uses, but why are we directing that $ to destructive causes?