The great cost and stupidity of the Fox-con gets a national spotlight

I want to give a shout out to Urban Milwaukee's Bruce Murphy, who has written a large-scale story on Foxconn for the Vox-associated website "The Verge". Murphy takes his already-strong work at Urban Milwaukee on this scam, and gives it a national spotlight...or lowlight.

In Wisconsin, Scott Walker offered massive subsidies to Foxconn to build a plant. It was going to be "the Silicon Valley of Wisconsin."

But the subsidies kept getting bigger and the proposed plant kept getting smaller. Great reporting here from @Verge: https://t.co/SKQC1JwtxX

— Ezra Klein (@ezraklein) October 29, 2018

The whole thing is great (click here to read it), but let's start with Murphy's analysis of the tax subsidy and write-offs, which go well beyond the $3 billion price tag that was mentioned when the bill was discussed in the Wisconsin Legislature in September 2017.

The size of Wisconsin’s subsidy quickly began to grow, as spelled out in state legislation passed about six weeks later and implemented by the Walker administration. By December 2017, the public cost had grown to include $764 million in new tax incentives from local governments in Racine County, which is just 40 minutes south of Milwaukee where the plant was to be located. Other additions included $164 million for road and highway connections built to service the plant, plus $140 million for a new electric transmission line to Foxconn that would be paid for by all 5 million ratepayers of the public utility We Energies. With other small costs added, the total Foxconn subsidy hit $4.1 billion — a stunning $1,774 per household in Wisconsin.

Back when the subsidy was $3 billion, Wisconsin’s non-partisan Legislative Fiscal Bureau estimated that it would take until 2043 for taxpayers to recoup the subsidy. This long payback period was due to Walker and Republicans effectively cutting the state’s corporate income tax for manufacturers to zero in 2011. This meant the subsidies to Foxconn would not be a tax write-off, but billions in cash that would be paid back by state income taxes paid by Foxconn workers. At $4.1 billion, the payback date for the state was likely 2050 or later.

Look at Gou. He knows he suckered these guys.

In fact, that 2050 date may be understating the payback date of the Fox-con, because it assumes that employment from Foxconn isn't taking away work from other places in the state. That seems highly unlikely given the state and country's near-full employment status, and because we already know road projects have been cut in other parts of Wisconsin to pay for those upgraded highways near the Foxconn plant.

Murphy goes on to note that Walker massively overpaid for Foxconn when compared to other states, especially because Foxconn were the ones that were in need of natural resources because of the type of product they make. That reality makes Wisconsin look like a bunch of chumps today.

In retrospect, it’s clear that Walker had a strong hand to play in negotiations with Foxconn. The company had to locate in a Great Lakes state because of the huge amount of water needed to clean the glass used in manufacturing LCD screens. And no other Great Lakes state came close to offering the $4.1 billion Foxconn is getting. Michigan came the closest, offering $2.3 billion, but it was partly a tax subsidy rather than cash. As for Ohio, fellow Republican Gov. John Kasich condemned the Wisconsin deal. “I’ll tell you one thing,” he said, “it’s not going to take us 40 years to make back the investment we make. We don’t buy deals.”

It's obvious today that the Foxconn project isn't turning out to be what was promised when Walker made his deal on the back of a napkin. Foxconn has downgraded its plan for a Gen 10.5 plant that would have made giant panels for large-screen TVs, with the need for a glass plant included. Instead, it'll be a smaller, Gen 6 plant, which makes products that might be obsolete in a matter of years, and little need to add the on-site manufacturing jobs that were trumpeted last year.

And even the Gen 6 panels might not be manufactured in Racine for long. “We are not really interested in television,” [Foxconn Executive Assistant Louis] Woo told the [Racine Journal-Times], though he said the company wants to build America’s first thin-film transistor (TFT) fabrication, which can be used in LCD products. Rather, Woo said, workers at the Wisconsin plant will be focused on figuring out new ways to use Foxconn’s display, cellular, and AI technology, building out an “ecosystem” Woo calls “AI 8K+5G.”

All this means Foxconn needs far fewer assembly line workers. “If, six months ago, you asked me, what would be the mix of labor? I would pull out the experience that we have in China and say, ‘Well, 75 percent assembly line workers, 25 percent engineers and managers,’” Woo said. But “now it looks like about 10 percent assembly line workers, 90 percent knowledge workers.”

Almost all the actual assembly line work, he added, will be done by robots.

And then Murphy details the worst part of the deal - Wisconsin taxpayers are on the hook for a lot of money even if Foxconn never opens its plant or makes one screen. This is especially true for the Racine area that was supposed to be the great beneficiary of this deal, but who keep seeing the local job totals decline while their $764 million TIF district costs the same price.

In reality, there is little pushing Foxconn to invest as much money or create as many jobs as promised because Walker squandered his leverage over the company. Yes, the full subsidy promised comes in increments, as the capital investments are made and jobs created by Foxconn. But all the other subsidies, worth more than $1 billion, will be paid regardless of money invested or jobs created. A smaller plant with fewer workers could lower the total tax bill considerably, but it would actually cost the state more on a per-job basis.

In fact, a less-populated plant would be the worst of all worlds, because Wisconsin taxpayers would have to pay 15% of all construction costs for the plant (whose costs for a robot-filled plant might not be much less than one with people working in it), and we'd still have to pay 17% of all salary costs for the jobs that were there, regardless of whether they are $90,000 advanced degree jobs or a handful of $14.50-an-hour line work gigs.

And the biggest cost of the Fox-con is money that isn't being spent. The $469 million that slated to go out the door in the next budget and $600 million in the one after that could have been used in so many other ways that would have done a better job in improving our economy and our quality of life.

The deal, says Matthew Rothschild, executive director of the good government group Wisconsin Democracy Campaign, “is a ridiculous way to do economic development. It exposes a lie we’ve been told over and over that the cupboard is bare, that we don’t have enough money for our schools or our roads or our health care. But then when a company from Taiwan comes knocking, all of a sudden there’s $4 billion of taxpayer money to shell out. We could have helped a whole lot of small businesses for that kind of money.”

Yep, the Governor that's never held a real job in his adult life has sure left this state in a mess due to his deal with Foxconn. And the only way we start climbing out of that ditch is to remove Governor Dropout and the GOPs who voted for this garbage, and at least make Foxconn live up to its terms of the deal with a WEDC that offers real oversight.

But honestly at this point, it would just be better to give Foxconn a $150 million check and tell them to go away. I bet they'd take it, grifters that they are, and it would save Wisconsin a helluva lot of money and environmental messes in the coming years.