Wisconsin’s Lavish Lure for Foxconn: $3 Billion in Tax Subsidies
By Nelson D. SchwartzPatricia Cohen and Julie Hirschfeld Davis

Foxconn’s plan for a $10 billion factory in Wisconsin is certainly good news for President Trump and Republican politicians Gov. Scott Walker and Speaker Paul D. Ryan, whose district the plant would call home.

But the deal with Foxconn, the Taiwanese electronics supplier, comes with a heavy price tag for Wisconsin taxpayers: $3 billion in state tax credits that dwarf the typical incentive package companies receive from local governments.

Even as Mr. Walker celebrated the news with Foxconn executives at a rally at the Milwaukee Art Museum on Thursday, experts on the political left and right alike said the rewards were not justified by the cost of the tax breaks.

Over all, the subsidies for the Foxconn plant, which would produce flat-panel display screens for televisions and other consumer electronics, equal $15,000 to $19,000 per job annually.

That compares with $2,457 per year in the usual incentive arrangement, according to Timothy J. Bartik, a senior economist at the W.E. Upjohn Institute for Employment Research in Kalamazoo, Mich. The new Foxconn jobs are expected to have an annual salary of at least $53,000 plus benefits, according to Mr. Walker.

“It’s a very, very costly package, and I’m skeptical that the benefits justify such big incentives,” Mr. Bartik said. “This is well beyond the typical deal.”

The White House and Wisconsin officials said Foxconn’s investment will create at least 3,000 jobs initially, with up to 22,000 more coming indirectly in the future as suppliers spring up and other local businesses benefit from the new plant.

If Foxconn lives up to its investment commitment and receives the full $3 billion tax break, it will be the fourth-largest incentive deal in United States history, according to Greg LeRoy, executive director of Good Jobs First, a nonpartisan nonprofit research group in Washington that tracks economic development subsidies.

“We can only describe this as a gift from Wisconsin taxpayers to Foxconn shareholders,” Mr. LeRoy said. “This is a guaranteed loser for the state.”

Luring a high-tech, growing manufacturer like Foxconn will deliver economic gains for the state, especially for once-thriving factory towns in Mr. Ryan’s district, like Racine and Kenosha. At the event on Thursday in Milwaukee, Mr. Walker cheered the project as “transformational” for Wisconsin and acknowledged the state’s significant financial commitment.

“It’s bigger than anything we’ve done before,” Mr. Walker said of the incentives. “But if you want to play in the big leagues, it’s comparable with just about every other major financial incentive like this for a major project anywhere — not only in this country, but around the world.”

Foxconn executives approached the White House in the spring to talk about an array of policy issues, and began meeting regularly with Jared Kushner, Mr. Trump’s son-in-law and senior adviser, and Reed Cordish, a top technology and innovation adviser, according to a senior administration official who insisted on anonymity to discuss private talks.

The company identified several states — including Michigan, Ohio and Wisconsin — that would be potential sites for its facility, and Mr. Kushner and Mr. Cordish facilitated meetings between Foxconn executives and officials from those states. They hosted meetings at the White House between company executives and Mr. Walker and Gov. Rick Snyder of Michigan, the official said.

But White House officials played no role in negotiations between Foxconn and state officials, leaving it to the company to determine which state would be most favorable as a location.

Mr. Walker first contacted Mr. Ryan last month about the possibility of luring Foxconn to Wisconsin, and over the next few weeks, they began negotiating with Terry Gou, Foxconn’s chairman, and executives to encourage them to choose the area, according to an aide to Mr. Ryan.

Foxconn executives traveled to Washington later in the month to discuss the potential move to Wisconsin, and a few weeks later, Mr. Walker and Mr. Ryan, along with state elected officials, had dinner with Foxconn executives to hammer out details.

Aides to Mr. Ryan also lobbied state officials including Robin Vos, the speaker of the Wisconsin assembly, to support an incentive package for Foxconn, and met with executives to talk about federal work force development and training programs that would be available if they made the move, a topic that Mr. Cordish had also emphasized in his meetings with Mr. Gou.

According to a presentation by the state, the incentive package consists of $1.5 billion in state income tax credits for job creation, $1.35 billion in state income tax breaks for capital investment, and up to $150 million for a sales tax exemption. A 2016 study by Ernst & Young found that local subsidies are a key factor when companies decide where to locate new capital investments.

A special session of the Wisconsin legislature is planned to approve the incentive package, which is projected to cost $200 million to $250 million per year. The tax benefits would be contingent on Foxconn’s actual hiring and investment.

Still, the package hardly conforms to the kind of fiscal conservatism that Mr. Walker and Mr. Ryan have long espoused.

“Obviously, there is a strong desire for the state to land a company as big as Foxconn,” said Jared Walczak, a senior policy analyst at the conservative Tax Foundation in Washington. “But they’re also forgoing the opportunity to make a more competitive landscape for other businesses.”

Mr. Walker has been a lightning rod for Democrats after successfully taking on public employee unions in bitter state budget battles and backing cuts in government spending, and liberal experts were quick to criticize him on Thursday for providing Foxconn with billions in aid.

“It doesn’t fit with a governor that said we can’t spend much money,” said Martin Baily, a senior fellow at the Brookings Institution and a member of President Bill Clinton’s Council of Economic Advisers. “This is a guy who decimated the University of Wisconsin by budget cuts. On the one hand, he’s saying we can spend billions to pay Foxconn, but what about our own prized educational institution?”

Mr. Baily added, “It certainly could be a boost to the economy, but it’s just a big, big price to pay.”

He also questioned whether Foxconn would live up to its promises, given how similar commitments by the company in Pennsylvania and overseas fell far short of initial hopes. Perhaps the biggest investment pledge in recent years was Foxconn’s 2011 plan to invest $12 billion in Brazil and create 100,000 jobs. Foxconn never came close to that level of investment, according to news reports.

Foxconn has expanded its ambitions in the flat-panel display industry in recent years, including acquiring Sharp, the big Japanese panel maker, last year.

The Taiwanese company’s main publicly traded unit, Hon Hai Precision Industry, has spent about $9.5 billion worldwide on all of its capital investments over the past five years.

Foxconn is proposing to spend roughly the same amount — $10 billion over the next six years — just to build the Wisconsin plant. The company has also promised to spend billions around the world in the next few years.

It has begun construction on a $9 billion display factory in Guangzhou, China, that is to be completed in 2019 and create 10,000 jobs.

In 2015, the company committed to invest $5 billion in the Indian state of Maharashtra over five years and create 50,000 jobs. It also said it planned nearly a dozen additional factories in the country. So far, the first project has gone nowhere.

In 2012, the company said it would invest up to $10 billion to produce electronics in Indonesia. Two years later, it shaved that commitment down to $1 billion. No plant has been built.

Four years ago, Foxconn said it would spend $30 million on a plant in Pennsylvania, but it failed to follow through.

In a statement, Foxconn said the incentives had played a key role in the company’s decision to locate in Wisconsin, along with the state’s “talented, hardworking workforce, and a long track record in advanced manufacturing.”

“Co-investment in large projects by the governments in the locations where we invest are essential for our company and any company in our industry that is committing billions of dollars for a greenfield project,” Foxconn said.

Unlike Wisconsin, Foxconn said, other states like Pennsylvania and countries like India and Indonesia had not given the company the incentives it considers necessary to make the projects work.

Big companies like Foxconn possess leverage to extract concessions from state governments that smaller firms cannot, said Carl Davis, research director at the nonpartisan Institute on Taxation and Economic Policy in Washington.

“This is not a comprehensive strategy for economic development,” he said. “If Wisconsin were going to offer this kind of subsidy for every employer within its borders, the state would be bankrupt.”

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