Foxconn Deal Will Put Wisconsin in Red for At Least 25 Years

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By Michael J. Bologna

Wisconsin will have to wait 25 years to see a return on its $3 billion investment in a massive Foxconn Technology Group manufacturing facility, a report by the state Legislature’s nonpartisan fiscal agency reveals.

Wisconsin’s Legislative Fiscal Bureau (LFB) issued a report Aug. 8 analyzing the fiscal implications of Special Session A.B. 1. The legislation, proposed by Gov. Scott Walker (R), provides $3 billion in tax credits, exemptions, and subsidies facilitating Foxconn’s plan to construct a 20 million-square-foot campus in southeastern Wisconsin for the production of liquid crystal display panels for televisions and electronic devices.

LFB’s report raises new questions about the efficacy of Wisconsin’s proposed investment in Foxconn. While Walker and other Foxconn boosters have spent two weeks touting an economic transformation from the development project, LFB estimated the project’s “break-even point” in terms of state tax dollars wouldn’t occur until 2043. At that point, Wisconsin would begin to see positive tax collections from the project of $115 million per year.

The break-even point, however, could be decades further away if Foxconn fails to achieve its employment targets, the report states. Foxconn has said it plans to initially hire 3,000 direct employees, but expects to ultimately hire 13,000.

Various press accounts have speculated final employment tallies are likely to rest closer to 3000, reducing Wisconsin’s overall tax collections. Under this scenario, the report states, “the estimated ongoing tax benefits from the project would decrease from $115 million to $27 million per year, and the break-even point would be well past 2044-45.”

‘Terrible Bet’

The report drew criticism from Democratic lawmakers and advocacy groups questioning the prudence of Walker’s special legislation.

“This confirms the concerns about Scott Walker’s Foxconn scheme being a terrible bet with our tax dollars,” commented Scot Ross, executive director of the progressive advocacy group One Wisconsin Now. “Even the best case, rosiest scenario shows Wisconsin taxpayers losing money on this deal for decades.”

Rep. Peter Barca (D), Assembly minority leader, called on Walker to extend the timeline for action on A.B. 1.

“I’m extremely concerned about the cost to Wisconsin taxpayers,” Barca said in a statement. “The fiscal analysis released today creates new questions on the state’s cash flow and on the state’s ability to ensure a good return on investment for taxpayers.”

It was unclear whether the report would do much to derail progress on A.B. 1.

Republicans, who hold majorities in both the Senate and the Assembly, have largely supported Walker’s Foxconn legislation. Assembly Majority Leader Jim Steineke (R) said he fully expects a vote on the special legislation in his chamber by Aug. 17.

Walker waived away the LFB analysis and the resulting criticisms of the Foxconn proposal.

“Foxconn will improve the lives of thousands of hard-working families,” Walker tweeted Aug. 8. “The future is bright in Wisconsin!”

Exemptions and Credits

The LFB report notes A.B. 1 permits a $150 million sales and use tax exemption on purchases of building materials, supplies and equipment used for the campus construction project.

More importantly, the bill authorizes the Wisconsin Economic Development Corporation to issue up to $2.85 billion in income and franchise tax credits to Foxconn. The manufacturer, however, would have to meet certain job-creation and investment targets to achieve the benefits. LFB said the payroll credit, totaling $1.5 billion, would be paid over 15 years and the investment credit, totaling $1.35 billion, would be paid over seven years.

The report notes that most of those credits would be payable directly to Foxconn because the company would also be able to claim the state’s 7.5 percent manufacturing and agriculture credit (MAC) on income derived from Wisconsin operations.

“Because of the MAC and the State’s sales-based apportionment rules, it appears likely that most of the proposed tax benefits would be refundable to Foxconn and not used to offset its state tax liability,” the report states.

Due to the structure of the credits, Wisconsin would have to make huge annual payments to Foxconn for several years before seeing any return on its investments. LFB projected state general purpose revenue payments of $312 million annually to Foxconn between 2023 and 2026.

Those out-of-pocket payments would drop to approximately $120 million in 2027, but continue through 2033. When the state’s overall credit program is weighed against tax collections of approximately $115 million, LFB said the state wouldn’t see positive cash flow from its investments, even in the most optimistic scenario, until 2043.

To contact the reporter on this story: Michael J. Bologna in Chicago at mbologna@bna.com

To contact the editor responsible for this story: Jennifer McLoughlin at jmcloughlin@bna.com

For More Information

Text of the report is at http://src.bna.com/rxI.

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