Wisconsin Governor Dismisses Criticisms of Foxconn Deal

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By Michael J. Bologna

Wisconsin Gov. Scott Walker (R) dismissed criticism that the state is paying too much to attract a massive Foxconn Technology Group campus with a price tag pegged at $3 billion over 15 years.

During a series of interviews with local media July 27, Walker portrayed the $3 billion package of income tax credits and sales and use tax exemptions as the upper limit on benefits Foxconn could potentially realize. Walker also stressed that the state incentives are tied to performance in terms of jobs and investment.

Taiwan-based Foxconn, the world’s largest contract electronics manufacturer, announced July 26 it intends to build a 20 million-square-foot campus in southeastern Wisconsin for the production of liquid crystal display panels for televisions and electronic devices. The company expects to invest $10 billion in the project and eventually hire 13,000 direct employees.

“We are putting out $3 billion. That’s a mouthful to talk about,” Walker told WISN radio. “But it is tied to the investment—half of it is for the jobs. If they don’t get up to 13,000 jobs, they don’t get the $1.5 billion that’s part of the tax credits there.”

Walker said a $1.35 billion portion of the $3 billion package is tied to Foxconn’s investments in the manufacturing campus. He said the company would miss out on a portion of the benefits if spending falls below $10 billion. The remaining $150 million would come in the form of a sales and use tax exemption linked to construction costs. Here again, Walker stressed Foxconn would lose out on the exemption if spending levels drop below the target.

In addition, Walker said Wisconsin’s agreement with Foxconn would contain terms permitting the state to recapture tax dollars if the manufacturer’s employment numbers drop in future years.

“There are clawbacks in here, there are all sorts of protections for the taxpayers. All the things you would want are part of this deal,” Walker said. “But in the end, I am so optimistic about this. I believe it’s not a matter of meeting these objectives, I think they are going to exceed them.”

Special Legislative Session

Walker said he would convene a special session of the Wisconsin Legislature to address the Foxconn incentive package. Walker didn’t disclose dates for the session but said the state needs to enact laws laying out the tax benefits as soon as possible.

Mark Maley, a spokesman for the Wisconsin Economic Development Corporation (WEDC), said the state has several business tax credit programs, but none have the capacity to accommodate the Foxconn deal.

“This will require separate legislation to make this happen,” Maley told Bloomberg BNA. “It would be similar to our enterprise zone tax credits. Our Business Development Tax Credit is used for most projects, but this is much bigger. This requires special legislation and a special type of tax credit.”

Walker’s comments follow criticisms from some Wisconsin lawmakers and economic development professionals who expressed doubts about the state’s $3 billion commitment to Foxconn.

Previous Failures

Several critics have pointed to Foxconn’s previous failures with U.S.-based development projects. In 2013, Foxconn pledged to build a $30 million manufacturing plant in central Pennsylvania, but the facility was never constructed. Others point to Foxconn’s alleged labor abuses in China.

“Given recent accounts of how its workers are treated and Foxxconn’s strategy of getting every last nickel and dime it can from taxpayers to lower their costs, Governor Walker and any legislator thinking of supporting what could be a $3 billion incentive package should be very wary,” said Sen. Dave Hansen (D) in a statement. “To do otherwise would be a serious case of legislative malpractice.”

Scot Ross, executive director of the progressive advocacy group One Wisconsin Now, noted the WEDC is reporting the project will only generate $181 million annually in state and local tax revenue, but the subsidy program has an annual cost of up to $250 million over 15 years.

“Talk about the ‘art of the deal,’” Ross said in a statement. “The prospect this secret deal is the best thing for Wisconsin taxpayers is, to say the least, slim.

Withholding Judgment

A spokesman for the Wisconsin Taxpayers Alliance (WISTAX), a nonpartisan research organization focusing on tax and fiscal policy, said there are too many unanswered questions about the Foxconn deal to pass judgment about its value to the state.

Dale Knapp, research director at WISTAX, said full financial terms of the agreement won’t be known until lawmakers begin debating legislation enacting the special business tax credit program. But even with this information, he said lawmakers might have a tough time reaching conclusions about the proposal. Knapp said much will depend on the degree of indirect development and job creation triggered by the Foxconn campus.

“It’s by far the biggest incentive package ever in the state. Nothing even comes close,” Knapp told Bloomberg BNA. “Ultimately, the question of whether it’s a ‘good deal,’ well we won’t know for five or 10 years. It could become a really good deal for the state if Foxconn attracts suppliers and other manufacturing we normally wouldn’t have had.”

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

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