Saturday, February 2, 2019

Wisconsin gave Foxconn a rich subsidy package. Did we overpay? Some experts say we did.

From JSOnline:

, Milwaukee Journal Sentinel Published 12:38 p.m. CT Feb. 2, 2019 | Updated 1:40 p.m. CT Feb. 2, 2019

In November 2017, then-Gov. Scott Walker (left), Foxconn Chairman Terry Gou, and then-U.S. Congressman Paul Ryan applauded an agreement for the Taiwanese electronics manufacturer to build a massive manufacturing campus in Wisconsin. In the past week, uncertainties emerged over the feasibility of the project, which relies on $4 billion in state and local subsidies. (Photo: MICHAEL SEARS/MSEARS@JOURNAL­SENTINEL.COM)

When fiscal conservatives investigate government incentives to lure industries and create jobs, they often find that taxpayers end up paying large sums they never recapture. 
“There are a lot of bad programs out there that should go away and we should be upfront about that,” said Greg LeRoy, director of Good Jobs First, a group based in Washington, D.C., that tracks corporate subsidies. 
Was Wisconsin's record-shattering $4 billion package of tax breaks and subsidies for Foxconn Technology Group one of those bad programs?
That question flared anew in recent days as news outlets reported that Foxconn was planning to either scale back or suspend its plans for a massive liquid-crystal display manufacturing plant in Racine County. Foxconn on Friday said it still planned to move ahead with the plant. 
Timothy Bartik would answer the question this way:
"It's unclear if the benefits would ever be as great as the incentive costs," said Bartik, senior economist at the Michigan-based Upjohn Institute for Employment Research who studies subsidies. "It was a very unusual deal."
At the heart of the subsidies debate is what sort of investments create jobs and whether those jobs will exist when the subsidies expire. The stakes are unprecedented with the Foxconn deal, which the Wisconsin Economic Development Corp. unveiled in 2017 as "the largest corporate attraction project in U.S. history as measured by jobs." 
But the Foxconn project has evolved since then. Last year, the Taiwan-headquartered manufacturer of consumer electronics walked back its plans to construct a factory that would produce state-of-the-art panels, opting instead for a less-costly plant that would make screens for smaller devices such as phones and tablets.
The uncertainty makes it difficult to compute cost-per-job. On the low end, University of Georgia economics professor Jeffrey Dorfman calculates that state taxpayers will pay $230,000 per promised job — but that assumes all 13,000 jobs materialize, as promised under the original terms. And Dorfman's analysis only counts the $2.85 billion from state taxpayers and not the tens of millions committed by Racine County and local municipalities.
Counting all state and local subsidies, Wisconsin will pay Foxconn many times more than the average incentive offered in the U.S., according to Bartik's analysis.
The state's contract includes a job-creation payroll tax credit, which subsidizes 17 percent of wages. But when other investment tax credits, which are enshrined in the contract, are added in, Bartik calculates that the cost to Wisconsin taxpayers could be much higher. That includes state subsidies but not county and municipal aid.
It's a big deviation from past practice when Wisconsin and most other states on average subsidized only about 3 percent of wages, he said.
The national norm was even lower prior to the turn of the century when states paid as little as 1 percent of wages on average, said Bartik, who has studied subsidy-driven economic development since the mid-1980s. If states such as Wisconsin ever had rules and formulas to govern subsidy policy, those rules went out the window with Foxconn, Bartik said.
“If this sets a precedent for what other states do, it’s really going to be problematic,” Bartik said. 
And when it comes to state subsidy policy, Bartik added:
"Rule No. 1 is to have rules" meant to ensure that tax breaks and subsidies can be replicated and sustained across the economy to include multiple industries and "without breaking the bank."
Wisconsin's contract with Foxconn stipulates that the state only pays subsidies when Foxconn meets job-creation objectives. Because Foxconn fell short in 2018, Wisconsin hasn't yet paid any state aid. It's a different story in Racine County, which already borrowed and spent $130 million for land acquisition, sewers, water and roadwork.

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