FOXCONN MAKES DEAL
Record subsidy package for massive LCD factory project
Foxconn Technology Group on Wednesday pledged to invest $10 billion to build a display panel plant in Wisconsin that could employ up to 13,000 workers and draw up to $3 billion in subsidies from state taxpayers — a deal that could ripple through the economy and 2018 elections.
“This is a great day for American workers and manufacturers and everyone who believes in the concept and the label ‘Made in the USA,’ “said an ebullient President Donald Trump at the White House announcement.
As Republicans in Washington struggle to repeal Obamacare and advance bills on tax cuts and infrastructure, Trump seized on the announcement as a win in a key swing state, crowing that the deal wouldn’t have been done “if I didn’t get elected.”
The agreement represents an opportunity as well as a risk for Wisconsin — state lawmakers must now consider a subsidy package nearly 50 times bigger than the state’s previous record.
The factory project would involve a virtual village, with housing, stores and service businesses spread over at least 1,000 acres, according to interviews. That acreage, a 1.5 square-mile area the size of Shorewood, could be assembled from parcels that initially aren’t contiguous, the source said.
At 20 million square feet, the factory would be three times the size of the Pentagon, making it one of the largest manufacturing campuses in the nation. It would initially employ 3,000 workers making an average of $53,900 a year plus benefits and could eventually boast more than four times that.
“America does not have a single LCD plant to produce a complicated system. We are going to change that,” Foxconn Chairman Terry Gou said.
Walker called the deal “the single largest economic development project in the history of Wisconsin” and said it represented the
most jobs ever to be plopped into an undeveloped parcel anywhere in the nation.
“This is literally number one,” Walker said.
The deal comes as Trump seeks to fulfill a promise to bring manufacturing jobs that have been lost in recent decades back to the United States. U.S. House Speaker Paul Ryan, whose district in southeastern Wisconsin would be home to the facility, praised Trump and Walker for working to make it happen, calling the plant a “game changer.”
The deal won bipartisan praise, though some Democrats also expressed concerns about the size of the incentive package.
The Foxconn plant would make liquid crystal display panels used in computer screens, televisions and the dashboards of cars. Walker’s office said the deal could result in up to 22,000 jobs that would be indirectly created by suppliers and businesses looking to locate near Foxconn and serve the company and its workers.
Construction jobs
The construction alone could lead to 10,000 jobs over each of the next four years.
Foxconn already had a significant Wisconsin connection. Doug Albregts, named last October as CEO of Sharp Electronics Corp. of America, is a University of Wisconsin-Madison graduate. The company he runs is part of the Japanese firm Foxconn acquired last year.
A follow-up event to sign a memorandum of understanding between the state and Foxconn will be held Thursday afternoon at the Milwaukee Art Museum.
Joining Trump and Vice President Mike Pence at the White House were the state’s top elected officials as well as some of its most prominent business executives.
Assembly Speaker Robin Vos (R-Rochester), who traveled to Washington, said he would like to pass the incentive package in August in a special legislative session.
“I could not be more supportive of the concept and I can’t imagine we would not pass this idea,” said Vos, whose district lies very near the plant
sites under consideration.
White House chief of staff Reince Priebus, who is from Kenosha County, said: “I think it’s a home run for Wisconsin, and southeast Wisconsin will benefit tremendously. Kenosha is going to get a big shot in the arm here; I can’t wait to see it happen for the people there.”
No site has been chosen, but areas in Racine and Kenosha counties remain in play. One source said Foxconn could end up using multiple locations in Wisconsin.
Foxconn is huge, with revenue of $135 billion last year and some 700,000 employees in China, its manufacturing base.
In the past, some Foxconn investments have failed to materialize.
In November 2013, Pennsylvania Gov. Tom Corbett announced that Foxconn planned to invest $30 million in a “high-end technology manufacturing facility” with 500 jobs. The company has a small research operation in Harrisburg, Pa., but the factory was never built.
Similarly, the Washington Post reported in March that Foxconn has spoken of making major investments in India, Vietnam and Brazil, but with results that have not matched the original announcements.
At $3 billion for 13,000 jobs, the Wisconsin deal would cost $231,000 per job. The subsidies would total more than the combined yearly state funding used to operate the University of Wisconsin System and the state’s prison system.
The company would have to meet certain job and investment targets up front to get the money, which would include up to $1.5 billion in state income tax credits for jobs created, up to $1.35 billion in credits for capital investment and up to $150 million in sales tax exemptions on construction materials.
In addition, like other manufacturers in Wisconsin, Foxconn would pay no corporate taxes on profits from sales on products made here.
The incentives would cost the state about $200 million a year, but Foxconn’s payroll in Wisconsin could reach $700 million a year, Walker’s office said.
Until now, the largest state subsidy ever awarded to a company in Wisconsin was the $65 million offered by then Gov. Jim Doyle’s administration in November
2010 to Mercury Marine, which was considering moving its factory from Fond du Lac to Oklahoma. That deal involved creating roughly 1,000 jobs and retaining roughly 1,900 more.
Other major awards to companies in the state since 2010 include $62.5 million to Kohl’s; $61.7 million to Quad Graphics; $47 million to Oshkosh Corp; and $28 million to Fincantieri Marine Group.
In total, those stateonly awards add up to $264.2 million — less than 9% of the offer to Foxconn — but aimed to create 6,800 jobs and retain an additional 14,200.
State subsidies
These large state subsidies often don’t get paid out in their entirety because the tax credits aren’t provided to the company until the business shows it has hired or trained workers, built a plant or purchased equipment. So far, the five companies have earned roughly $143 million of the total credits that they were awarded.
For instance, the $65 million promised to Mercury Marine has resulted in $46 million actually being earned by the company, about 71% of the original offer. The company has until the end of 2021 to earn the rest.
Steve Deller, a professor of agriculture and applied economics at the University of Wisconsin-Madison, said a $3 billion deal over 15 years is likely “too pricey in terms of potential economic benefit back to the state.”
“Throwing money into incentives makes a slippery slope,” he said. “(People) get so wrapped up in the winning game, in the headline of ‘we got it’ that they lose sight (of the) pretty steep price.”
Supporters of the investment say Foxconn could also draw numerous suppliers that would create their own jobs and energize Wisconsin’s economy.
Tom Still, head of the Wisconsin Technology Council, said he believes that every job in a Foxconn plant could bring an additional one to two jobs at company suppliers.
“I think the benefits (of subsidies) need to outweigh the costs and I think they would over time if you construct the deal right,” Still said.