The reality of Foxconn deal
Foxconn’s decision to build a plant in Wisconsin has been met with considerable fanfare. Now that the euphoria accompanying Foxconn’s investment is gone, what’s needed is a new realism. Is this a good investment for Wisconsin? Will it help the working population of the state? In both cases, we see a number of downside risks that need to be dealt with upfront.
The incentives being promised by the Walker administration may be a drain on the state budget. The Washington Post estimates that the tax breaks could cost the state as much as $230,700 per job created. The Legislative Fiscal Bureau projects that the cost of the refundable state tax credits will exceed the potential increased tax revenues until the fiscal year 2032-’33. The LFB estimates that the project’s break-even point would occur during the 2042-’43 fiscal year.
Could the money promised to Foxconn be better spent elsewhere — on public goods such as bridges or educational initiatives? The Institute on Taxation and Economic Policy, a nonprofit research group, argues that while the long-term economic benefits of education and infrastructure investments may not be as flashy as incentive-backed ribbon-cutting ceremonies, these investments are even more fundamental to any successful economy.
The new plant will manufacture LCD panels which, unlike traditional factory jobs, involves incredibly clean work. Most manufacturers, in similar plants, employ robots to do the fabrication, with just a few workers completing essential tasks. Moreover, these workers aren’t the kind of manufacturing jobs that we are accustomed to. They are, instead, part of a new generation of advanced manufacturing jobs, requiring high levels of engineering skills — skills that are still sorely lacking in the Wisconsin workforce. So the Walker administration has to ensure that the state is also investing in training programs that prepare Wisconsin workers for the jobs it offers.
Given the plant’s expected proximity to Illinois, many of its suppliers and workers will come from Illinois as well as other states. This would significantly reduce the economic impact on Wisconsin.
The absence of prevailing wage protection poses another major problem. The plant would require a significant amount of infrastructure investment by the state and local governments. The prevailing wages law would have required that construction workers on public construction projects be paid the wages and benefits prevailing for similar work in or near the locality in which the construction project is to be performed.
We already have seen that the elimination of the law for municipal projects in 2015 has cut wages and invited so-called “gypsy contractors” from out of state to bid on local Wisconsin projects. That trend will only increase with the construction of the Foxconn plant and related infrastructure development, particularly if prevailing wage protection is repealed for state projects, which has been proposed by Gov. Scott Walker and legislators as part of the budget discussion. Studies suggest, and the Wisconsin experience shows, that out-of-state firms will get more of these jobs.
But there’s an even bigger problem than recouping the state’s investment. All of our analysis assumes that Foxconn would live up to its promise to build the plant and hire those skilled workers. Foxconn’s history suggests that similar commitments by the company fell far short of initial hopes.
The deal with Foxconn comes with a heavy price tag for Wisconsin taxpayers. Currently, there are no assurances that Foxconn will utilize Wisconsin workers and contractors to build or operate the facility. Steps need to be taken to make sure that the Foxconn investment serves the working population.