Foxconn's Wisconsin deal riskier for taxpayers than originally thought

AppleInsider

Foxconn's upcoming $10 billion display factory in Wisconsin is more lucrative to the Apple supplier than first thought, with state and municipal sweeteners adding almost an extra $1 billion in benefits above an existing incentive package worth $3 billion, increasing the burden on taxpayers.

Apple CEO Tim Cook visiting a Foxconn facility in China

As part of the deal to open the 20 million-square-foot facility in Wisconsin, a package of $764 million in incentives has been provided by Mount Pleasant and Racine County, the town and county where it will be built, reports the Wall Street Journal. On top of this, the state of Wisconsin pledged another $134 million for the improvement of state highways and local roads near the site.

The latest benefits are in addition to existing financial incentives, which primarily consists of $2.85 billion in income tax credits for job creation and capital expenditures. There is also a sales tax exemption worth $150 million as part of the $3 billion bundle.

The state will be responsible for covering 40 percent of the public bonds used to finance all of the local expenses, in the event the project fails completely.

In return for the incentives, Wisconsin will be the venue for the major LCD panel factory, which will create 13,000 jobs in the state over a number of years. The increase in employment could also be beneficial for areas near the facility, including local businesses seeing increased trade and changes in house prices.

While originally believed to produce large display panels, it is thought the facility could end up producing small and medium-sized panels due to the transportation risks associated with bigger screens. Considering Foxconn is a production partner for Apple products, and is the owner of iPhone and iPad display producer Sharp, it is plausible that some future iPhone screens could be produced from the Wisconsin facility in the future.

In May, one report made the claim that iPhone screens would be sourced from the Wisconsin facility, but the issues with shipping US-produced components overseas for assembly could be too much of a liability for the project.

Apple does perform limited manufacturing in the United States, such as assembling its current Mac Pro in facilities in Texas. As there is no indication that assembly of products with sizable screens like MacBooks or iMac models will take place in the U.S. anytime soon, there seems to be little prospect of Wisconsin-produced screens being used for US-based Apple product assembly in the future,

The company will break ground in southeastern Wisconsin on Thursday.

mbmoore

How can there be a larger burden on taxpayers than they have already? Is Foxconn getting a pay out in addition to their exemptions? Not sure I follow the logic here. They will be employing thousands of people in different capacities, who will all be paying taxes.

mike wuerthele

mbmoore said:

How can there be a larger burden on taxpayers than they have already? Is Foxconn getting a pay out in addition to their exemptions? Not sure I follow the logic here. They will be employing thousands of people in different capacities, who will all be paying taxes.

Did you read the article? It doesn't seem like it.

In short, these are new incentives for Foxconn, above and beyond what the state pitched. The costs to the state are continuing to climb.

edited June 2018

gatorguy

It's being reported that the tax concessions cost per projected Foxconn plant job is an astounding 231K... and that was BEFORE this latest disclosure. If accurate that's plainly a ridiculously one-sided agreement. Is this what "winning" looks like to taxpayers?

 The state will be paying for 30% of Foxconn’s total investment in the plant
 $1.5 billion in state income tax credits for jobs created
 $1.35 billion in credits for capital investment
 $150 million in sales tax exemptions on construction materials.
 Foxconn will pay no corporate taxes on profits from sales on products made here so costing the state about $200 million a year....

 and now another "$764 million in incentives has been provided by Mount Pleasant and Racine County" and "$134 million for the improvement of state highways and local roads near the site."
 ... but they can get back a chunk of it with personal income taxes on working people over the next 15-50 years. What a grand idea!

edited June 2018

nunzy

This will this will probably lower Apples cost and thereby increase their profits. That way, more money goes to Wall Street where it can be invested productively.

racerhomie3

Meanwhile ‘Medicaid for all’ will be any better for the taxpayers . That ship (fiscal responsibility)has sailed long ago. At least new jobs are being made. I am happy.

leavingthebigg

Somehow 9to5mac was able to write its version of this story without mentioning Apple. :-)

wbm

I have come full circle on the subject of incentives. I hate them, I love them, I hate them. Ugh. The thing that no one ever mentions is what kind of guarantees do do the government’s providing these incentives get? If Foxconn cancels tomorrow, or 8 years from now, what does the government get back? I would sincerely hope that the governments would get something back. I doubt that the marketplace of potential companies would accept it, but think given the magnitude of the money spent, something has to be written in about this.

notsofast

TThe issue is best stated as are the likely overall economic and other benefits to the citizens of Wisconsin worth taking on that risk.

edited June 2018

netmage

Since the government is giving credits on future tax bills, they aren't giving anything if the project is cancelled tomorrow, so why should they give anything back? As for infrastructure improvements, those take a long time story start and could be canceled easily as well.

The best thing about incentives is they literally have no cash or upfront cost to the taxpayers.

gatorguy

leavingthebigg said:

Somehow 9to5mac was able to write its version of this story without mentioning Apple. :-)

They did in their original article, noting that the plant would be producing large panels that Apple would be unlikely to need. In this most recent one they didn't make the connection to the now-smaller panel production plans being reported, panels that Apple might well have a use for which AI did pick up on. Seems appropriate to mention. 

edited June 2018

netmage

@Gatorguy explain exactly how the incentives "cost" anything? If Foxconn decided to build in NC, would Wisconsin be $4 billion richer?

karmadave

Seems like this is just a big transfer of $$$ from taxpayers to shareholders. Would this plant have been built without huge financial incentives? I seriously doubt it...

gatorguy

netmage said:

@Gatorguy explain exactly how the incentives "cost" anything? If Foxconn decided to build in NC, would Wisconsin be $4 billion richer?

-Opportunity costs would be a biggie.
-Wisconsin taxpayers having to pay 100's of millions for local roadway improvements in a relatively small area is another.
-Another roughly $150 million to be spent on running power lines to the site, a construction cost that will be passed on to the area's household users of electricity.
-Yet more highway construction costs with $250M requested from the Feds (yeah taxpayers again) to expand and improve the interstate system to serve Foxconn and it's transportation requirements.
-Perhaps needing to go into the state's general fund to cover investment in the plant construction which might require increasing taxes in other areas to cover for "temporary" shortfalls (which hardly ever turn out to be temporary once enacted)...

Those are off the top of my head. An experienced economist which I am not could no doubt identify others. 

And now the icing: Foxconn sold the deal on the premise of adding as many as 13K jobs within just a very few years. Now with the agreement pretty much set the plans may have changed to building small displays rather than large ones, more appropriate for smartphones and tablets and more easily constructed with robotic "workers". Foxconn is only promising to add 3K jobs and no assurance that even those are staying around long. 

...and if Foxconn decides in five or six years that US-based production just isn't as lucrative as they had hoped and they close up shop the state's taxpayers are only going to have to cough up 40% of the payments to bondholders who funded the local incentives. Can't have well-off investors losing much eh? 

edited June 2018

soli

There was a lot of sidestepping of environmental laws and safe guards, especially with the water to be taken from Lake Michigan.

dewme

Not sure how these latest incentives impact the breakeven date, but when the initial deal was struck the taxpayers would recoup their payout somewhere in the vicinity of year 2040-2045, depending on the actual number of jobs created. Fewer jobs, perhaps via increased automation and robotics, pushes the breakeven date further out. In effect the taxpayers of Wisconsin are subsidizing 13,000 jobs for the next 25 years. I tend to think that working and being productive has a significant human benefit in the long run so despite the huge cost to the taxpayers of Wisconsin the surrounding communities should still come out ahead. If the workers come from outside of Wisconsin the sales of heavy winter clothing, snow blowers, snow shovels, and 800 CCA automobile batteries alone will see a big increase.

rotateleftbyte

leavingthebigg said:

Somehow 9to5mac was able to write its version of this story without mentioning Apple. :-)

Foxconn is a suppler to Apple and many other IT Kit sellers. The move by Foxconn to Wisconsin does not as I understand it, directly involve any product supply to Apple but it is of interest to us as it shows that at least bits of the Apple product supply chain can be moved to the USA.
So not mentioning Apple is no surprise to me.

leftoverbacon

There's also a huge cost in eminent domain. Eminent Domain is to be used when taking of private land for public use, not for handing it over to private developers.

The local township is about to face some lawsuits because folks don't want to move because a private developer doesn't want to pay.

This whole project is a boondoggle for $12 an hour jobs, and will be costing the residents of the state of Wisconsin for generations.

Gotta love corporate welfare.

leftoverbacon

dewme said:

Not sure how these latest incentives impact the breakeven date, but when the initial deal was struck the taxpayers would recoup their payout somewhere in the vicinity of year 2040-2045, depending on the actual number of jobs created. Fewer jobs, perhaps via increased automation and robotics, pushes the breakeven date further out. In effect the taxpayers of Wisconsin are subsidizing 13,000 jobs for the next 25 years. I tend to think that working and being productive has a significant human benefit in the long run so despite the huge cost to the taxpayers of Wisconsin the surrounding communities should still come out ahead. If the workers come from outside of Wisconsin the sales of heavy winter clothing, snow blowers, snow shovels, and 800 CCA automobile batteries alone will see a big increase.

13,000 jobs is wishful thinking.

russw

I'd bet within 5 years a large percentage of those jobs will be automated away. You know Foxconn will not be creating a brand new facility without maximizing automation. This isn't Asia where labor is relatively cheap so the motivation to do so is even higher. So there will be some nice jobs building the plant, optimizing production and after that the need for labor goes way down.

tmay

Kind of timely to examine this, while I'm spending more than a few minutes a day tracking articles to see if Tesla is going to remain solvent this year.

The State of Nevada provided Tesla/Panasonic with $1.3B in tax incentives, part of which were credits based on milestones that could be sold to Casino's reducing their tax burden.

https://www.detroitnews.com/story/business/autos/2018/06/26/tesla-profit-tax-credit/36402683/

Panasonic seems to have a solid business model manufacturing batteries; Tesla is struggling with Model 3 manufacturing. Still, a failure of Tesla isn't going to have the kind of negative impact to the local economy that a failure of Foxconn might have. Our local economy is so overheated, that now might be a time for a little bad news to tamper down expectations, rather than during any future recession down the road.

edited June 2018