Foxconn's Wisconsin deal riskier for taxpayers than originally thought
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.
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.
Comments
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!
The best thing about incentives is they literally have no cash or upfront cost to the taxpayers.
-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?
There was a lot of sidestepping of environmental laws and safe guards, especially with the water to be taken from Lake Michigan.
So not mentioning Apple is no surprise to me.
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.