Crony State Handouts to Corporations: The True Race to the Bottom
The Wisconsin plan to give a Taiwan-based multinational billions of dollars the state may never recover illustrates that the real race to the bottom is not globalization, but the sprint among governments to see who can run up the highest tab for jobs that may or may not result.
Wisconsin’s multi-billion dollar package to entice Foxconn to set up an LCD flat screen plant in Kenosha is the latest example of encouraging companies to play states and municipalities against each other in a vicious cycle of taxpayer pitted against taxpayer. On its way to snaring one of the largest economic development grants in U.S. history, Foxconn entertained bids from seven states, igniting a bidding war that the company was guaranteed to win and the taxpayers certain to lose. The $3 billion incentive package is worth six times the average award, analysts say. The state’s Legislative Audit Bureau has found that increased state tax revenue from job growth would not offset the spending until at least 2042 — and then only if a goal of 13,000 jobs is actually reached and all went to Wisconsin residents. (Unlikely, since the plant would be located within a short commute of the Illinois state line.)
The deal may be part of a pattern. President Trump was on hand for the White House announcement of the deal, and has ballyhooed such corporate giveaways in the past. Specifically, he has endorsed a game of corporate whack-a-mole in which companies play states off against each other to squeeze taxpayers for every possible dollar. Trump told Carrier employees a few months ago that employers “can leave from state to state and they can negotiate good deals with the different states.” Several companies have already done exactly that. Boeing has shed nearly 16,000 jobs in Washington state since winning the largest share of a 16-year, $8.7 billion incentive package, and cut nearly 1,200 jobs in South Carolina after securing multimillion-dollar incentives there.
Since the Foxconn deal may become a template for dirigiste shakedowns all over the United States, it is worth looking at what Wisconsin would actually give up and what they would actually be likely to receive if the Legislature approves the package. Among the questionable aspects of the deal: The number of jobs it will create, the likely wages, the actual cost to taxpayers, how well job creation promises will be monitored, and how long it will take the state to recover the revenue.
How much will the deal actually cost the people of Wisconsin? Under the bill before the state legislature, Foxconn can receive up to $200 million per year in refundable tax credits, capped at $2.85 billion, if it meets capital and employment compensation targets. It can also avoid paying $150 million in sales taxes on building materials, equipment and supplies. These refundable tax credits far exceed standard incentives: 17 percent of wages paid instead of the typical 7 percent, and 15 percent of capital costs instead of the usual 10 percent. To what extent was the tab inflated by competition among states?
Wisconsin would also have to borrow over a quarter-billion dollars for repairs to interstate highways near the plant, despite a $1-billion deficit in its transportation funds. The state will also spend $20 million on worker training over two years, to ensure a pipeline of workers for both Foxconn and small businesses that lose employees to the massive plant.
Over and above that, Foxconn is also eligible for local incentives. And the plant will be exempt from a host of environmental regulations.
The Legislative Audit Bureau’s estimate that the state will not recover its funding in taxes from Foxconn until at least 2042 may be optimistic, since it assumes the plant will actually provide 13,000 jobs and all of them go to Wisconsin taxpayers.
But how many jobs will the deal actually create, and at what wage level? A memorandum of understanding between Wisconsin and Foxconn describes 13,000 jobs as a goal, not a minimum. The legislative bureau’s analysis acknowledged that some estimates place the probable payroll as low as 3,000. Even if one accepts the estimate of 13,000 jobs, that means each job will cost the state a quarter-million dollars; if the number of jobs comes to only 3,000, each job will cost the state in the neighborhood of a million dollars. Given that the average job will pay about $53,000, it will take 5-20 years of full employment at the plant to equal the state’s investment. But not all jobs will pay that much. In fact, the state legislature requires jobs pay at least $30,000 to be counted against the incentive package. For jobs in that pay range, it would take 8-32 years to equal the state investment. And that assumes that the jobs created will have a long lifespan. Foxconn has introduce an extensive commitment to automation and robotics, with the stated goal of eliminating almost their entire global workforce.
Will Foxconn even create as many jobs as they are paid to? The state agency tasked with holding Foxconn accountable has a history of failing to verify job-creation claims and rewarding companies that fall short of quotas, according to state audits. An audit just three months ago found the Wisconsin Economic Development Corporation did not independently verify jobs numbers claimed by recipients of tax credits and posted inaccurate jobs figures online, and did not penalize companies even when it became aware they did not meet targets established in their contracts. Earlier such reports by the Legislative Audit Bureau identified similar verification and posting shortcomings in 2013 and 2015.
The cost to Wisconsin of the Foxconn project is high, the jobs guarantee is minimal, and likely oversight is weak. As governments compete for glitzy investment projects, taxpayers are being required to take too much of the risk, while private companies hog the reward. It is time to demand that governments stop allowing themselves to be played off against each other.
