The Foxconn Economic Incentive Deal in Wisconsin: The Blessing and the Curse of Landing the “Big Deal”

by Kelley Rendziperis, on Aug 28, 2017 10:31:09 AM

And the winner is . . . Wisconsin!  One of the largest economic incentive packages in history was awarded to Foxconn Technology Group, a Taiwanese company, for the promise to build a massive facility manufacturing flat-screen displays in the United States. The runners-up in contention were believed to be Ohio, Pennsylvania, Michigan, Indiana, Illinois and Texas.  The highlights of the Foxconn project are as follows:

  • 1,000-acre site
  • $10 billion investment
  • 13,000 employees
  • $54,000 average wage
  • $3 billion of economic incentives

The hype around this project has been high and far-reaching. As a site selector who specializes in economic incentives, I was contacted by several news outlets over the past few months asking my opinion on certain states’ abilities to win the project and if incentives would truly play a factor in the decision.

This project is an excellent example of how incentives matter in the site selection process. At some point, Foxconn obviously decided to open its first manufacturing facility in the United States, but then needed to determine where, which resulted in a fierce multistate rivalry. If economic incentives were not important, then we would not have seen states trying to pass laws to create tailored economic incentives specifically for this project. Wisconsin is no different than the others and is poised to pass legislation before Sept. 30 specifically benefiting the Foxconn project.

Assembly Bill 1, among other things, creates an electronics and information technology zone which is limited to one in the state. The total state benefits amount to $3 billion including, $1.5 billion in refundable state income tax credits related to job creation, $1.35 billion in refundable credits related to capital investment and up to $150 million in sales tax exemption on construction materials.

In addition, Foxconn would likely not pay corporate taxes from sales on products made in Wisconsin, like other manufacturers in the state. Furthermore, the state will spend millions on improvements to highways and infrastructure, grant expedited permitting and allow environmental reporting exceptions. The local community, reported to be near Kenosha and Racine, is likely to offer similar assistance.

Wisconsin is not necessarily a state often named in the press competing for high profile projects. In fact, the last sizeable economic incentive packages announced were approximately $60 to $65 million for Mercury Marine, Kohl’s and Quad Graphics, which represent only 2% of the benefits offered to Foxconn. But does Wisconsin know what it’s in for now that it’s won?

Recent articles highlight Foxconn’s abusive labor practices, as well as its lack of follow-through on prior planned investments in the United States. Aside from the company’s dubious reputation, how will the state and local communities supply the necessary labor force? Despite Wisconsin losing thousands of manufacturing jobs last year, the state’s unemployment rate still hovers around 3%. Perhaps those unemployed manufacturing workers will be able to fill many of Foxconn’s needs; however, manufacturing in Wisconsin has historically been related to machinery and motors, not necessarily electronics. So where will qualified candidates of this magnitude come from? 

“Given the tightness of the national labor market, especially for manufacturing workers, staffing 13,000 skilled production jobs in any region of the country would be a difficult challenge,” says Josh Bays, Principal and leader of Site Selection Group’s manufacturing and industrial practice. “It could prove to be extremely challenging to staff a workforce of that scale in a region like Southeastern Wisconsin that lacks a critical mass of workers. Therefore, it is going to be extremely critical for Foxconn to leverage and further develop the state and local workforce development ecosystem.” Based on Bay’s comments, it seems it could take years to develop the curriculum necessary to help staff Foxconn’s facility.

Gov. Scott Walker, House Speaker Paul Ryan and President Trump, among others, have touted Foxconn’s foreign direct investment in the Unites States and some would say they have used this for political gain. Thus, one hopes that the economic incentives the state is offering will truly pay off for Wisconsin citizens and taxpayers; however, it was reported that Wisconsin does not anticipate receiving a return on its investment until 2042, which could be longer if a portion of the employees are Illinois residents. 

Topics:Economic Incentives



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