State won’t break even on Foxconn for 25 years, Fiscal Bureau estimate says

Payback would be pushed out if hiring falls short

The state of Wisconsin would not recover the $3 billion in tax incentives offered to Foxconn for at least 25 years, according to a new analysis from the Legislative Fiscal Bureau.

Terry Gou and Scott Walker hold up a memorandum of understanding signed Thursday at the Milwaukee Art Museum.

Taxes paid by Foxconn employees and from indirect and induced jobs would begin increasing revenues by $115 million per year in the 2042-43  fiscal year after covering the costs of tax credits promised to the company.

The analysis assumes the technology giant would invest $10 billion in constructing an LCD panel facility in southeastern Wisconsin and create 13,000 jobs in the process. The tax credits offered by the state are refundable and with the state’s manufacturing and agriculture tax credit, the company would have almost no income tax liability.

As a result, the state would end up making payments that could be more than $311 million in some years as Foxconn ramps up hiring and makes capital investments.

Those payments would be offset by income taxes paid by Foxconn employees, which the state projects to be $44 million annually by 2021. Also helping to offset the refund payments would be an estimated $71 million in state taxes collected as a result of the indirect and induced jobs projected to come with the Foxconn project.

The state would collect $186.9 million in taxes over a four year period from the construction work on the Foxconn project.

The analysis shows a benefit to the state of roughly $70 million over the next two years before the tax credits fully kick in. The cumulative net cost to the state would peak at nearly $1.04 billion in the 2032-33 fiscal year. Wisconsin would break even on the project in the 2042-43 fiscal year, the analysis shows.

The Legislative Fiscal Bureau memo cautions that the estimates are based on the project proceeding as planned and even if things go according to plan the estimates could be off.

“Any cash-flow analysis that covers a period of nearly 30 years must be considered highly speculative, especially for a manufacturing facility and equipment that may have a limited useful life,” the memo says. “Technological advances and changes in Foxconn’s market share, operating procedures, or product mix could significantly affect employment and wages at the proposed facility over time.”

Among the factors that could push the pay-back date even further is the percentage of workers from Illinois who would fill the newly created jobs. The memo estimates that if 10 percent of the workers were from Illinois, the payback date would be delayed by two years.

An analysis by Baker Tilly Virchow Krause, the firm retained by the Wisconsin Economic Development Corp. to work on underwriting the incentives, estimated as many as 40 to 50 percent of construction and ongoing jobs from the project could be filled by non-residents, potentially pushing the break-even date well-beyond 2044-45.

Gov. Scott Walker’s administration and EY, formerly Ernst & Young, the firm retained by Foxconn, disagreed with that estimate and Baker Tilly is revisiting its estimates, the LFB memo says.

The memo also considers the possibility Foxconn makes its $10 billion investment but does not reach its hiring goals, ending up closer to the 3,000 initially planned jobs instead. Under that scenario, the jobs portion of the tax credits would drop from $1.5 billion to approximately $345 million, but the state would still have to pay out $1.35 billion for capital investment. Increased tax revenues would fall from $115 million to $27 million, pushing the break-even point out near 2075.

In reaction to the Legislative Fiscal Bureau report, Walker said today, on Twitter: “Foxconn is bigger than just future tax revenues. It adds over $10.5 bil. in payroll to Wisconsin economy over 15 yrs + construction & indirect jobs.”

Some Democrats in the Legislature were also quick to weigh in on the report.

State Rep. Peter Barca, D-Kenosha, said: “I am extremely concerned about the cost to Wisconsin taxpayers. The fiscal analysis released today creates new questions on the state’s cash flow and on the state’s ability to ensure a good return on investment for taxpayers…We need more time to thoroughly vet the specifics of this deal…”

State Rep. Gordon Hintz, D-Oshkosh, said: “As today’s memo shows, Wisconsin taxpayers are assuming 100% of the risk of this proposal, and are smart to be skeptical of the deal and ask questions…Taxpayer funded assistance this massive in size will certainly create budget problems for the state, and likely result in another round of cuts to our most valued priorities. When considering this multi-billion dollar legislation, we must also consider the far-reaching impacts it will have on every budget for the next 15 years. While there has been plenty of news on the potential benefit of paying Foxconn to come to Wisconsin, there have been fewer details on the trade-offs involved for taxpayers, and the many questions that need to be answered.”

The state of Wisconsin would not recover the $3 billion in tax incentives offered to Foxconn for at least 25 years, according to a new analysis from the Legislative Fiscal Bureau.

Terry Gou and Scott Walker hold up a memorandum of understanding signed Thursday at the Milwaukee Art Museum.

Taxes paid by Foxconn employees and from indirect and induced jobs would begin increasing revenues by $115 million per year in the 2042-43  fiscal year after covering the costs of tax credits promised to the company.

The analysis assumes the technology giant would invest $10 billion in constructing an LCD panel facility in southeastern Wisconsin and create 13,000 jobs in the process. The tax credits offered by the state are refundable and with the state’s manufacturing and agriculture tax credit, the company would have almost no income tax liability.

As a result, the state would end up making payments that could be more than $311 million in some years as Foxconn ramps up hiring and makes capital investments.

Those payments would be offset by income taxes paid by Foxconn employees, which the state projects to be $44 million annually by 2021. Also helping to offset the refund payments would be an estimated $71 million in state taxes collected as a result of the indirect and induced jobs projected to come with the Foxconn project.

The state would collect $186.9 million in taxes over a four year period from the construction work on the Foxconn project.

The analysis shows a benefit to the state of roughly $70 million over the next two years before the tax credits fully kick in. The cumulative net cost to the state would peak at nearly $1.04 billion in the 2032-33 fiscal year. Wisconsin would break even on the project in the 2042-43 fiscal year, the analysis shows.

The Legislative Fiscal Bureau memo cautions that the estimates are based on the project proceeding as planned and even if things go according to plan the estimates could be off.

“Any cash-flow analysis that covers a period of nearly 30 years must be considered highly speculative, especially for a manufacturing facility and equipment that may have a limited useful life,” the memo says. “Technological advances and changes in Foxconn’s market share, operating procedures, or product mix could significantly affect employment and wages at the proposed facility over time.”

Among the factors that could push the pay-back date even further is the percentage of workers from Illinois who would fill the newly created jobs. The memo estimates that if 10 percent of the workers were from Illinois, the payback date would be delayed by two years.

An analysis by Baker Tilly Virchow Krause, the firm retained by the Wisconsin Economic Development Corp. to work on underwriting the incentives, estimated as many as 40 to 50 percent of construction and ongoing jobs from the project could be filled by non-residents, potentially pushing the break-even date well-beyond 2044-45.

Gov. Scott Walker’s administration and EY, formerly Ernst & Young, the firm retained by Foxconn, disagreed with that estimate and Baker Tilly is revisiting its estimates, the LFB memo says.

The memo also considers the possibility Foxconn makes its $10 billion investment but does not reach its hiring goals, ending up closer to the 3,000 initially planned jobs instead. Under that scenario, the jobs portion of the tax credits would drop from $1.5 billion to approximately $345 million, but the state would still have to pay out $1.35 billion for capital investment. Increased tax revenues would fall from $115 million to $27 million, pushing the break-even point out near 2075.

In reaction to the Legislative Fiscal Bureau report, Walker said today, on Twitter: “Foxconn is bigger than just future tax revenues. It adds over $10.5 bil. in payroll to Wisconsin economy over 15 yrs + construction & indirect jobs.”

Some Democrats in the Legislature were also quick to weigh in on the report.

State Rep. Peter Barca, D-Kenosha, said: “I am extremely concerned about the cost to Wisconsin taxpayers. The fiscal analysis released today creates new questions on the state’s cash flow and on the state’s ability to ensure a good return on investment for taxpayers…We need more time to thoroughly vet the specifics of this deal…”

State Rep. Gordon Hintz, D-Oshkosh, said: “As today’s memo shows, Wisconsin taxpayers are assuming 100% of the risk of this proposal, and are smart to be skeptical of the deal and ask questions…Taxpayer funded assistance this massive in size will certainly create budget problems for the state, and likely result in another round of cuts to our most valued priorities. When considering this multi-billion dollar legislation, we must also consider the far-reaching impacts it will have on every budget for the next 15 years. While there has been plenty of news on the potential benefit of paying Foxconn to come to Wisconsin, there have been fewer details on the trade-offs involved for taxpayers, and the many questions that need to be answered.”

Comments

  1. The Sheriff says:

    The long and the short….this is a horrible deal for Wisconsin. WI taxpayers are investing in something that will only pay off in 25 years (just think about how the economy has changed in the last 25 years and how much more it will change over the next 25) if very rosy targets for jobs and expansion growth occur. To make it worse, it’s a heavily front-loaded deal for WI taxpayers, meaning if it doesn’t work out, WI taxpayers get the shaft. This idea that jobs only occur when govt handouts big incentives seems to fly in the face or GOP capitalism and all it supposedly stands for.

    Meanwhile, our GOP legislature still can’t fix the state’s roads, fix funding issues for these roads (hint…they drive a lot more commerce than 13,000 potential jobs) and schools are trying every trick in the book to keep their budgets afloat.

    The simple fact is there is not enough revenue coming in the door and these sweetheart deals only make it worse. WI has some of the lowest sales tax in the country and some of the highest property taxes. It’s about time we start shifting our revenue to match our consumer based economy. A sales tax increase of 1% would go wonders to putting money in our coffers for roads, schools, and local governments. And cities like Milwaukee need other local taxes like payroll taxes to support the services that are needed.

    While it would be really nice for WI to land a company like Foxconn, we shouldn’t need to pay a company to move here while neglecting the vast majority of the people who live in this state.

    Bad, bad deal but can’t say I’m surprised.

  2. Good heavens! Using this line of thinking and calculation, who would ever have a child?! Come on, people. This is what opportunity looks like. Quit wringing your hands and lean into this.

  3. I would support a .5 cent state-wide tax increase earmarked only for economic development in Wisconsin, this sales tax wouldn’t be just for the Foxconn deal but for all of Wisconsin and I would even go further by it’s uses at 50% rural. that way it’s fair for everyone. I see this as the only way to make it budget friendly for all Wisconsinites, let’s create the economic sales-tax rainy day fund.