More than a year after Foxconn announced it would build a giant manufacturing plant in Wisconsin, the state’s deal with the Taiwanese electronics company remains highly controversial. The June groundbreaking in Mount Pleasant attracted both fanfare and protests. Recent polls show voters still divided on the pros and cons. And, in the governor’s race, Republican incumbent Scott Walker has touted the deal as a triumph of his tenure, while his Democratic challenger, Tony Evers, has criticized it.
A lingering question at the heart of this dispute is how much the project will cost. Wisconsin famously offered Foxconn nearly $3 billion in tax credits—the single largest subsidy a state has ever given to a foreign company. And, while many consider this a worthwhile investment in a development that will employ thousands and revamp the state’s economy, critics still say it’s too big of a gamble. “When they announced that Foxconn had chosen Wisconsin, I was cautiously optimistic until the costs came in,” says Assembly minority leader Gordon Hintz (D-Oshkosh).
Over the last year, Foxconn representatives have stood by their promise of a $10 billion investment and 13,000 jobs. The company has bought a Downtown Milwaukee building for a new corporate headquarters and another building in Green Bay for an innovation center. At the same time, opponents have watched in dismay as plans have changed and projected costs have mounted.
Taxpayers ‘on the Hook’
The incentive bill, signed in September of 2017, gives Foxconn up to $2.85 billion in refundable tax credits, to be disbursed over the next 15 years if the company meets its hiring goals. Because the incentives depend on the company’s level of investment, Foxconn will only receive the full amount if it employs the promised 13,000 workers. Walker has emphasized this point in his recent campaign ads, declaring “no jobs and investment—no credits.”
However, the credits are only part of the picture. An analysis by the Legislative Fiscal Bureau estimated the total cost of Foxconn at $4.5 billion, factoring in not only the state tax credits, but also road improvements, utilities and other capital costs. As Wisconsin Budget Project analyst Tamarine Cornelius explains, taxpayers would “still be on the hook” for a lot of these expenses, even if the job targets are not met. “There’s a portion of the payments that are not strongly linked to jobs,” Cornelius says. “So, even in flush economic times, there are very real opportunity costs here.”
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Local government assistance accounts for a large portion of the public costs. After it was announced that the facility would be built in Mount Pleasant in Racine County, local governments committed $764 million, funded through Tax Increment Financing (TIF) payments, to prepare the area for the massive manufacturing site. This would go towards acquiring land, road improvements, utilities, public safety and other necessities. These TIF investments are intended to be repaid by revenue generated by Foxconn. In an e-mail, Racine County Executive Jonathan Delagrave writes that the development agreement with the company “ensures that the cost of the local investment package is fully funded through Foxconn’s investment and does not raise taxes.”
But critics of Foxconn still see potential risks. The presence of Foxconn in Racine County is expected to draw thousands of workers and families to the area—an influx that will likely require new investment in schools, roads, housing and other improvements. These necessary upfront costs could become a burden, Cornelius says, if Foxconn is unsuccessful or leaves the state in 15 years after the incentive payments stop. “If Foxconn moves on to some other place once the subsidies dry up, then local governments could be saddled with repaying the cost of public investments that are not worthwhile anymore,” she says.
Local leaders have been more optimistic, noting the company’s $10 billion investment as proof of its long-term commitment to the area. In an e-mail, Delagrave stated that, “As we prepare for an economic boom, Racine County is bringing all our partners together to prepare for future growth and address the tremendous changes facing many sectors—including housing, workforce, transportation and public safety—of our community.”
Opportunity Costs a Major Concern
When the deal was being debated last summer, many wondered how investing billions in Foxconn might detract from other budget priorities statewide. This concern came to the fore in December when the Legislative Fiscal Bureau found that $134 million might be taken from other highway improvement projects to fund roads around Foxconn. “This is money that goes to all 72 counties in the state to fund rehab and repairs,” Hintz says. “The fact that they are doing this given how bad our roads are and what a funding crisis we’ve had is unbelievable.”
Cornelius says that the funding of roads for Foxconn amplifies the longstanding debate over highway resources. That Walker has continued to resist raising the gas tax while committing money to a development of this scale, she says, shows “a general unwillingness to face facts” and likely puts more pressure on the legislature to increase spending on roads.
The opportunity costs of $3 billion in tax credits also remain a top concern. Because the credits are refundable, and manufacturers in Wisconsin pay almost no taxes as it is, most of the promised credits would amount to cash payments pulled from the state’s budget. So long as the economy keeps growing, analysts say that the state should be able to meet its obligations without having to cut back elsewhere. But Hintz notes that continued economic strength is by no means guaranteed.
“If we make it through next June without the economy not going into a recession, it will be the longest period of sustained economic growth in U.S. history,” he says. “During this period of national growth, we’ve gutted funding for the UW system. What do you think is going to happen if the economy slows down, and we’re contractually obligated to give cash payments to a foreign company?” he says.
An economic downturn might lead to Foxconn creating fewer jobs, which would lower the obligation. But if Foxconn meets its hiring goals, the state’s annual payments to the company will reach as high as $312 million from 2022 to 2026. “Those are tax dollars that are no longer available to pay for K-12 education or the UW system,” Hintz says. “It’s not like there’s all this extra money we can give. It all comes from the same pot.”
In the longer term, Cornelius cautions that Foxconn “opens the door” for other companies to ask for similar deals, as when Kimberly-Clark received the same deal as Foxconn to keep Wisconsin facilities open. Patrick Tuohey, director of municipal policy at the Show-Me Institute in Missouri, says this has been a pattern in other states, as well. In Missouri, Tuohey says, the use of these types of incentive packages has been “ramping up” in recent years. “Word is getting around,” he says. “Developers say, I want the deal the last guy got.”
What Will Be the Environmental Impact?
The environmental cost of the Foxconn facility has been another source of controversy since the deal was first debated. For the past year, environmental advocates have struggled to understand what the development’s environmental footprint will be, largely because the company was exempted from having to produce an environmental impact statement. “That document is usually where we get all of the information that we need to understand the impact of the development,” says Jimmy Parra, an attorney with Midwest Environmental Advocates (MEA).
While Foxconn’s overall plan remains unclear, Parra says, executives have insisted that they are committed to preserving the state’s natural resources. Notably, the company announced in June that it would be implementing a $30 million dollar “zero-liquid discharge” system for water used in the manufacturing process. This would allow Foxconn to use significantly less lake water than the seven million gallons a day that Racine County approved.
Parra says Foxconn’s investment in the recycling system “shows good intentions,” but the company’s use of Lake Michigan water raises another issue. The manufacturing campus will be in a “straddling community,” meaning it is partially outside of the Great Lakes basin. The 2008 Great Lakes Compact prohibits taking water outside of the basin unless it is being used for public purposes. If Foxconn is permitted to use water for private industrial purposes, advocates worry that it will encourage other companies in the Great Lakes region to do the same. “There’s a concern that excess water capacity from in-basin communities can be used to send water out of the basin for private use of industrial customers,” Parra says. “You could conceivably see a number of industries moving into straddling communities around the basin, just as Foxconn has done, and using Great Lakes water.”
In May, a coalition of environmental groups represented by MEA filed legal action with the Department of Natural Resources (DNR) claiming that sending water out of the basin for this purpose violated the Great Lakes Compact. Parra says the DNR has forwarded the case to the Division of Hearings and Appeals to be overseen by an administrative law judge and that “the process is moving forward.”
In addition to the Great Lakes diversion, advocates are investigating how this factory will affect air pollution, wetlands filling and other environmental priorities. But Parra says the company’s lack of transparency has left a lot of questions unanswered. “A lot of information is not being made available to the public. I don’t think a lot is necessarily being made available to the DNR,” he says. “Things are constantly changing, and no one seems to have good information, except for Foxconn.”
A Changing Picture
Last spring, reports began circulating that Foxconn’s first Wisconsin facility was going to be a “Generation 6” plant instead of a “Generation 10.5” plant as originally planned. A Gen 6 plant would produce smaller screens, thus requiring less space and a different supply chain. Although representatives of the company initially denied the change, executives confirmed in June that the first facility Foxconn built would be a Gen 6 plant, followed eventually by a Gen 10.5. In August, executives appeared to have changed their stance again. As the Milwaukee Journal Sentinel reported, the company “did not offer assurances” when asked if a Gen 10.5 plant would still be built.
Because of this change, Hintz argues, the cost estimates and job projections associated with the development are now out-of-date and should be reassessed. Foxconn officials have insisted that this change will not affect their investment. Delagrave echoed this assurance, writing in an e-mail that “the company’s $10 billion investment in Racine County and its commitment to hiring 13,000 employees have not changed.”
But the unexpected shift brings up another anxiety—one that critics have been voicing from the beginning: In a few years, there might not be a market for the screens produced at Foxconn’s Mount Pleasant plant. “We kept asking, ‘what if it was 1988, and they told us they were going to make VCRs, and it was a 25-year deal?’” Hintz says. “Does anyone know, in the changing world of technology, if there will still be a demand for this product?”
While the changing picture of the Foxconn development signals trouble to some, supporters have framed it as just the company’s way of adapting to ensure long-term success. These responses reflect the competing narratives of Foxconn, which have been politicized from the beginning. Last year’s incentive bill passed largely on party lines, and the results of the Tuesday, Nov. 6, election may give some indication of how public opinion is leaning. But an answer to the bigger question, whether Wisconsin’s historic investment will pay off, is still a long way away.
