As we've said, the promise of thousands of Foxconn jobs comes
with the price tag of $3 billion in state tax credits.
The largest incentive package in state history.
The memorandum of understanding between the state and
the company contains few details, but those are expected
in a full bill to be brought
in that special session of the legislature.
We turn now to a UW economist whose expertise includes
public financing of private industry projects.
Steve Deller is a professor
of agriculture and applied economics at UW-Madison.
Thanks a lot for being here. >> Thank you.
>> So, the Foxconn package dwarfs previous incentives
to attract or retain jobs.
What's your reaction to it?
>> Wisconsin historically has not played this game.
They will put together a reasonable package and say,
"Take it or leave it." But this particular one is kind of passes
that red line that we've had historically.
But, this is not just a cash give away.
This is the company has to hit a series of benchmarks.
And if the company doesn't hit these benchmarks,
the incentives don't apply.
And they can actually--the state can actually claw them back,
essentially saying, "You didn't do what you promised,
give us some of the money back."
>> So you feel as though that's enough of a protection with this
size of an incentive package?
>> Those kind of protections have to be in place.
Otherwise it is just a pure give away.
And that would be a bad deal for the state of Wisconsin.
The devil's in the details
and those details are starting to come out.
It appears as though most of the incentives are actually
tax breaks.
So this doesn't look as though it's going to be money out of
the pocket of taxpayers, but rather taxes that the company
and particularly the construction phase,
they don't have to pay those taxes.
>> Wisconsin already has the manufacturing and Ag credits,
which I understand reduces Foxconn's corporate income tax
rate to 0. 4%, but additionally they get
what I understand to be refundable tax credits,
which to my ear sounds like kind of cash in hand.
>> It is to an extent in that
it's taking away from their tax bill.
In the end, the company will probably be paying very low
in terms of taxes, particularly income taxes.
So, it is not money that we're giving back,
or giving to the company, it's money that we would
not be receiving if these incentives weren't in place.
>> In your first response you said we kind of crossed
the red line and you also described how previously
there were "reasonable kind of incentive packages."
So, what do you mean by crossing the red line
and do you think this is unreasonable?
>> It's the game that states start to play.
It's been referred to as the "new Civil War."
States will start bidding against each other
to attract a company like this.
And some states get wrapped up in that game.
They get so focused on winning the game that they sometimes
lose track that they are playing with taxpayers' money.
The state historically has not played that game.
They will do things like
we will invest in infrastructure if you need it.
We will invest in educational programs if you need it.
We will give you a deferment on some taxes,
but we are not going to get on that slippery slope
of playing that bidding game.
>> What's wrong with it if you win?
>> You actually can end up with the economic benefits
not outweighing the cost of the incentives.
>> What do you think in this case?
>> I think, the one thing that I was really worried about
is that property taxes were on the table.
And it appears as though they are not.
And the reason is because a lot of states,
when they get in the bidding games, one of the big ones is,
"You don't have to pay property taxes."
The problem is that's the local government
that gets hit with that.
And they get caught between a rock and a hard place.
>> I understood, though, some of these local districts,
like wherever this thousand acres might be
that the plant decides to locate on,
they may end up losing out on taxes even as
they make service improvements to sustain the company
because of TID or TIF districts.
>> It's a TIF district.
What a TIF district is the firm still pays property taxes.
But what those property taxes go to is dedicated.
For example, if the municipality finds that they have to do major
road improvements, or they have to do a major expansion of
a sewer plant or they have to build a new fire station,
they have to incur those costs up front.
And the way they do it is they often go to the bonding market.
They incur debt to do it.
The way they convince the banks, if you will,
to loan them the monies, they say,
"We have this revenue stream coming off of this property that
is going to be earmarked for paying for those improvements."
Now the problem, though, is the school district loses out.
Special districts, if there are any special districts in there,
they lose out.
It only goes to the municipality that imposes the TIF.
>> What about the idea of potentially putting more money
in for things like worker training at a certain point,
you know, because this is--
if these kinds of job numbers pan out,
that's a lot of people that have to be kind of trained up.
Can you imagine a scenario where the state would then go back
and kind of give more money?
>> That's the kind of investment
that the state should be making either way.
Whether it's specific to Foxconn or specific to the labor force
needs of the state in general, the state should be making
those investments.
Now, my one concern, though, is that the closer
that this plant is located to the Illinois state line,
a lot of those people taking those jobs are going to be
commuters coming up from the Chicagoland area.
People are willing to commute great distances
for good-paying jobs.
So, it depends on how many of those jobs are actually going to
people who live in Illinois.
>> In fact, Einar Tangen, whom we spoke with just before you,
described this idea of having to probably get
some of these employees out of Illinois to fill the gap
if these kinds of job numbers pan out.
Is that a reason why some people,
experts in economic development, talk about regional development
as opposed to this kind of states trying to win at all
costs against each other?
>> Exactly.
Ideally, Illinois and, because given the location of this
proposed plant, it would have been ideal if Illinois and
Wisconsin had kind of come together and said, "Hey,
we're going to tag team this and try to get it."
But there is an editorial in the "Chicago Tribune"
a few days ago that essentially said,
"Hey, this could be a win-win for Illinois.
Illinois is going to benefit from all those jobs
but they're not incurring any of the cost at all."
>> Is it too late to do such a thing?
>> I'm not sure Illinois is in a position to really do anything.
>> That's true. They are in a world of hurt.
>> They are in a real world hurt.
>> Back specifically to the credits,
they are projected to cost between $200 and $250 million a
year in this package over 15 years.
Isn't that the kind of thing the state could weather?
Is that too big a number?
>> I think they could weather that because you have to realize
that it's the firm that's not going to be paying those taxes.
It's the construction company not paying the sales taxes.
But you still have all the people that are going to be
working there are still going to be paying
sales tax and income taxes.
That's where the benefit's going to flow
into the state immediately.
>> Very briefly in the few seconds remaining,
your overall view of this tends positive?
>> It does.
When it first came out I thought, "Oh, no.
We made a terrible mistake."
But as details are coming out and the--
the idea that there are benchmarks in there.
Any job paid less than $30,000 doesn't count.
There's clawback provisions.
The local government is allowed to use a TIF.
I think as more details come out,
I think they thought this thing through.
>> Great. Professor Steve Deller, thanks very much.
>> Thank you.