NEW ECONOMIC ANALYSIS OF THE
COSTS AND BENEFITS OF THE
FOXCONN DEAL IN WISCONSIN SHOWS
THE INCENTIVE PACKAGE WAS SO
OUTSIZED EVEN IF THE CONTRACT IS
RENEGOTIATED, WISCONSIN WILL
STILL BE ON THE LOSING END,
POTENTIALLY TO THE TUNE OF
COSTING THE STATE $290,000 PER
JOB CREATED.
THE STATE DEPARTMENT OF
ADMINISTRATION REQUESTED THE
STUDY BECAUSE THE SIZE AND SCOPE
OF THE FACILITY HAS CHANGED
SINCE FOXCONN PROMISED A $10
BILLION INVESTMENT AND 13,000
JOBS FROM FLAT PANEL SCREEN
PRODUCTION IN RACINE COUNTY.
THE COMPANY STANDS BY ITS
ORIGINAL PROMISE FOR JOBS, BUT
GOVERNOR EVERS HAS SAYS THE
PLANT WOULD EMPLOY ONLY 1500
PEOPLE BY NEXT YEAR.
WE CHECK IN SENIOR ECONOMIST
WITH W.E. UPJOHN INSTITUTE FOR
RESEARCH TIMOTHY BARTIK.
THANKS VERY MUCH FOR BEING HERE.
>> THANKS FOR HAVING ME.
>> HOW IS IT IF THE FOXCONN DEAL
IS RENEGOTIATED IT ACTUALLY GETS
WORSE FOR WISCONSIN TAXPAYERS,
THAT $290,000 PER JOB CREATED?
>> WELL, IF YOU HAVE A NEW
CONTRACT BUT YOU USE THE SAME
CREDIT RATES, THE COST PER JOB
ACTUALLY CAN GO UP BECAUSE THE
DISCUSSION NOW IS THAT THE NEW
PROJECT WITH FEWER JOBS WILL BE
MORE CAPITAL INTENSETIVE, HAVE A
HIGHER RATIO OF ROBOTS TO
WORKERS.
THE INVESTMENT TAX CREDITS WOULD
END UP ACTUALLY BEING A HIGHER
CREDIT RATE PER WORKER.
ORIGINALLY IT WAS OVER $170,000
PER JOB.
NOW WE'RE TALKING ABOUT
SOMETHING THAT MIGHT BE AS MUCH
AS $290,000 PER JOB.
>> SO WHAT KIND OF RENEGOTIATION
WOULD HELP LEVEL THE COST
BENEFIT RATIO HERE?
>> WELL, I THINK THE STATE
SHOULD EXPLORE AT LOARG LOWERING THE
COST PER JOB TO SOMEWHERE
BETWEEN $20,000 AND $30,000 PER
JOB.
EVEN THE MA'AM AMAZON NEW YORK DEAL
WAS ONLY ABOUT $40,000 PER JOB.
WHEN THE JOB WAS ANNOUNCED,
PEOPLE WERE KIND OF FREAKED OUT
BY THE WHOLE THING BECAUSE IT'S
SO FAR OUTSIDE WHAT WE USUALLY
SEE IN ECONOMIC DEVELOPMENT.
IT'S AT LEAST SIX TO SEVEN TIMES
TYPICAL INCENTIVE.
IT'S EVEN MUCH GREATER THAN THE
INCENTIVES OFFERED TO AMAZON BY
NEW YORK.
>> ACCORDING TO YOUR ANALYSIS,
UNDER BEST-CASE SCENARIOS FOR A
RENEGOTIATED DEAL, HOW MUCH
COULD WISCONSIN SAVE?
>> OH, WELL, YOU COULD SAVE AN
AWFUL LOT.
YOU COULD GO -- AS I SAID, YOU
COULD GO FROM MAYBE $290,000 PER
JOB TO DOWN TO $25,000 PER JOB
AND THEN THE DEAL MIGHT ACTUALLY
PAY OFF FOR WISCONSIN RESIDENTS.
THE PROBLEM IN PAYING SO MUCH
PER JOB, IT'S NOT THAT NEW JOBS
AREN'T WORTH SOMETHING.
THEY ARE WORTH SOMETHING.
THEY BRING US TAX REVENUE.
BUT THERE ARE ECONOMIC COSTS TO
THESE THINGS.
THEY COME OUT OF THE STATE
BUDGET SOMEWHERE.
AND WHETHER OR NOT YOU RAISE
TAXES ON HOUSEHOLDS OR OTHER
WISCONSIN BUSINESSES OR CUT
SPENDING, CUT PUBLIC SCHOOL
SPENDING, CUT UNIVERSITY
SPENDING, THERE'S AN ECONOMIC
COST TO THAT.
THERE'S NOT A FREE LUNCH.
>> IMPLICATIONS ALL AROUND
EITHER WAY.
>> RIGHT.
I MEAN, BASICALLY, YOU KNOW,
CREATING JOBS IS VALUABLE.
AND STATES ARE ACTIVELY ENGAGED
IN THIS.
WE NEED TO THINK ABOUT WHAT ARE
THE BEST WAYS TO CREATE JOBS.
DO WE NEED TO OFFER TAX
INCENTIVES?
DO WE NEED TO OFFER BUSINESSES
VARIOUS TYPES OF SERVICES?
CUSTOMIZED JOB TRAINING, SMALL
BUSINESS DEVELOPMENT CENTERS,
SMALL BUSINESS INCUBATORS.
ALL THESE THINGS COST MONEY,
SOME MORE EFFECTIVE THAN OTHERS.
IF YOU END UP SPENDING $290,000
PER JOB, IT'S VERY HARD TO HAVE
THAT PAY OFF BECAUSE THOSE ARE
BENEFITS.
YOU HAVE TO PAY FOR THE
INCENTIVES AND THAT ENDS UP
COSTING YOU MORE THAN THE JOBS
ARE WORTH.
>> SO WHAT IS YOUR RESPONSE TO
THE OUTGOING CEO OF THE
WISCONSIN ECONOMIC DEVELOPMENT
CORPORATION WHO DISPUTES YOUR
NUMBERS AND SAYS YOU MAKE
ASSUMPTIONS THAT COULD NOT OCCUR
UNDER THE CONTRACT, NAMELY, THAT
THE COMPANY WOULDN'T BE ELIGIBLE
FOR JOBS PAYMENTS WITH THE
NUMBER OF EMPLOYEES AND IT WOULD
DEFAULT ON THE CONTRACT IF IT
DOESN'T HAVE 5,850 JOBS BY THE
END OF 2023?
>> I THINK IT'S A WEIRD DEFENSE
TO SAY BEST-CASE SCENARIO IS THE
COMPANY DEFAULTS AND WE CALL
BACK ALL THE INCENTIVES AND
ASSUME FOXCONN STILL KEEPS ALL
THE JOBS THERE.
THAT'S KIND OF A WEIRD BEST-CASE
SCENARIO, THAT SOMEHOW 1500 JOBS
ARE CREATED, WE PAY OUT A HUGE
AMOUNT UPFRONT, WE ESSENTIALLY
PROVIDE FOXCONN WITH A
NO-INTEREST LOAN FOR A NUMBER OF
YEARS.
THEN WE GO TO COURT AND TRY TO
CLAW THAT BACK.
IS THAT GOING TO OCCUR LEGALLY
OR POLITICALLY?
WOULD THAT ACTUALLY OCCUR?
THAT'S THE BEST-CASE SCENARIO.
ON THE OTHER HAND, IF FOR SOME
REASON ALL THE JOBS WENT AWAY,
WE COULD STILL DO THAT.
WE'D HAVE A COST OF MAKING THIS
NO-INTEREST LOAN AND HAVE NO
JOBS IN THE END.
CLAIMING THAT DEFENDING A DEAL
BY SAYING THAT DEFAULT IS THE
BEST OPTION FOR RESIDENTS OF
WISCONSIN IS A SOMEWHAT STRANGE
DEFENSE OF THE DEAL.
>> FOR ITS PART, FOXCONN SAYS
THAT YOU MISREAD THE IMPORTANT
MULTIPLIER EFFECT OF ECONOMIC
DEVELOPMENT PROJECTS LIKE
THEIRS?
DID YOU MISREAD THE MULTIPLIER
EFFECT?
>> I USED THE MULTIPLIERS THAT
WERE USED BY THE VARIOUS
CONSULTING FIRMS THAT ADVISED
BOTH FOXCONN AND THE STATE.
PEOPLE ALWAYS LIKE TO CLAIM
MAGIC MULTIPLIERS.
IF YOU ASSUME A LARGE ENOUGH
MULTIPLIER, ANY INCENTIVE
PACKAGE CAN PAY OFF.
FOR EVERY JOB, THERE'S GOING TO
BE FIVE, SIX, TEN OTHER JOBS.
BUT USUALLY WHEN PEOPLE LOOK
HARD AT MULTIPLIERS, IT'S PRETTY
HARD TO GET THEM MUCH GREATER
THAN TWO OR THREE.
YOU KNOW, I ASSUMED A MULTIPLIER
BETWEEN TWO AND THREE, WHICH WAS
THE MULTIPLIER ASSUMED BY THE
CONSULTING FIRMS THAT BOTH THE
STATE AND FOXCONN RELIED ON.
>> ALL RIGHT.
WE LEAVE IT THERE.
THANKS FOR TALKING WITH US