Or more accurately, “The Trouble with the Republican Response to the Foxconn Proposal.”

Rep. John Nygren summed up the majority Republican sentiment following the announcement of Foxconn’s decision (or is it really a decision?) to invest in Wisconsin. When Sen. Minority Leader Jen Shilling tweeted her concerns, saying “$3 billion is a lot of money when we still don’t have a budget to fund schools, roads and health care. When’s JFC meeting next?” Rep. Nygren replied, “Come on Senator cheer for WI. I know you want to, don’t let politics get in the way.”

He dismissed her concerns.

Other Republican legislators have the same cavalier attitude. Sen. Dave Hansen of Green Bay cautioned, “Given recent accounts of how its workers are treated and Foxconn’s strategy of getting every last nickel and dime it can from taxpayers to lower their costs, Governor Walker and any legislator thinking of supporting what could be a $3 billion incentive package should be very wary.” In response, Rep. Dave Steffen, R-Green Bay opined, “To think that someone would actively cheer against this type of economic growth is insane.”

Scott Walker himself told the people concerned about the Foxconn proposal to “Go suck lemons.”

These are flippant and irresponsible answers to serious questions. The Foxconn proposal is totaling up to well more than $3 billion dollars of taxpayer-funded support. It should not be approached casually.

Yet Republican lawmakers, responding politically, thus far appear to be content to read the press releases from Foxconn and WEDC, which gloss over many of the critical issues in the proposal.

The draft bill detailing the scope of Wisconsin’s giveaway to Foxconn was released late Friday afternoon, along with Mr. Walker’s call for a special session to beginning today to pass the bill. Included in the bill are

MONETARY COSTS

  • Potential direct payments to Foxconn. So far, the state has acknowledged that the Foxconn proposal could cost “up to” $3 billion. A relatively small portion of that ($150 million) is for a sales tax exemption on construction materials used in the construction of the facility. The remainder, $2.85 billion, would be for cash payments directly to Foxconn (called “refundable tax credits”), partly for “job credits” (17% of salaries for jobs paying between $30,000 and $100,000) and partly for construction. These cash payments would represent a direct payment from the state treasury in the amount of between $200 and $250 million per year should Foxconn reach its 13,000-job target, far more than the income tax revenue from those jobs. Furthermore, construction credits will be paid to Foxconn regardless of whether jobs are created! Finally, the agency tasked with ensuring that jobs have been created would be WEDC — yes, the same agency that has consistently failed to track job creation for much smaller firms.
  • General purpose revenue bonding for highway construction. The bill includes $250 million GPR bonding for highway construction of I-94 north-south corridor (Illinois border to Milwaukee). This bonding is contingent on the receipt of federal highway funds for the project, and that is contingent on the Republicans actually passing a budget, as well as on federal approval.
  • Additional grants to localities for infrastructure development. The draft bill also includes what is called a “sum sufficient” amount (that is, whatever is needed) to fund 40% of the infrastructure improvement required for localities to prepare the way for Foxconn. Infrastructure improvement identified in the bill includes water lines, sewage lines, wastewater facilities, and public protection. There is no estimate of what this might cost, to either the state or the local governments.
  • Fast-track construction of infrastructure by localities permitted. The bill permits the locality creating the electronics and information technology manufacturing zone to use the design-build system when contracting for water and sewage systems, and for wastewater treatment systems. This process permits “developers to submit proposals to provide completed projects in these areas without following the bidding requirements for public works projects that would otherwise apply.”

OVERRIDING ENVIRONMENTAL PROTECTIONS

  • Waiver of environmental protections. The bill exempts the development (and all the manufacturing facilities within the newly-created electronics and information technology zone) from preparing an environmental impact statement, deeming that “a determination regarding the issuance of any permit or approval for a new manufacturing facility within an electronics and information technology manufacturing zone is not a major action for the purpose of the environmental impact statement requirement.” Mr. Walker, WEDC, and Foxconn have bragged that the facility in question will be the size of 11 Lambeau Fields. How can its construction NOT be a major action, especially for a company with a history of doing environmental damage???
  • Waiver of wetland and waterway protections. The bill allows the company to dredge and fill wetlands without state permits, allows rerouting of waterways, and restricts the DNR’s ability to regulate making other changes to navigable waters without a permit. This policy applies even to the operation of the FoxConn facility, and electronics manufacturing can do great environmental harm. 
  • Waiver of several rules governing utilities. The bill exempts the development from obtaining certificates of authority usually required by the PSC for construction projects, and permits the relocation of high-transmission lines without PSC approval.

WHAT THE BILL DOES NOT INCLUDE

  • Money to support training. Yep. This bill is silent on training, even though Mr. Walker has said that the UW and the tech schools need to get going on training people for FoxConn right away.
  • Requirements that the employees and construction companies be from Wisconsin. Nope, nothing about that in the bill either. Nor was this in the Memorandum of Understanding. If Wisconsin is going to put this much money into the bill, shouldn’t we at least be sure that the employees live in Wisconsin?

WHAT COULD GO WRONG? WHAT DOES DUE DILIGENCE REQUIRE?

“Conservative” Republican legislators — and Democrats, of course (I am talking to you, Peter Barca) — must approach FoxConn the way they would approach such a proposal if it were coming from a Democratic governor — that is, with due diligence. They need to consider what can go wrong.

So far, the Republican lawmakers have reacted to Scott Walker’s pronouncements, the words of Donald Trump and Terry Gou, a document prepared by WEDC that was written with the intent to sell the proposal, and an “economic impact study” from Ernst and Young. This study was contracted for by FoxConn, and was also developed with the intent to sell the proposal, and has limitations. (For instance, the Ernst and Young study includes as positive economic impact for Wisconsin the very sales tax on construction materials which is waived by the bill draft presented for the special session.)

Due diligence requires that lawmakers also consider those reports of potential drawbacks to the Foxconn proposal. What are those drawbacks?

  • One of those drawbacks is the existing condition of the Wisconsin state budget, where a $1 billion shortfall in transportation funding exists right now, and the state is on target for a $1 billion structural deficit when it begins the 2019-21 biennium. No matter how quickly the Foxconn development proceeds (no site is yet selected, property has not yet been acquired) increased tax revenues cannot possibly keep pace with the cash outlays to Foxconn for the construction credit. So yet more state services will need to be cut.
  • Foxconn has a poor track record in fulfilling its investment promises. The most well-known example of this is the case of Pennsylvania, where Foxconn pledged a $30 million investment that never materialized. (Scott Walker attributes this failure to a “change in governor.”) Foxconn has made similar promises, though none as large as in Wisconsin, in Arizona, Colorado, Indonesia, India, and Brazil.
  • At least some of the benefits of the proposal will likely accrue to other states, while Wisconsin taxpayers foot the bill. Since the enabling bill and MOU do not require that Foxconn employ Wisconsin residents or that Foxconn use Wisconsin contractors for construction, and the site for the development will be close to the Illinois border, Illinois workers and contractors will reap the benefits of employment while Wisconsin taxpayers literally pay a portion of their wages. Already-trained Illinois workers will get jobs; nearby Illinois construction firms, or national firms, could get construction contracts.
  • The state’s environment could be further degraded and despoiled. The draft bill removes all state input into Foxconn’s environmental impact, both during construction and during operation. DNR spokesman Jim Dick’s answer to concerns was nonresponsive: “the bill is about streamlining the process and since Foxconn hasn’t said where the plant will be built no one knows if any wetlands will be affected.” Apparently state residents should just ignore the possibility. And the fact that federal rules will still apply is no comfort: with Scott Pruitt leading the EPA, and Donald Trump as president, it seems unlikely that the federal government will present a formidable barrier to development that is environmentally destructive.

IN CONCLUSION

Consider that at the beginning of his tenure, Scott Walker would not support a commitment of less than $10 million per year to high speed rail. This commitment would have supported nearly the same number of construction jobs. This commitment came with a factory deep in the heart of Milwaukee, which the state lost to Indiana, along with about $50 million in contract settlement payments by the state. Had Scott Walker been willing to commit less than $10 million per year to high speed rail, Wisconsin would have had those construction jobs, would have had ancillary businesses, businesses would have been built on the Amtrak corridor, Milwaukee-Madison business links would have strengthened, traffic would have decreased on I-94, decreasing highway construction costs now and in the future.

But less than $10 million per year was too costly — and now $200 to $250 million per year is not? Please, Republican legislators, this bill must be approached not with cheerleading, but with deep scrutiny to ensure that the individual taxpayers of WI are protected. Wisconsin must not be the victim of Scott Walker’s Foxconn con.

 

15 Responses to The Trouble with Foxconn

  1. GuyFromWI says:

    The general Wisconsin GOP sentiment seems to be, “Shut up and take our word on this deal, even if it potentially billions of tax payer dollars on the line.”

    “Jobs jobs jobs” at all costs. It’s an old school way of thinking that doesn’t match up with the 21st century economy.

    I hope the deal does work out great for Wisconsin. But just telling us to “shut up and celebrate this deal”, isn’t going to win folks like me over.

  2. nonquixote says:

    There is a public track record by this “company,” with multi-national negative economic implications. This is all about pretense to progress other than that which the WI GOP corporate boot-lickers have already accomplished for our state, i.e. disabling/destroying the middle class and punishing the poor, elderly and financially disenfranchised and our former gains in our natural environmental quality, to a larger extent than they already have.

    If you have not been on the phone to the offices of any of your GOP “representatives,” what are you doing here?

    • nonquixote says:

      Nygren’s statement at the top, “…don’t let politics get in the way…” tells me that Nygren is claiming and admitting that this proposed deal is nothing but political. It is hard to see any other angle than GOP retention of power and control with likely promises of kick-backs of state funding to the, “conn,” being returned to GOP campaign coffers.

  3. John C. Brown says:

    Great piece. All about opportunity cost and misdirection of scarce taxpayer dollars. So all of the taxpayers of the state are supposed to lower the pre-tax labor costs for one designated company Fox”Con” by 17 percent for one manufacturing plant located in a pre-designated congressional district. This takes the kind of deals that professional sports teams extort from cities, counties and states to a whole new level. Not just directly subsidizing capital (the road construction, utilities special deal, and waiving of environmental protection), but actually the wage bill.
    I was particularly struck by taxpayer-funded subsidies to wages in the proposal, including up to 100 thousand in income!
    “Capital” can’t move, so theoretically the benefits stay put (until the manufacturing plant/stadium are deemed obsolete, which is not a rare occurrence). So the subsidies to stadium construction can effectively mask what are giveaways to wealthy players and team owners. This deal is not so opaque.
    Labor can come from anywhere and go anywhere. The potential transfer from the many to the few is staggering (or in Republicon parlance, “troubling”). Median income in Wisconsin has been stuck at 55,000 (or a bit less) since the beginning of the Great Recession. Roughly speaking, those in the 50 to 100 k range of household income constitute 30 percent of households. To make 75 k household income, you are already in the top one-third. So essentially, taxpayers in the bottom 2/3ds will be directly subsidizing the wages of those in the top one-third. And at a 17% wage subsidy, you would need almost three taxpayers of income tax to cover the subsidy to one Fox”Con” employee.
    Not quite as dramatic as the various “Trump-does not care” proposals to give huge tax breaks to the top percenters in exchange for leaving 20-30 without health insurance, but certainly in the ball park.

  4. John Casper says:

    Joanne, many thanks for outstanding work.

    IMHO a wider view of the Foxconn welfare looks even worse. Democratic capitalism depends on maintaining a balance of risks and rewards among the stakeholders: consumers, workers, and shareholders. Since the 1970’s risk has gradually been shifted onto consumers and workers. Over the same interval, shareholders receive an increasing percentage of the rewards from productivity improvements. Exacerbating these trends, elite shareholders have been able to distance themselves the vast majority of shareholders. They take on less risk–high frequency trading–and skim even greater percentages of the rewards.

    Foxconn is not a U.S. monopoly, which would be sufficiently bad. It’s a Taiwanese Chinese monopoly poised to appear as Wisconsin’s largest private sector employer. As a subsidiary of the Taiwanese and Chinese governments, I don’t consider it part of the private sector, but that’s not being reported. That intersects with the GOP’s destruction of transparency in state political donations. There’s no way to track what are essentially bribes from the Chinese and Taiwanese governments to Wisconsin politicians.

    • onevote says:

      Thanks Joanne for an excellent analysis.

      And John, you bring up very important observations.

      It seems to me that our State is, in tandem with the Feds, pushing a new economic development agenda–think of those Chinese “special economic zones,” where big companies can play by their own rules, causing harmful externalities, hardly the “free market” that other companies have to operate in.

      Gogebic Taconite was stopped by concern for environmental impact on the region, while now Foxconn–in it’s “economic and information technology manufacturing zone,” can evade environmental scrutiny (it’s explicitly written into the law).

      Then the company’s economic plan is a race to the bottom for workers, just like you would find in international free trade deals.

  5. Duane12 says:

    Is this a short term gift from the “tooth fairy” until the next toothache or a false promise to cure all from a “snake oil” salesguy?

    http://www.huffingtonpost.com/entry/foxconn-in-wisconsin-another-trump-bad-deal_us_597f05b8e4b0c69ef705297c

    Bah,humbug!

  6. Ron Legro says:

    In a very short time, much has been written about the political black hole that could be FoxConn Wisconsin, and much of it has been good. But for me this piece really brings together all of the (yes) troubling implications — not just about what might be, but about how this is being stuffed down our throats. Thanks, Joanne. I’m sharing this everywhere I go in social media.

  7. WashCoRepub says:

    The Democrats are a party adrift, with zero ideas for economic development short of “$15.00/hr. minimum wage and Single Payer health care.” That’s it. Here we have a company making NEXT-GEN technology, 8K, that will be in homes, businesses, medical, etc., generating thousands of ancillary jobs and development in our state, and all you hear is whining and ankle-biting.
    I cannot imagine what a situation we would be looking at in our state today if Mayor ‘Walk-The-Streetcar-Line’ had won instead of Gov. Walker.

    • Anna says:

      I concur

    • William McKenna says:

      So you would give over tax payers money to a company with a bad track record for a pipe dream. And suspend environmental requirements that keep Wisconsin a tourist attraction.Scooter is trying to make sure that he gets reelected,then please give them your tax money and leave mine alone

  8. Scooter's an idiot says:

    Washcorepub

    I love when you start showing up in comments and continue to show us what a clueless hypocrite looks like. In case you couldn’t figure it out this is not free market and it’s picking winners and losers. It certainly isn’t fiscal conservatism. Along with all the points above it figures you would think it’s a good idea to give out 250 million dollars a year to get back 181 million not to mention every financial publication is calling this a horrible deal.

  9. Mark E. Bye says:

    When I see television news stories about Foxconn which includes a shot of the company’s faded, rusting marquee sign at its home headquarters, I’m reminded of what the “dystopian society where advertising, commercialism, and cultural anti-intellectualism have run rampant, and which is devoid of intellectual curiosity, social responsibility, and coherent notions of justice and human rights” in Mike Judge’s “Idiocracy”. (descriptive quote from Wikipedia)

  10. Duane12 says:

    There is not much difference between a China’S Foxcom and North Korea’s Intercontinentle nuclear missle; one is just faster at destroying a state’s economy, its worker’s financial security, and a welcoming comunities environment.

    Ouch,ouch,ouch!

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