Here & Now

Research Raises Questions on Foxconn Deal Breaking Even

Frederica Freyberg:

And now for a closer look at the price tag that could come with the Foxconn deal. A study released Thursday by the Wisconsin Budget Project shows it’s possible Wisconsin may never break even on the deal. Jon Peacock is the lead researcher with the project and joins us to explain. Thanks for being here.

Jon Peacock:

Thanks for having me on.

Frederica Freyberg:

So the best case scenario for the Foxconn deal according to reports is that it breaks even in 25 years. What is the worst case?

Jon Peacock:

Well, the worst case scenario is it doesn’t break even ever because Foxconn could conceivably leave the state within 10 or 20 years after getting tax credits or really cash payments from the state of about $200 million a year for 10 or 20 years. And the possibility of their leaving in that period of time is very real for a manufacturer of technology devices like this that could be obsolete five, ten years from now.

Frederica Freyberg:

So are people talking about that?

Jon Peacock:

I think that certainly came up in the debate, but I don’t think it’s gotten as much attention as it should. Both with respect to the risk for state taxpayers and the local taxpayers who will have to incur huge infrastructure spending costs.

Frederica Freyberg:

Another thing, you looked at this from kind of many different angles. You have the best case. You have the worst case. And then you have kind of these cases in between. What other numbers did you run?

Jon Peacock:

We looked at a couple less rosy scenarios where Foxconn — in one scenario we analyzed that they would hire 6500 jobs, which I think would be a boon to that area. And that there would be ancillary employment or indirect employment of 16,500, so a total of 23,000 new jobs. And then a second scenario where there would be 3,000, which is at the bottom end of the range the governor’s been talking about and 11,000 new jobs, indirect jobs.

Frederica Freyberg:

There's also this matter of automation or robotics that I understand from experts Foxconn is really kind of all about. How would that affect tax revenue and this break-even point?

Jon Peacock:

We were essentially assuming in our two scenarios quite a bit of automation or use of robotics. In the sort of basic best case scenario and the other two that we looked at, we assumed that they would spend at least $9 billion on capital investments and qualify for the maximum credits on that side. But we just varied the number of people that they employed. So we were assuming higher degrees of automation.

Frederica Freyberg:

So that’s where those kinds of scenarios came from, from 13,000 to 6500 to 3,000. But as you said, in the near term, Foxconn is going to build this $10 billion plant in whatever location it decides to site in. And that results in this 16,000 construction or related jobs and nearly $200 million in state taxes then. So regardless of the numbers created, at least there’s that constant, right?

Jon Peacock:

Well, not necessarily, no. We did assume in each of our scenarios, we said we’ll give you that. Let’s just assume that. But actually we did that for the sake of simplifying things and focusing just on the changes in the employment. But a key thing to understand is that the way this deal is structured, there are two credits. One where they get 17% of their payroll reimbursed by the state and the other where they get 15% of their capital investment. And kind of the more negative scenarios for state taxpayers are that they qualify for the maximum on the capital side by going heavily into robotics and don’t have so many employees, in which case the state’s subsidy per new employee could be upwards of $570,000 a year.

Frederica Freyberg:

Which is obviously huge. And then there’s the matter of will these employees actually all be from Wisconsin, because it’s right there on the border.

Jon Peacock:

Sure.

Frederica Freyberg:

And so what implication does that have?

Jon Peacock:

Well, there’s been a lot of confusion about that. And I'm assuming many of them will be in Illinois. But the Secretary of the Department of Revenue says we’ll be able to collect income tax revenue for Illinois residents who are commuting into Wisconsin. So we assumed he is right when we did the modeling. On the other hand, especially for the more automated scenarios, most of the new jobs are going to be with suppliers. And many of them will be in Illinois. And those workers at those supply companies, their income will be taxed in Illinois. And so we assumed pretty conservatively that 5% to 10% of the new tax revenue would end up in Illinois tax coffers, not Wisconsin's. And that lengthens the payback period.

Frederica Freyberg:

Well, thank you for looking at the details. Jon Peacock.

Jon Peacock:

Thanks for having me.