Here & Now

Here & Now for July 28, 2017

Donald Trump:

If I didn’t get elected, he definitely would not be spending $10 billion.

Paul Ryan:

And for southeastern Wisconsin, this is an absolute game changer.

Frederica Freyberg:

From Washington, President Donald Trump and Speaker Paul Ryan on Wednesday unveiled a plan for a Foxconn plant in Wisconsin. I’m Frederica Freyberg. Tonight on “Here and Now” a first look at what we know about that plan, and the closer look at the Foxconn Corporation from a Beijing-based industry expert. Then, a look ahead at options the legislature faces to finance the incentive package for Foxconn. Incentives pegged at $3 billion. Later, a seller’s market for property owners in southeast Wisconsin as Foxconn eyes locations. It’s “Here and Now” for July 28th.

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Funding for “Here and Now” is provided in part by Friends of Wisconsin Public Television.

Frederica Freyberg:

We just heard from President Trump and House Speaker Ryan in Washington, giving a cheer for the prospect of a Foxconn operation in the badger state. Back at home, Governor Scott Walker held a Milwaukee welcome party on Thursday evening. Zac Schultz was there.

Zac Schultz:

Governor Scott Walker and Foxconn chairman Terry Gou signed a memorandum of understanding Thursday taking the next step toward Foxconn's first factory in the United States.

Scott Walker:

Wow. This is a big day for Wisconsin. It is a big day for Foxconn.

Zac Schultz:

The first phase of the $10 billion factory is expected to be operational by 2020, and will produce liquid crystal display panels, or LCD screens, for things like televisions.

Scott Walker:

With this deal, they will be made in America, proudly in the great state of Wisconsin.

Zac Schultz:

Wisconsin beat out several other states competing for the factory. And Chairman Gou credited Governor Walker and the people of the state.

Terry Gou:

Why Wisconsin? People. People should trust each other.

Zac Schultz:

The deal won’t come cheap. If Foxconn creates the promised 13,000 jobs, over the next 15 years, they will receive $3 billion in tax credits from the state and more benefits from local governments.

Scott Walker:

Which is big. It’s bigger than anything we have done before. But if you want to play in the big leagues, it’s comparable with just about every other major financial incentive like this for a major project, anywhere now in this country but around the world.

Zac Schultz:

So far, most democrats like Minority Leader Peter Barca are supportive of the proposal.

Peter Barca:

The opportunity is very exciting.

Zac Schultz :

But he knows there are concerns about the size of the tax credits.

Peter Barca:

I know that there will be some pushback. There’s no question about it. On the other end of the spectrum, it’s not just the size of the package, you have to look at, you know, the return on investments.

Robin Vos:

It’s a really big number, but remember, it’s paid out over 15 years. It’s paid out only when people are actually hired and these are way more than family-supporting jobs, which is what we want in Wisconsin.

Zac Schultz:

The next step requires the legislature to go into special session and pass the state incentives into law. Assembly Speaker Robin Vos says that will happen by mid-August since the legislature won’t have much say over the details.

Robin Vos:

I think most of the details have been negotiated with the corporation, so of course we want to do our due diligence, to see how they impact the taxpayer, how we make sure there are guarantees in there.

Zac Schultz:

The deal came together over the last few months and while things are moving quickly, Governor Walker thinks the impact on Wisconsin will last for generations.

Scott Walker:

This is something that will say to the world we have arrived. The eagle has landed and it spread its wings and taken off again. We are ready.

Frederica Freyberg:

That was Zac Schultz reporting.

Frederica Freyberg:

In tonight’s closer look, we go to Beijing. That’s where we caught up with an economic development expert in China who advises clients on foreign technology strategy and acquisitions. He is very familiar with Foxconn and its chairman. He’s also very familiar with Wisconsin, having attended college and law school here. Also working here for many years, including as chair of the Wisconsin International Trade Council. In a Skype interview we started by asking Einar Tangen his reaction to Wisconsin landing Foxconn.

Einar Tangen:

I think it can be treated, if it’s going to be forward, as an opportunity. The corridor between Milwaukee and Chicago has been too long overlooked. It could be the next site of a very, very good tech corridor that could help both Wisconsin and Illinois develop their attributes. This is a wonderful area. We’ll see how it develops.

Frederica Freyberg:

Do you think Wisconsin has the technologically trained work force for this kind of operation?

Einar Tangen:

Not currently, but you do have resources. Quite frankly, I would advise that Wisconsin get together with Illinois on this particular project because a lot of people from Illinois are going to be filling the gap that exists in these areas. These are areas where, you know, traditionally blue collar industries, some tech, but very, very small, certainly not enough to fill the gap here. I would expect people coming up from Illinois, northern Illinois, coming there to work. Illinois obviously has a very large tech corridor between the universities in Wisconsin and Illinois. I think there would be enough to fill the pipeline for a factory like this.

Frederica Freyberg:

You said you thought Foxconn would have expected closer to $5 billion in incentives to locate in Wisconsin. Even at $3 billion in incentives that the Governor Walker is announcing, in your mind, is that a good deal for taxpayers and citizens?

Einar Tangen:

Depends how you look to at it. I think the average person will decide that no, this probably is not a good deal. They see the enormity of all the issues going on with finance, health care, etc., this is — remember, a very region-specific benefit. The idea that the state is going to support this area is going to be a hard pill to swallow for those in maybe perhaps northern Wisconsin who see very little of this kind of activity and they are going to wonder why this money is being spent. On the other hand, the business community will probably see this as a long-term opportunity. There will be real estate development. There will be fortunes to be made. There will construction. There will be a lot of activity, perhaps economic multiplier that justifies this.

Frederica Freyberg:

As for Foxconn's business model, its labor costs and worker conditions in China or elsewhere, how does that translate to Wisconsin? It’s obviously very different here.

Einar Tangen:

Yes. If you look at the other countries, 7 to 9 countries depending on how you want to count it, that they are in, low labor costs tend to be the common denominator. Wisconsin, obviously is not going to be that.

Frederica Freyberg:

Now, more specifically we’ve all read about conditions being so bad at some of these Chinese factories that Foxconn had employees dying by suicide. What should we know about concerns over that kind of extreme, that people are now raising?

Einar Tangen:

Well, I think it would be very difficult to kind of have the company town mentality that they had perhaps in China. That, I think, was what drove a lot of these people. These were mostly migrants coming from small rural villages in China. Perhaps a lot of shock involved there, a lot of overtime, very closed system, very, very difficult. But Terry is a very, very savvy businessman. He’s a guy who’s going to watch very carefully where the signs are. I think the fact he has chosen Paul Ryan's district is an indication that he is a very savvy businessman who understands how politics works. It has helped him in China and all of the other countries that he’s been involved in. He does it at a very high level. He does it very well. I don’t think he’ll be looking to antagonize people in the United States. I think he understands the conditions here will be quite different. You must pay overtime. You must obey the rules.

Frederica Freyberg:

As to the politics of this decision on the part of Foxconn, clearly President Trump has declared he wants things made in America. Is Foxconn concerned enough about tariffs cutting into profits that it’s getting ahead of that, and working to please the president by going into a battleground state like Wisconsin? Do the politics extend that deeply into this?

Einar Tangen:

I would say absolutely. Terry is very, as I said before, very, very savvy. He’s not going to miss a trick. His business is so large and so worldwide he cannot afford to lose markets. You lose markets, you earn competition. Right now he basically owns most of the market. He wants to keep it that way. This is a safety play, and it makes lots of sense. President Trump is, as most people have realized, very open to flattery. He likes it when people throw around big numbers, especially if they are promising jobs or made in America. We’ll have to see how it all works out in the end. My guess is that this plant will not be the kind of assembly plant they have in China, where they have tens of thousands of workers toiling away, putting pieces together. It’s an LCD screen factory. My guess is a lot of it will be automation and as few employees as possible. So yes, politics is definitely behind this. And as I said before, I don’t think it’s a mistake that this is being touted in Paul Ryan's neighborhood.

Frederica Freyberg:

Some point to concerns that Foxconn made similar announcements in Pennsylvania previously and the plant never came to be. Could that happen after the announcement about Wisconsin?

Einar Tangen:

Well, it’s obviously a concern. This is a little splashier than most. And they also have the president directly involved. I don’t know that you would want to play that kind of bluff game with Donald Trump unless he thinks Donald Trump is not going to be around in another, you know, year or so. I think it makes more sense that he is interested in getting the Trump organization on his side. Building in America, as I said, as an insurance policy against a trade war which is still quite possible.

Frederica Freyberg:

You spoke earlier about automation in the plant, having as few employees as possible. But Wisconsin is talking about 3,000 jobs to start, potentially ramping up to 13,000, plus spinoff employment. Do you think those kinds of numbers add up, given your sense about automation?

Einar Tangen:

I would find it hard to believe that he would have those kind of numbers there. I could see a highly automated factory being staffed at as low levels as possible. Remember, he’s not actually producing a lot of his components that are going into these LCD frames. Those are going to be done elsewhere. The glass, the boards, things like that. I don’t know exactly what they’re going to be producing there but it’s not going to be all done on premises. Therefore, you’ll have a tremendous amount of suppliers. They’ll be people in shipping, things like this. So, as I said, the up side opportunity if they go forward with this is not necessarily looking what you are going to get out of Foxconn, which is going to be very, very little, but looking what kind of infrastructure you can build for future innovation and creating kind of a new tech corridor that could be very helpful, as I said, to Wisconsin and Illinois.

Frederica Freyberg:

As to infrastructure, do Wisconsin's highways and rail lines support this operation?

Einar Tangen:

Well, interesting enough, this could be a catalyst to a lot of the infrastructure needed because one of the things Foxconn is going to insist on is that they have a mature infrastructure to handle whatever they have. And that is probably going to mean roads, because everything comes out of Wisconsin, despite having the Great Lakes there, most of it is going by road and some by rail. So, don’t be surprised if part of the package is a series, some monies being put towards the infrastructure in southeastern Wisconsin. As I said, though, this is very difficult for a lot of the areas in northern Wisconsin who kind of see this, all this excitement and say where’s mine? Our roads aren’t being taken care of, and things like that. So I think Scott Walker and his team is going to have to go a little ways to show how this is going to benefit the entire state, not just a small corridor between Milwaukee and Chicago.

Frederica Freyberg:

That was Einar Tangen in Beijing. 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.

Steve Deller:

Thank you.

Frederica Freyberg:

So, the Foxconn package dwarfs previous incentives to attract or retain jobs. What’s your reaction to it?

Steve Deller:

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.”

Frederica Freyberg:

So you feel as though that’s enough of a protection with this size of an incentive package?

Steve Deller:

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.

Frederica Freyberg:

Wisconsin already has the manufacturing and ag credits, which I understand reduces Foxconn's corporate income tax rate to .4%, but additionally they get what I understand to be refundable tax credits, which to my ear sounds like kind of cash in hand.

Steve Deller:

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.

Frederica Freyberg:

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?

Steve Deller:

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.

Frederica Freyberg:

What's wrong with it if you win?

Steve Deller:

You actually can end up with the economic benefits not outweighing the cost of the incentives.

Frederica Freyberg:

What do you think in this case?

Steve Deller:

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.

Frederica Freyberg:

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.

Steve Deller:

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.

Frederica Freyberg:

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?

Steve Deller:

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.

Frederica Freyberg:

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?

Steve Deller:

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.”

Frederica Freyberg:

Is it too late to do such a thing?

Steve Deller:

I'm not sure Illinois is in a position to really do anything.

Frederica Freyberg:

That’s true. They are in a world of hurt.

Steve Deller:

They are in a real world hurt.

Frederica Freyberg:

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?

Steve Deller:

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.

Frederica Freyberg:

Very briefly in the few seconds remaining, your overall view of this tends positive?

Steve Deller:

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.

Frederica Freyberg:

Great. Professor Steve Deller, thanks very much.

Steve Deller:

Thank you.

Frederica Freyberg:

According to the governor’s office, Foxconn is evaluating multiple sites in southeast Wisconsin to build the plant. The tech giant could make millionaires out of even small land owners. In Racine County, a real estate company has been busy helping to put options to sell in place on parcels of land thought to be under consideration for the $10 billion facility. A requirement for an operation of that size, at least 1,000 acres. That’s where our quadrant of land just off the interstate near Racine comes in.

Tom Fliess:

They did approach to ask if I was interested in selling.

Frederica Freyberg:

Farmer Tom Fliess says his son farms the land inside the area reportedly under consideration by Foxconn. But he owns it. Whether he’s inclined to sell, he’ll only say…

Tom Fliess:

Time will tell, I don’t know.

Frederica Freyberg:

Many inside the area, thought to have been offered options to sell, are keeping quiet about it. It’s an area of more than 1,000 acres, roughly bound by Interstate 94 on the west, Highway 11 on the north, Highway K on the east, and Brown Road on the south. Some land owners just outside the quadrant have also been engaged.

Sherri Shaver:

A couple weeks ago is when I found out about it from one of the farmers because they contacted him about selling his land. So he let me know because his land surrounds mine.

Frederica Freyberg:

If the options to sell are an indication, the buyer thought to be Foxconn is willing to pay way over market value for the acreage. The owner of this 20 acres for sale, says it’s under option at $50,000 an acre. He was asking $12,000. If the option turns into a sale, it makes it a million dollar plot. Sherri Shaver lives across the road from the 1,000 acres being eyed. Looking that way, that would possibly be it, huh?

Sherri Shaver:

That's it right there for sure. And it’s a matter of how much they are going to take on this side.

Frederica Freyberg:

After tending her small country homestead for 23 years, Shaver says she’s sad about either prospect, staying or leaving.

Sherri Shaver:

Well, it’s been a shock, you know, to think we’re going to have a big old factory here. And I might be looking at a factory across from me. But then you know, they might buy me out, so then I'll have to move.

Frederica Freyberg:

As to the suitability of the land, it’s just off the interstate, and is mostly wide open farm land. There’s a rail line just east. One day this week, Department of Transportation traffic counters were on-site at two of the crossroads of the location. The local attorney representing land owners says he cannot divulge information, and says he has very little of it anyway. Despite not knowing details, people we talked with are mostly sanguine. Even as this once exclusively rural landscape contemplates a mega electronics plant. What do you think about the potential of 10,000 jobs in this area?

Tom Fliess:

That's great for people. I don’t need ’em for neighbors, but that’s fine ’cause I'm a farmer, you know.

Frederica Freyberg:

We’re told there is at least one major landowner in that area who is not interested in selling. But according to Assembly Speaker Robin Vos in whose district that 1,000 acres sits, municipalities can exercise “eminent domain” to buy them out. Now to other news of the week in our Wisconsin look, Foxconn is known for making products for many electronics firms including Apple. And this week Apple was also in the Wisconsin headlines. That’s because a federal judge ordered Apple, Inc. to pay more than a half billion dollars to the University of Wisconsin Alumni Research Foundation for patent infringement. Back in 2015, a jury found Apple guilty of using WARF’s patented technology in their iPhones and iPads. And ordered Apple to pay WARF $243 million. After the verdict, Apple continued using WARF’s technology which remained under a patent until last December.

As a result, the judge ordered Apple to pay WARF an additional $272 million. And that is our program for tonight. More coverage of the Foxconn story next week. I’m Frederica Freyberg. Have a great weekend.

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Funding for “Here and Now” is provided in part by Friends of Wisconsin Public Television.