Study suggests Foxconn incentives could cost Wisconsin $6 billion in economic activity

Negative impact would have been even worse for original plans, study says

Chris “Tank” Murdoch, far left, was Foxconn’s first Wisconsin hire and participated in the ceremonial groundbreaking.

Last updated on November 27th, 2019 at 11:53 am

The state and local incentives Wisconsin used to lure Foxconn Technology Group to the state could ultimately hurt economic growth over the next 15 years, according to new research from the Mercatus Center at George Mason University.

The center bills itself as “the world’s premier university source for market-oriented ideas.” Written by Matthew Mitchell, Michael Farren, Jeremy Horpedahl and Olivia Gonzalez, the study argues that previous estimates of the benefits from the Foxconn project do not account for the cost of not using the billions in incentives for something else.

Taking the lost opportunity into account along with the likelihood that the incentive package likely wasn’t 100% decisive in luring the project to Wisconsin, the authors estimate Foxconn’s current plans for a Gen 6 LCD manufacturing facility will cost $1.25 billion to $5.96 billion in economic impact over the next 15 years.

Jim Paetsch of Milwaukee 7, one of the local organizations that led the effort to recruit Foxconn, emphasized in an emailed statement that corporate attraction and expansion projects take place in “an ultracompetitive global marketplace.

“We accept the hard reality of this work: there are winners and losers,” the statement said. “Incentives are a component of the competitive landscape and can serve as important differentiators between locales with otherwise similar assets. We have brought significant corporate investment to our region in the last 15 years. Wisconsin’s pay-for-performance incentive offerings are part of a winning formula.”

A 2018 study by the Metropolitan Milwaukee Association of Commerce estimated the state could see $51.45 billion in economic benefit if Foxconn created 13,000 jobs and invested $9 billion over the next 15 years. When the study was released, MMAC president Tim Sheehy touted the potential ripple effects of the Foxconn project. Other studies by Ernst and Young and Baker Tilly had suggested the project could generate thousands in indirect and induced jobs and millions in investment.

“We should not lose sight that Foxconn’s investment in manufacturing high-resolution panels, combined with a faster telecommunications infrastructure, puts us in play in the digital economy,” Sheehy said when the MMAC analysis was released. “Bottom line, if you live or work in Wisconsin, the return on the Foxconn investment is real.”

Mitchell, a senior research fellow at the Mercatus Center, said there is nothing wrong with assuming the project would have a ripple effect, but added most estimates don’t account for the subsidy costs.

“They assume that suddenly there’s a factory and the money that went to pay for that factory, up to $3.6 billion in the case of Foxconn, is just like manna from heaven, but that had to be withdrawn from the economy somewhere, and it’s basically taxes,” Mitchell said.

If Foxconn would have moved forward with the Gen. 10.5 plant it originally planned, the Mercatus study suggest the cost to Wisconsin’s economy could have been $369 million to $19.2 billion.

“It’s widely perceived that the generation 6 plant looks bad for the subsidy givers, for (former Wisconsin Gov. Scott Walker) and others, but actually, maybe that’s a good thing, maybe it’s a blessing in disguise,” Mitchell said.

The Gen. 6 figures assume Foxconn hires 3,250 workers and invests $2.5 billion. In that case, the state would spend around $1.1 billion on incentives over 15 years, although the authors note they did not include any potential clawbacks for Foxconn failing to meet its targets.

“In the past, policymakers and economic development officials have tended to either ignore such failures or else rewrite subsidy agreements to avoid having to engage in controversy that might draw negative public attention,” one of the study’s footnotes says.

Mitchell argued state and local officials would be better off unilaterally deciding to stop offering incentives, but he acknowledged that is difficult when other areas competing for economic development projects continue to offer them.

“That doesn’t make much economic sense, but it does make complete political sense,” he said. “I understand why politicians continue to offer them because these are widely perceived by the public to work.”

Mitchell suggested officials could explore agreements with other areas to not offer targeted incentives. That could be a geographic coalition across an area like the Midwest or it could be amongst areas that regularly compete against each other. Mitchell pointed to a recent agreement between Missouri and Kansas as an example.

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Arthur Thomas
Arthur covers manufacturing for BizTimes. He previously was managing editor at The Waukesha Freeman. He is a graduate of Carroll University and did graduate coursework at Marquette. A native of southeastern Wisconsin, he is also a nationally certified gymnastics judge and enjoys golf on the weekends.