Wisconsin Governor Defends Foxconn Deal Amid Growing Concerns

By Shayndi Raice Features Dow Jones Newswires

Wisconsin Gov. Scott Walker defended a $3 billion tax-incentive package to lure Taiwan's Foxconn Technology Group to the state, amid a growing chorus of concerns about the hefty bill to taxpayers.

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"We believe this is transformational," Mr. Walker said Wednesday in an interview with The Wall Street Journal. "We think in terms of attracting talent across the country and around the world."

In a White House ceremony last month, President Donald Trump announced that Foxconn would be investing $10 billion to build a 20 million-square-foot campus in southeastern Wisconsin that could employ up to 13,000 workers over a period of up to six years. The facility, which would build liquid-crystal display technology, or LCD, screens used for Apple Inc.'s iPhone, would be the first of its kind in North America.

The deal, which must be approved by the state legislature, will come at a high cost to taxpayers. The state is offering one of the largest incentive packages to a foreign company, according to tax experts. Foxconn, formally known as Hon Hai Precision Industry Co., would receive $2.85 billion in state income tax credit over 15 years and up to $150 million in tax exemptions for building materials and supplies used to construct its Wisconsin campus.

Foxconn in 2014 explored opening a U.S. display factory, aimed at reducing the costs of shipping large-screen TVs from Asia. That potential $40 million investment in manufacturing and research facilities in Pennsylvania didn't advance because U.S. local governments didn't offer terms that were favorable enough, the Journal previously reported.

Mr. Walker said the benefits of the deal went beyond the number of jobs that would be created from the facility itself. Instead, he said, the deal should be viewed as a way to make Wisconsin a hub for technology jobs and venture capital investment. He said as a "cutting-edge technology" firm, Foxconn would help the state attract young talent and retain its college graduates. He also thinks its most crucial benefit would be changing the popular image of Wisconsin and the benefits of living there.

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"We think that will change people's perceptions, particularly young people," he said.

On Tuesday, a state fiscal analysis found that taxpayers wouldn't recoup their investment until the 2042-2043 fiscal year. That analysis is leading some members of the state legislature to question the wisdom of the deal.

"Traditionally, these incentive packages, when we look back at them, tend to be expensive, inefficient and have a lot of unintended consequences," said State Rep. Gordon Hintz, a Democrat whose district includes Oshkosh. "We all want to be seen as doing something proactive but there's a large body of public policy research that lets you know you can't buy sustainable economic development."

The state assembly has already begun discussions over the bill and its committee on jobs and the economy plans to vote Monday, said House Speaker Robin Vos. The senate is beginning internal discussions and a joint committee on finance is expected to start discussions in the next two weeks. But Mr. Walker, a Republican, said he is confident the bill will be passed before Labor Day, which falls on Sept. 4.

On Wednesday, Senate Majority Leader Scott Fitzgerald said in an interview that he expects the bill to pass the Republican-majority state legislature, but didn't confirm that he had enough votes -- which could signal that the deal could be in trouble.

"Me saying I don't have the votes is different than the votes aren't there," he said. "I don't start counting noses until they go through the process. I'm not going to assume anybody is an aye."

Mr. Fitzgeraldcautioned that the analysis of the benefit to the state is "very very speculative." The state says that in addition to the $10 billion direct investment and 13,000 jobs created by the facility, the project will lead to 10,000 construction jobs and 22,000 indirect jobs.

But those numbers aren't easy to calculate. "I think that's part of what we're realizing is that this is going to be very difficult to put a fine point on," said Mr. Fitzgerald.

"There's bipartisan concerns over Gov. Walker's $3 billion corporate welfare package," said Senate Minority leader Jennifer Shilling. "The best day that this deal had was the day it was unveiled and every day afterwards have been a constant line of questions."

Tax incentives are a way to lure companies to invest in states, and often lead to fierce competition among them. The total annual cost of tax incentives reached $45 billion by 2015, according to Timothy Bartik, an economist at the W.E. Upjohn Institute for Employment Research in Kalamazoo, Mich. Boeing Inc. received a historic $8.7 billion tax incentive package from Washington state. Nevada granted California-based Tesla Inc. $1.3 billion in incentives to build a battery plant outside Sparks, Nev. Such deals are often considered transformational to a state's economy and thus viewed as justifying the cost to taxpayers.

"The ability to win a mega project is a once-in-a-generation opportunity, " said Kate Crowley, a consultant with the Chicago-based firm Baker Tilly Virchow Krause LLP.

But Mr. Bartik, and others, question whether the Foxconn deal would truly be transformational. The state's fiscal analysis doesn't account for the increased cost to taxpayers from an influx of migration to the state. Mr. Bartik and others have also raised questions about commuters from Illinois whose income taxes are paid back to their home state through a reciprocity agreement with Wisconsin.

Gov. Walker says he isn't worried about that possibility. He thinks once people in Illinois realize how great Wisconsin is, they will move across the border.

"When they look at the stability in Wisconsin, housing stock, all the other things that have been positive, they're gonna want to live in Wisconsin," he said.

Write to Shayndi Raice at shayndi.raice@wsj.com

(END) Dow Jones Newswires

August 10, 2017 13:52 ET (17:52 GMT)