What is happening with FoxConn?

With the end of 2018 approaching, the first measures for the FoxConn deal are coming into play.

Note: A tip of the hat to PixelEnvy for a post about the effect of FoxConn on Mount Pleasant and links to some of the examination discussed below.

Recall that, for $3 billion in direct transfers and around another $1.5 billion in infrastructure and other improvements, FoxConn promised to build a cutting edge LCD display manufacturing facility that could someday employ up to 13,000 people at an average (not a median wage) of $53,875.

Note: Here is the first flyer about FoxConn. The number and size of all the incentives makes it impossible to find a single document that describes them all. For starters, here is a rundown of the direct financing contained in the FoxConn legislation, and here is a description of the transportation funding for FoxConn. My thanks to the Wheeler Report for first posting these documents and others.

Note: The distinction between average and median is important. Of the following numbers — 10, 10, 100, 100, 100,000, 100,000, 100,000 — there is a median of 100 and an average of 42,888. That is quite the difference.

There is an amazing podcast from the folks at Reply All about Mount Pleasant and FoxConn. And, there is an article in the Verge with reporters from Reply All and others about how FoxConn came to be in Mount Pleasant.

What comes across over and over again in these reports is how negotiations behind closed-doors and astro-turfing served to push an agenda that very few seem to want. With all the lame duck shenanigans of late in Wisconsin and other states, it seems that this FoxConn deal was just more of the same: a lot of promise, few to no details, and the great likelihood that reality will not match up at all with what was promised.

As these reports indicate, much of what was going on with the FoxConn was hidden from the public. Eventually, the contract with FoxConn and WEDC (the state agency responsible for the FoxConn subsidies) was made public. Here are the job numbers that FoxConn actually has to meet:

Ex.A of FoxConn-WEDC contract. Notice that FoxConn qualifies for these credits if it has just 260 employees on payroll by the end of 2018. At the end of 2019, the minimum threshold doubles to 520 employees.

Note: these low numbers make sense in light of reports that the factory will not be operational until 2020 at the earliest.

Each December, the employees at FoxConn are counted for the purpose of determining how many “credits” will be returned to FoxConn for those employees. Here is how those credits are calculated:

As under the enterprise zone program, “full-time employee” would mean an individual who is employed in a regular, nonseasonal job and who, as a condition of employment, is required to work at least 2,080 hours per year, including paid leave and holidays. However, WEDC could grant exceptions to the requirement that a full-time employee means an individual who, as a condition of employment, is required to work at least 2,080 hours per year if: (a) the individual is employed in a job for which the annual pay is more than the amount determined by multiplying 2,080 by 150% of the federal minimum wage ($22,620); and (b) the individual is offered retirement, health, and other benefits that are equivalent to the retirement, health, and other benefits offered to an individual who is required to work at least 2,080 hours per year.

A claimant [i.e.. FoxConn] could claim as a refundable income or franchise tax credit an amount calculated as follows:

a. Determine the zone payroll for the taxable year for full-time employees whose annual wages are greater than the amount determined by multiplying 2,080 by 150% of the federal minimum wage ($22,620) in a tier I county or municipality or greater than $30,000 in a tier II county or municipality.
b. Multiply the amount determined under “a” by 17%.

WEDC could not issue certifications to claim payroll tax credits under these provisions that total more than $1.50 billion.

Bob Lang, “August 2017 Special Session Assembly Bill 1: Foxconn/Fiserv Legislation,” (8 August 2017) at 3.

Notice that these “credits” are NOT based on actual work and pay for the previous year. Rather, they are based on who is on payroll in December for those employees who have been hired on a full-time basis (i.e., they will work 2080 hours), have benefits, and earn at least $22,620 for those 2080 hours they will possibly work. The state then returns to FoxConn in April of the next year 17% of these wages as calculated (not as actually paid).

Note: So, there is NO accounting for employee turnover at FoxConn. Given the stories of worker suicides at FoxConn’s facilities in China, this loophole is staggering.

Some of you may be asking about where is that $53,875 figure that was and is touted so much. Here is what is going on with that number.

First, this number possibly includes the job benefits employees are receiving.

Second, this number is only an average. Another provision of this deal caps the wages at issue at $100,000. So, the execs like Chairman Gou (who is also an employee of FoxConn Wisconsin) only have the first $100,000 of their salaries counted for these job subsidies. But, as noted above, that $100,000 figure will go a long way to making the average salary seem much higher than what is actually being paid to the other 259 employees needed to qualify for the subsidies. If there are 50 employees at $100,000 each and another 50 at $1,000 each, the average is $50,500.

Moreover, understand that these job subsidies are only a small part of the package handed to FoxConn. For instance, Jake has some additional news about the land purchases and prep work going on right now on behalf of FoxConn ($60 million from FoxConn has been matched by $147 million from Wisconsin and Mount Pleasant).

Given this FoxConn “deal,” it is not surprising that other companies are pushing for similar handouts. Kimberly-Clark asked for comparable job subsidies to keep two factories open, and has settled for a pro-rated financial handout to keep one factory open.

And, that last part about “keeping” a factory open is the kicker. Wisconsin is essentially paying here to NOT lose jobs. As a result, manufacturing job growth in Wisconsin has been shoddy and continues to be so. DWD pushes gushing estimates about jobs in Wisconsin, but the actual numbers indicate Wisconsin is lagging behind all the mid-western states but Minnesota (a state with a growing economy, as Minnesota’s economy is not nearly as dependent on manufacturing as Wisconsin’s is).

So, Wisconsin is handing money out hand over fist to companies that don’t really need it and not seeing much of a result from all that effort. In the meantime:

Jud Lounsbury @JudLounsbury Dec 13

Instead of sabotaging the incoming gov, maybe @ScottWalker could finally address the dairy farm crises in Wisconsin. Nearly half of Wisconsin dairies have gone under during Walker’s two terms. #walkerlegacy

The problem now is that Wisconsin is committed to these corporate deals where the return is mostly to the benefit of the company. Profits may be soaring for these companies, but actual economic growth in the state and among the middle-class is flat-lining.