Haynes: Avoid Foxconn Fever and get a good deal for taxpayers

I hope manufacturing giant Foxconn opens a plant in Wisconsin, and I hope that plant someday employs thousands of workers.

I hope Gov. Scott Walker comes up with competitive incentives to attract Terry Gou, the colorful Taiwanese tycoon who founded the company. 

But I also hope Walker and his economic development team play it smart.

With at least five states bidding for the work and a governor eager to burnish his cred as a job creator as an election approaches, there is a real risk of "overpaying." Walker needs to be ready to walk away.

After Donald Trump’s election, Foxconn announced it would invest $7 billion and hire 50,000 workers in the United States to make flat-panel displays, possibly as a hedge against Trump's trade protectionism. Foxconn, with more than a million workers in China, is a major manufacturer of Apple products, including the iPhone. A Wisconsin plant might employ as many as 10,000 workers, state officials have said. Wisconsin, Michigan, Ohio, Pennsylvania and North Carolina are in the running for flat-panel production.

Expect Foxconn to drive a hard bargain. It’s used to getting huge incentives in China, including free land and other goodies and likely will demand subsidies, tax breaks, promises of job retraining, infrastructure improvements and other incentives, the Journal Sentinel’s John Schmid reports.

“They do this everywhere they go,” Einar Tangen, a Beijing-based Chinese economic expert, told Schmid. “They extract everything they can."

Michigan’s House of Representatives already has approved tax incentives of up to $200 million to lure companies such as Foxconn, and officials from the company have been spotted in the state. State officials in Wisconsin wined and dined Foxconn executives at a dinner earlier this month at the governor’s mansion, and Senate Majority Leader Scott Fitzgerald has talked about the possibility of legislation to help the company. 

This should go without saying, but I'll say it anyway: Any deal with Foxconn has to be a good deal for Wisconsin taxpayers. It needs to be transparent so the public can evaluate it. The number of jobs is not the only factor. The quality of those jobs — how much they pay in wages and benefits — is a critical detail.

A spokesman for the Wisconsin Economic Development Corp. told me that "as stewards of the taxpayers’ dollars, WEDC closely evaluates the use of incentives for each of its awards to ensure there is an appropriate return on investment for the state."

But that hasn't always been true as states rush to compete for business. WEDC's past difficulties in tracking its programs is well-documented, and earlier this year, a consultant found that Tennessee taxpayers were paying $1.2 million a job through that state’s largest tax-break program, according to the Nashville Tennessean.

Over the past quarter century, the use of tax breaks has increased dramatically nationwide, The Wall Street Journal reports. Now, those incentives offset about 30% of taxes companies receiving the incentives would have paid compared with 9% in 1990. By 2015, the cost of incentives was $45 billion, according to a study by Timothy Bartik, a senior economist at the W.E. Upjohn Institute for Employment Research in Kalamazoo, Mich.

Are politicians really considering the tradeoffs embedded in these giveaways? Are they doing realistic cost-benefit analyses? With Foxconn Fever raging across five states, can we count on Wisconsin officials to do due diligence on our behalf? 

Some assistance for Foxconn is appropriate, said Steven C. Deller, a professor at the University of Wisconsin-Madison/Extension. “I think offering things like publicly funded upgrades to necessary infrastructure would make sense, or even putting money into technical schools for specialized training makes sense,” Deller wrote me in an email. “But tax breaks? Where do you stop? The typical tax break is on property taxes and who does that hit? Local governments (schools) and not the state.”

Kenneth Thomas, of the University of Missouri-St. Louis, has studied state and local subsidies for business and believes Wisconsin and other states hold more cards than might be evident at first glance. 

“Foxconn's fear of protectionism (probably well-placed) makes it want to be here, and the U.S. unemployment rate is finally well down, though we could certainly use wage growth. So my recommendation to Wisconsin would be, ‘Just say no,’ " he wrote me in an email.

"There is no reason Foxconn should get a free facility plus whatever else it wants; what it wants most of all is to be in the United States. Moreover, a 3.1% unemployment rate is another reason for the state not to throw a lot of money at new jobs. ... If the state does yield to temptation, it should compare the proposed cost per job and percentage of investment paid by the subsidy package to packages given for other large manufacturing facilities, and try to spend less, given Foxconn's weak bargaining position.”

And if the bidding gets too rich, the state should be willing to walk away.

David D. Haynes is editorial page editor of the Milwaukee Journal Sentinel. Email: david.haynes@jrn.com. Twitter: @DavidDHaynes