The Value of Incentives
Foxconn and Beyond
Agenda
• Timeline of events
• What role did incentives play
• Economic analysis of incentives
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Timeline of Major Events
April 24,
2017 initial
phone call
April 28 Governor
meets Chairman
Gao at White House
May 4-5 first site
visit
May 18-19
Foxconn team
visits two sites
End of May
Chairman Gao visits
WI for first time
(1st incentive offered)
June 2 – Governor visits visit
Osaka, Japan Gen 10 plant
(2nd incentive offered)
Month of June –
Foxconn engineers stay in WI studying Mount
Pleasant site
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Timeline of Major Events
June – Foxconn Executives
meet with key Gov. officials in
Lake Geneva
June 19-21 WI delegation visits D.C.
meets with state reps
Late June – Foxconn and
State of Wisconsin
agree to $3B incentive
Mid July – WI informed
Foxconn will locate in Mount
Pleasant, WI
July 26, White House Jobs
Announcement
August – Special
Legislation drafted
September – Special
legislation signed
October – Official contract
signed
Did Incentives Play a Role?
•Cost
•Speed
•Talent
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Cost
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• “Cost of developing screens in WI will add 25-30% to
its cost base and the US consumer will not “absorb”
these increased costs and therefore significant
incentives are required” (email from Gov. Walker’s office to Senator
Baldwin’s office June 15, 2017)
Aggressive timeline played a significant role in negotiations
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Speed
Late May First Incentive - $1.25B for FAB 818 and $1B for
FAB 868
June 2nd in Osaka, Japan– Second
Incentive - $2.25B for FAB818
Mid to late June – Third Incentive - $3B for FAB 888 ($2.85B tax credits, $150M
construction sales tax exemption)
Traditional Statutory Incentive
• Enterprise Zone (refundable):
‒ 7% of new payroll
‒ 10% of capital expenditures.
‒ First ~$26,000 of each job is eliminated and capped at $100k.
• Manufacturing & Agricultural Tax Credit
‒ 0.4% Income tax rate
• Sales and use tax exemptions
• Property tax exemptions
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Special Legislation
• Special Legislation (Refundable):
‒ 17% of new payroll over 15 years, 15% of capital expenditures
over 7 years. Payroll capped at $100k per job
‒ Cap Ex not to exceed $1.35B
‒ Payroll tax credit not to exceed $1.5B
‒ $150M in construction sales tax exemption
‒ State backing of $750M Mount Pleasant TIF
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Economic Analysis
•Traditional State of Wisconsin Project Analysis
•Ernst & Young Analysis
•Analysis reviewed by state agencies
•Analysis reviewed by Baker Tilly
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Economic Analysis
•Construction Impact
‒ Implan based on $5.7B over 4 years = 16,205 jobs
‒ Initial – 10,234 jobs
‒ Indirect – 1,737 jobs
‒ Induced – 4,235 jobs
‒Total Labor income $2.4B
‒Gross Domestic Product $5B
‒State tax estimate of $344M
12
Economic Analysis
•Factory impact once fully operational
‒ Implan on 13,000* jobs at $73,500 salary (includes benefits)
‒ Initial - 13,000 jobs
‒ Indirect - 11,453 jobs
‒ Induced - 10,792 jobs
‒ $2B in annual labor income
‒ State GDP is estimated at $5.2B per year from ongoing operations
‒ State and local tax is estimated at $181M per year ($116M State)
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*Multiplier of 2.7 based on national average for semi conductor manufacturing
Assumptions
•Ernst & Young represented Foxconn
•Study assumes 100% labor force lives and shops in
Wisconsin
•Assumption that roughly 25% of supply chain will be
Wisconsin companies
•Corning Glass co-locates with $1B facility and 400 jobs
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Protections
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Capital Expenditures Job Creation Clawback Provision
*75% of clawbacks are guaranteed by Hon Hai (Foxconn).
25% of clawbacks are guaranteed by Chairman Gao and SIO
International
Politics
•MI,OH, WI key to Trump win
•Speaker Ryan and Chief of Staff
•2018 Governor Walker re-election
campaign for 3rd term
•2020 Presidential election
•2022 Next Governor election
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Job Creation
Sources
• https://www.mmac.org/foxconn-economic-impact--incentive-package.html
• https://madison.com/wsj/news/local/govt-and-politics/analysis-foxconn-
project-would-create-k-jobs-in-wisconsin/article_e15284f2-93dc-5797-8675-
6acfc6b2a1fa.html
• http://www.publicrecordmedia.org/wp-
content/uploads/2018/WPRLWG2018_pd_019.pdf
• https://www.documentcloud.org/documents/4177889-Foxconn-WEDC-
Contract-Overview-and-Key-Contract.html
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