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Estimate: Wisconsin would recoup Foxconn investment in 25 years

Foxconn Chairman Terry Gou (C) looks on as President Donald Trump (R) shakes hands with Vice President Mike Pence (from L), Wisconsin Governor Scott Walker and House Speaker Paul Ryan (R-WI) (L-R) at the end of a White House event where the Taiwanese electronics manufacturer announced plans to build a $10 billion dollar LCD display panel screen plant in Wisconsin, in Washington, July 26, 2017. (Jonathan Ernst / Reuters)

MADISON — Wisconsin taxpayers would need an estimated 25 years to recoup up to $2.85 billion in proposed cash payments to bring a Taiwanese firm's display screen plant to the state, a report released Tuesday found.

The analysis by the Legislature's nonpartisan budget office determined that if the Foxconn Technology Group plant operated at full expected employment levels — and attracted large numbers of jobs to Wisconsin through supplier companies — then state taxpayers would recoup their investment in 2043.

In Foxconn's industry — the competitive world of consumer electronics — the market could see multiple upheavals over those 25 years.

The report by the Legislative Fiscal Bureau relied on projected jobs and investment numbers generated by Gov. Scott Walker's administration and a consulting firm paid by Foxconn.

The fiscal bureau found that over the next 15 years, state taxpayers would pay out $1 billion more to Foxconn than the additional taxes that would be generated by the deal. Additional public incentives would include environmental exemptions, lower utility rates and a still-undisclosed tax subsidy from local governments of which the state is guaranteeing up to 40 percent in case the deal fails.

Walker spokesman Tom Evenson said the trade amounts to an "excellent investment for our entire state."

"This is a once-in-a-lifetime opportunity that brings high-tech manufacturing back to America, right here in Wisconsin," Evenson said. "Wisconsin is offering $3 billion for a $10 billion investment, $10.5 billion in new payroll, and 13,000 direct jobs."

The long payoff on the project is due to both the size of the cash payments to the electronics giant and to the fact that in Wisconsin companies pay virtually no corporate or income taxes on profits from manufacturing. That eliminates a major source of repayment for taxpayers that would be available if the award had been made to a different type of company, such as a financial services provider.

Senate Minority Leader Jennifer Shilling, D-La Crosse, said she remains skeptical of the deal.

"I'm not convinced that handing over $3 billion in state subsidies to a foreign corporation is the best deal for Wisconsin families and small businesses. Even under Governor Walker's best-case scenario, we wouldn't see a return on this investment for at least 25 years," Shilling said.

Senate Republicans discussed the incentive package Tuesday and plan to meet again Thursday with Mark Hogan, the head of the Wisconsin Economic Development Corp. and a key negotiator for the state on the Foxconn deal, said a spokeswoman for Senate Majority Leader Scott Fitzgerald, R-Juneau.

Fitzgerald and Assembly Speaker Robin Vos, R-Rochester, have not yet said how Tuesday's analysis might influence their views on the legislation to help Foxconn.

In calculating the additional taxes from the deal, the fiscal bureau relied on Foxconn-funded projections that company suppliers and local businesses such as restaurants would also create 22,000 good jobs outside the plant, for a total of up to 35,000.

The memo noted it is difficult to project what will happen with Foxconn over the next several decades. Projections developed by the Walker administration "must be considered highly speculative," the Legislative Fiscal Bureau noted in its report.

The memo did not account for additional investments to which Foxconn might later commit, such as a second facility the company is considering siting in Dane County. It also focused more on the costs and benefits to state taxpayers than to other groups, such as the Foxconn workers who could draw up to $700 million a year in payroll from the company.

The analysis also assumed that the jobs being generated by the deal in Racine and Kenosha counties would all be filled by Wisconsin workers. If 10 percent of the new jobs are filled by Illinois residents driving across the border, then it could take another two years to pay back state taxpayers' investment, the report found.

And if Foxconn stuck with 3,000 workers — its initial project employment instead of its eventual peak employment level of 13,000 — the "break-even point would be well past" 2045, the report found.

GOP lawmakers have downplayed any potential downside to a Foxconn deal, with Sen. Duey Stroebel of Saukville saying recently it posed "no risk" to taxpayers. The report made clear that even under optimistic scenarios the deal would involve risk and the better part of a generation to pay off.

In the short term, state government's bottom line could benefit from the Foxconn development.

That's because building the plant would create more than 10,000 construction jobs and spark other economic activity that could boost state tax collections by $83 million over the next two years, the report found.

To receive state payments under the deal, Foxconn would first need to make investments in the plant and hire workers.

If by 2021 the company had hired 13,000 workers, then by the next year Foxconn could receive up to $119.6 million in annual cash payments, according to a memo from the state Department of Revenue that was also released Tuesday. Those payments could last more than a decade.

In addition, the company could receive up to $192.9 million in state payments for investments in its plant in each of seven years running from 2020 to 2026. So by the 2022 fiscal year the state could be making an annual payment of $313 million to Foxconn.

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