The incentives offered by Wisconsin and its municipalities to Taiwan’s Foxconn Technology Group since it announced a $10 billion megaplant in the state have gone up by nearly $1 billion, writes The Wall Street Journal (June 29, 2018).The company broke ground this week, almost a year after the deal was announced as a success in the president’s efforts to bring manufacturing jobs back to America. The Apple supplier promised to open a 20 million-square-foot complex that would build liquid-crystal display panels and committed to creating 13,000 jobs in the state.
In return, Wisconsin offered $3 billion in financial incentives. In an effort to land the plant, municipalities added their own sweeteners. The town and the county where the facility will be built offered a $764 million incentive package. And Wisconsin added another $134 million to the tab to improve state highways and local roads in the area around the Foxconn site. The state is on the hook for 40% of the public bonds that finance the local expenses if the project flops. If all goes well, Wisconsin taxpayers would recoup the investment in the 2042.
Ballooning costs underscore how expensive and unpredictable such projects can become for states and cities eager to attract new investments and jobs. Currently 20 states and cities are vying to win Amazon’s second headquarters, which promises a $5 billion investment and 50,000 well-paying jobs. New Jersey and the city of Newark have offered as much as $7 billion in tax incentives, while Maryland has offered $5 billion. But unexpected costs can often creep up with large projects that receive money from multiple government entities.
A professor at the University of Texas said negotiating a state deal separately from a local deal is particularly “bad practice.” It can put pressure on a locality to offer a large incentive package and also pits local communities against each other after the state has already had its own bidding war with other states.
Classroom discussion questions:
- What would be a better way to provide incentives from the government point-of-view?
- Provide an example of how massive incentives have, indeed, paid off in the past.