The Value of Incentives

Foxconn and Beyond

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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

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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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