Foxconn subsidies could mean heavy borrowing for local municipalities

The written agreement to bring a Taiwanese electronics giant to Wisconsin calls for changes to the main subsidy program used by local governments — a key item for taxpayers to watch. 

In a ceremony Thursday, Gov. Scott Walker signed a written commitment that the state would provide up to $3 billion in tax credits and other incentives if Foxconn Technology Group builds out and operates a $10 billion flat-screen plant employing up to 13,000 workers in Wisconsin. 

But local governments will almost certainly have to put up huge undisclosed subsidies of their own through a financing program known as tax incremental financing. Changes to that program will have to be made to ensure that local governments can finance the sewer lines, streets and other infrastructure to be built in what are now undeveloped fields, according to the memo of understanding with the state. 

Any changes will be closely scrutinized for whether they expose taxpayers in southeastern communities to more risk in the Foxconn deal. 

Assembly Speaker Robin Vos (R-Rochester) pointed out that the state previously changed TIF laws to help pave the way for a major project in Kenosha County. 

"We've had experience with projects ... where we had to ensure that TIF laws were changed and taxpayers were protected. It's not like this is our first time at the rodeo," said Vos, who cautioned that he hasn't actually seen a bill with the TIF changes. 

It's unclear how much local governments might be on the hook for — Foxconn has committed to Wisconsin but has yet to select a community in the state. The Walker administration also has yet to release the legislation that will be needed to make the deal happen.

But the memo signed by Walker and Foxconn executives would:

• Lift caps on TIF deals and extend them for longer durations.
• Expedite government permit reviews for the project.
• Expand a tax credit program known as enterprise zones that the state uses for its biggest jobs deals.

TIF allows local municipalities to reach deals with developers to subsidize projects. Under the program, a village or city would borrow money to build infrastructure and help make a project happen and then use the property taxes on the newly built private structures to pay off the loans. 

Once the debt is paid off, the municipality could start using the tax money from the property for public safety and other local services. 

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In 2011, Walker signed legislation that granted more TIF authority to Pleasant Prairie in Kenosha County. That cleared the way for property owned by packaging powerhouse Uline to be added to a TIF district. 

At the time, limits were in place that prevented TIF districts from being valued at more than 12% of the community's total assessed property value. The legislation increased that limit for Pleasant Prairie, allowing it to expand its TIF district and pursue a greater opportunity — one that came with potentially greater risk. 

The state's memo of understanding with Foxconn also calls for lifting the 12% cap and extending the time allowed for paying back the TIF loans. 

State Rep. Samantha Kerkman (R-Salem) sponsored the legislation for Pleasant Prairie and expressed an openness to doing something similar for Foxconn, though she hadn't seen any specifics. 

To carry out the memo with Foxconn, lawmakers would have to expand on existing state incentives such as the enterprise zones typically used in the largest jobs deals.

The credits are refundable — meaning that if the business doesn't owe taxes then the state would pay the business cash. That's important because as a manufacturer Foxconn is already virtually exempt from state corporate and income taxes on profits from its Wisconsin-made products.

Currently, for enterprise zones in communities that are not distressed, an employer must first pay workers at least $30,000 a year — or more than $14 an hour — to qualify later on for jobs tax credits. The company can claim the credits for up to $100,000 of a worker's yearly salary.

The memo appears to require increasing the percentage of payroll and capital expenses that Foxconn would get back in tax credits over the share currently allowed in enterprise zones. It would also extend the time that the company could claim the tax credits from 12 years to 15 years. 

The Walker administration has said that salaries at Foxconn would average $53,900 a year plus benefits, but hasn't disclosed entry-level pay.

On the left, some Democrats have been skeptical this week about whether Foxconn's plans will materialize.

"For the last seven years, Scott Walker promised us both 250,000 jobs and accountability when giving out tax breaks to businesses, and I think we've gotten neither," said Scot Ross, head of the liberal group One Wisconsin Now.