Editorial: Big risks, maybe a big payoff, in Foxconn deal

State officials want to place an enormous bet on a single company that they believe could transform the economy in southeastern Wisconsin.

Gov. Scott Walker wants to give the Taiwanese manufacturer Foxconn up to $3 billion in tax incentives to open a massive factory to make flat-panel displays, an incentives package that is larger by a factor of 50 than any other in state history. For its part, Foxconn would agree to spend billions of dollars on the complex and hire at least 3,000 people initially and 13,000 over time.

Three billion dollars is an eye-popping number, to be sure, and it's not just that the state will forgo taxes. Taxpayers also will have to cut checks for up to $200 million annually for 15 years to the electronics giant. State officials say the awards are dependent on Foxconn actually creating the promised jobs. 

Foxconn’s investments could be catalytic, launching a brand new industry in southeastern Wisconsin — indeed, an industry that doesn’t exist anywhere in the United States at the moment. Despite the huge tax breaks involved and whatever additional local tax abatements might be needed for infrastructure improvements, the investment might pay off if Foxconn does what it says it will do.

Average pay for Foxconn workers is expected to be $53,900, and the capital investment could be as high as $10 billion. Thousands of construction workers would be needed as the complex takes shape, and, after it’s completed, Foxconn would buy more than $4 billion a year from suppliers, much of it sourced from Wisconsin, the company promises. The state's economy could get another boost if suppliers choose to locate nearby.

But there are plenty of risks to the public:

• Will Foxconn do what it says it will do? The company has a track record of broken promises. In 2013, Foxconn promised to open a new high-tech factory in Harrisburg, Pa., employing 500 people. It never happened. “I’ll be excited about the Foxconn announcement when workers are getting paychecks in Wisconsin,” Scott Paul, president of the Alliance for American Manufacturing, told The New York Times. “Foxconn has a history of talking big and not necessarily delivering on their commitments.”

• Will the state meticulously track Foxconn’s activity? Will it demand ironclad claw-back provisions to protect taxpayers? Will it retain outside help to ensure that those provisions are ironclad? The state has no experience with an incentive package of this size and may need outside help to write careful terms for the final agreement. Legislation would be required to enact the incentives.

• Will Wisconsin workers who need the most help — including the unemployed in Milwaukee’s central city — benefit? 

• Are Foxconn’s job promises real? Foxconn has heavily automated its factories elsewhere, replacing 60,000 workers with robots in the last year alone. It even produces its own industrial robots — known as “Foxbots.” With factory automation improving the bottom line for companies, the long-term viability of these jobs is a legitimate concern for taxpayers footing the bill.

• What starting wage and benefits will Foxconn offer its employees? In short, how good are these jobs?

• What additional public financing will be needed for infrastructure — to extend sewer and water lines or to build roads? That's an open question; the price tag could be enormous for individual communities.

With an election fast approaching, landing Foxconn is a major political win for Walker and for President Donald Trump, who pushed Foxconn founder Terry Gou to build a facility in the United States. Given Trump’s protectionist trade policies and the cost of shipping products to U.S. markets from Asia, Gou had some incentive to do so. It didn’t hurt Wisconsin’s chances that Trump was the first Republican presidential candidate to win the state since Ronald Reagan and would like to win here again in 2020.

Walker and Trump deserve credit for aggressively pursuing a deal, as do former White House Chief of Staff Reince Priebus and House Speaker Paul Ryan. When Trump crowed at the announcement in the White House East Room on Wednesday, “If I didn’t get elected, he wouldn’t be spending $10 billion,” the president had a point. It also helps to have multiple friends in high places, as Wisconsin does at the moment.

Stripping away the hype, this is a raw-bones business deal: Taxpayers forgive Foxconn’s taxes for 15 years and deliver the tax credits, and Foxconn delivers thousands of good-paying factory jobs and makes a $10 billion investment in Wisconsin.

Nonetheless, it's an enormous subsidy by Wisconsin taxpayers. In a perfect world, it's a deal that would not be made. Unfortunately, in the real world, states and localities do compete and bid against each other for business, and tax breaks are the coin of the realm.

But there are risks. A few years ago, the state of Washington gave Boeing Co. the largest handout in history — $8.7 billion — and watched the company subsequently cut thousands of jobs in the state. Legislative efforts over the past two years have failed to "claw back" any of the tax breaks given to Boeing, and the aerospace giant is fighting a new attempt this session. Boeing has joined a lobbying group that "opposes efforts to make the aerospace tax breaks, passed in 2013, dependent on Boeing maintaining minimum employment levels in the state," Reuters reports. Other states have been more prudent.

The Foxconn deal could be the "game changer" that Ryan says it is. We hope that's the case. But Walker and the Legislature need to take great care in designing a package of incentives that both bring this work to Wisconsin, and, just as important, protect taxpayers if it suddenly goes away.