Worst Incentive Deal Ever

I am referring, of course, to former Wisconsin Governor Scott Walker's deal with Foxconn, which an independent report has declared beyond redemption.

I don't know why the state needed to commission a study to come to this conclusion, it was patently obvious to every voter in the Badger State:

In 2017, Wisconsin offered Foxconn a record-breaking subsidy to build an LCD factory in the state, only to see the promised factory fall behind schedule and grow progressively smaller. Now, the Wisconsin Department of Administration has requested a reassessment of the costs and benefits to the state regarding the far-tinier facility.

The report, which was conducted by Tim Bartik of the Upjohn Institute for Employment Research, finds that the smaller facility raises the already unusually high cost per job even further. If the subsidy levels in the current contract are kept, each Foxconn job would cost taxpayers about $290,000, Bartik found, compared to $172,000 if Foxconn built the original $10 billion, 13,000-job facility. For comparison, Bartik estimated the subsidies Virginia offered Amazon for its second headquarters amounted to between $10,000 and $13,000 per job.

“The most important conclusion of this analysis is that it is difficult to come up with plausible assumptions under which a revised Foxconn incentive contract, which offers similar credit rates to the original contract, has benefits exceeding costs,” Bartik wrote. “The incentives are so costly per job that it is hard to see how likely benefits will offset these costs.”

………

The analysis comes five months after a Foxconn executive met with Evers and expressed interest in revising the company’s contract with the state. Foxconn hasn’t said what it would push for, but Evers administration documents obtained by The Verge summarize the meeting and the company’s broad requests: updating the contract to reflect the smaller factory, including additional Foxconn subsidiaries, and extending the period Foxconn can qualify for capital investment tax credits.

Such changes make sense for Foxconn. The company has radically scaled back its plans and likely wants assurances that it won’t be found in breach of contract. But Evers was critical of the deal during his campaign and would likely be reluctant to agree to these changes without getting concessions of his own. In this context, the new economic impact assessment can be seen as setting a new baseline for further negotiations.

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The Fiscal Bureau analysis was based on a best-case scenario. It relied on economic impact estimates supplied by the consulting firm EY (formerly Ernst & Young), which Foxconn had hired to pitch its project. It also assumed Foxconn would actually build what it promised and hire at an extremely fast rate. Instead, the company has repeatedly scaled back its plans and fallen far behind on hiring. Rather than a 20 million-square-foot factory manufacturing large LCD screens, Foxconn says the factory it’s now building will be less than 1 million square feet and make smaller screens. While the company had initially planned to employ 5,200 people by next year, it now says the new factory will employ only 1,500 people. Even that seems like a stretch goal: at the end of 2018, Foxconn employed only 156 people in the state.

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Of course, there’s no guarantee that Foxconn will build what it is now saying it will, either. When The Verge spoke with O’Brien in June, his observations of LCD manufacturing machinery supply chains indicated that Foxconn was unlikely to meet the 2020 deadline it set for itself. If the last two years are any guide, any given Foxconn plan is only good until the next one.

One hopes that the implosion of this deal will take the bloom off of the rose for similar deals.

It's happened with the Olympics, where taxpayers have increasingly revolted against the excesses of hosting the games.