RIVER FALLS, WIS. – Assemblyman Shannon Zimmerman seems like the last state lawmaker who would support giving a Taiwanese company $3 billion in taxpayer-funded subsidies for jobs that will be more than 300 miles away from his western Wisconsin legislative district.
But Zimmerman, a Republican in his first term in the Wisconsin Legislature, extols with gusto the Badger State’s big bet on Foxconn — an electronics company planning to build a flat-screen plant in the southeastern corner of the state.
“The incentives work. And when you have a company coming into a state and is going to invest $10 billion and create 13,000 jobs, what state wouldn’t want that?” asked Zimmerman, whose own language translation company Sajan once received a $50,000 state incentive to expand.
It’s a question now facing Minnesota elected officials as they mull spending state money to lure Amazon. The online retailing giant recently announced plans for a $5 billion second North American headquarters, and the promise of 50,000 jobs to follow.
Wisconsin’s Foxconn deal, which moved closer to completion when Gov. Scott Walker signed legislation clearing the way for an agreement last week, illustrates the global economy’s hold on cities and states bidding against each other for high-profile companies. They are desperate for the jobs of the future, but every dollar used to attract a company like Foxconn or Amazon means less money for basic governing priorities.
Some economists watch with dismay as tax money is diverted to multinational corporations:
“That money should be going to roads and bridges, schools and early childhood education, or lower tax rates for all businesses if you want, but instead, it’s going to corporate welfare,” said Arthur Rolnick, senior fellow at the Humphrey School of Public Affairs and former director of research at the Federal Reserve Bank of Minneapolis.
Gov. Mark Dayton has at various times in his career aggressively courted companies to move to Minnesota, but he has already indicated the state will take a “restrained” approach to any incentive package for Amazon. Minnesota-based Target and Best Buy are two of the online giant’s biggest competitors, and Dayton has said the state should not put two of its most important corporate citizens at a competitive disadvantage by giving Amazon a bundle of cash.
Minnesotans who would like to see the state emulate Walker’s aggressive push for Foxconn — and his yearslong quest to drive down taxes and restrain labor unions — need only look to the 2018 election. If voters elect a Republican governor and the GOP holds the Legislature, Republicans would control all of state government for the first time in nearly half a century, and would likely push policies that would seek to make Minnesota more like Wisconsin.
The Wisconsin-Foxconn deal would allow the company to collect up to $2.85 billion in cash over 15 years to offset 17 percent of payroll costs, as well as 15 percent of the capital costs of building a factory. The company would receive another $150 million in sales tax forgiveness on construction materials.
Foxconn is also receiving environmental regulatory relief, including exemptions from an environmental-impact statement and some rules to protect wetlands. The new law would also suspend any Foxconn-related court judgment until an appeal is heard and expedite those appeals to the Wisconsin Supreme Court, where business-friendly conservatives are the majority. A legal brief filed last week by the Legislature’s own nonpartisan lawyers said the Foxconn law could be challenged in court on separation of powers grounds, if these new rules are found to encroach on the judiciary’s turf.
“We are very appreciative of the commitment demonstrated by Gov. Walker to promote a pro-business environment in the state,” Foxconn said in a statement to the Star Tribune. The company said Wisconsin offers a Midwestern culture of hard work, a good education system, quality health care and access to markets.
Kurt Bauer, the CEO of Wisconsin Manufacturers and Commerce, the state’s leading business lobby, said that in addition to the jobs and investment, Foxconn will help change perceptions of Wisconsin. His organization’s research has found that when Americans think of Wisconsin, they think of agriculture and the Rust Belt. “This helps change that dynamic,” he said.
Bauer said Wisconsin under Walker has gone from being perceived as anti-business to business friendly.
Asked what Minnesota can do to bag Amazon, Bauer said, “My advice to Minnesota is, if you want this kind of investment, create a better business climate.”
Although Wisconsin has lower unemployment than Minnesota — 3.4 percent vs. 3.8 percent — that’s not due to a surge of Wisconsin job growth, said Steven Deller, a University of Wisconsin economist. Unemployment is low because Wisconsin has a shortage of workers because people have been leaving the state for years.
Deller, who specializes in regional economics, said it’s not clear if Walker’s overall approach is working. Wisconsin lagged behind Minnesota in its recovery from the Great Recession, reflecting the different economies of the two states, he said. Wisconsin is home to a lot of commodity manufacturing — like, say, the mozzarella on frozen pizzas — in which companies eke out thin profits. As a result, the firms struggle to increase prices and wages. Workers leave Wisconsin to find better opportunities elsewhere.
Minnesota’s economy, on the other hand, features companies with valuable intellectual property, Deller noted, like medical devices and the roughly 500 U.S. patents that 3M is granted annually. Jobs at companies like these pay better, granting Minnesota households a $10,000 higher median income than Wisconsin.
Wisconsin’s population is older, less likely to be in the labor force and less likely to have a college degree — 28 percent of its residents have a bachelor’s degree vs. 34 percent of Minnesotans, according to census data.
Wisconsin hopes companies like Foxconn will deliver high-paying careers — not just jobs, Bauer said — in an innovative industry that will pay better and draw new residents.
State Sen. Janet Bewley, a Wisconsin Democrat who represents a district about 70 miles southeast of Duluth, said she has her doubts: “They’ve tried to make it seem like Silicon Valley, but that’s not what this is.”
Bewley said the money would be better spent on education and infrastructure in remote areas like hers, where cell service is spotty and broadband internet scarce.
Robert Scharlau, who owns a grain mill in Arcadia, 45 miles south of Eau Claire, called the Foxconn deal risky and unwise: “It seems awful funny that they want to spend $3 billion on one company in one corner of Wisconsin.”
Rolnick, the Humphrey School economist, said he understands the pressure elected officials face as companies force them to pony up: “Who wants to be the governor or mayor who let the Vikings go?” he asked.
Still, he said, the marketplace should direct investment decisions, not government: “You’re distorting economic decisionmaking,” he said, echoing an argument often heard from conservatives but in this case marshaled against Walker’s Foxconn deal.
The best policy, Rolnick said, takes a long time to bear fruit and doesn’t offer the flash of a ribbon cutting: “We’ve created one of the best economies in the world because we have one of the best educated work forces in the world,” he said.
“When you invest in your kids? That’s a sure bet.”