Meet the Fixers Pitting States Against Each Other -2-

05/18/19 12:14 AM EDT

The administration of Wisconsin's then-Gov. Scott Walker relied on an economic-impact study provided by E&Y to craft a package of tax credits, infrastructure improvements and other incentives for Foxconn, emails show. The state's share was about $3 billion and wouldn't result in a positive return to taxpayers until 2042, according to a state review of the incentives published by Wisconsin's Legislative Fiscal Bureau. But if everything would pan out as expected, Wisconsin would gain 13,000 jobs and be home to a $10 billion liquid crystal display manufacturing plant, the first in the U.S.

Ernst & Young's study was cited by Wisconsin officials as they sold Foxconn's incentive package to the state legislature. Gov. Walker called a special legislative session to pass the bill, which became law in seven weeks.

Ernst & Young executives said in a 2018 article on maximizing incentives that such studies can be useful as a "public relations tool" to "build support" for a project.

Timothy Bartik, a senior economist at the W.E. Upjohn Institute for Employment Research, reviewed Ernst & Young's economic impact study of Foxconn's investment in Wisconsin. Mr. Bartik said the study wrongly assumed that the added jobs wouldn't result in any additional costs to governments, such as increased costs to schools or added spending on roads. Additional costs like these can overshadow the value of any incremental tax revenues generated by the employment.

"I think a true fiscal analysis would show that this project will NEVER break even fiscally, until the Sun turns into a red giant," Mr. Bartik said in an email.

Since Wisconsin inked the deal, Foxconn has scaled back its ambitions in Wisconsin. The company said in a January letter to the Wisconsin Economic Development Corp. that it has "adjusted our recruitment and hiring timeline" and had created fewer than 200 of 13,000 jobs it had promised.

Foxconn also said it would forgo the $9.5 million of job creation credits the company was eligible for in 2018 under its contract with Wisconsin. The company declined to comment.

Wisconsin Economic Development Corp. Chief Executive Mark Hogan said in an interview that Foxconn's incentives are performance-based and meant to provide the company flexibility to adapt to changing circumstances. "We came up with what we felt was the best deal for the state of Wisconsin and the taxpayers," he said.

In a meeting with the Journal, Ernst & Young's site selection leader, Paul Naumoff, declined to comment on his company's work for Foxconn, citing client confidentiality. A spokeswoman who attended the meeting advised him not to answer when a reporter asked if site selection work bears similarities to lobbying.

Incentives aren't always the key factor in companies' relocation decisions.

When Amazon searched for a home for its second headquarters, the availability of a skilled workforce was the top concern. "This was really about talent," Holly Sullivan, Amazon's head of world-wide economic development, said at the Site Selectors Guild's annual conference in March.

The event was held at the Grand America, a luxury hotel in Salt Lake City featuring a landscaped garden and harp concerts in the lobby. Perks included a cowboy attire-themed dinner with Utah Gov. Gary Herbert at the Grand Hall of the Union Pacific Depot and a site selectors-only ski trip with a two-time Olympic medalist, Shannon Bahrke. There was also a dance party featuring a Motown band. Mr. Garner, the site selector who conducted Mozart in Cincinnati, sat in to play drums to Duke Ellington's "Don't Get Around Much Anymore."

It was hard to find any part of the event that didn't have a state logo on it. Louisiana paid for the Wi-Fi; South Carolina paid for breakfast. Each cost $10,000. A chance to spend an hour at a private cocktail party with the guild's members also cost a good amount. "I paid $20,000 to go to this thing," said one state official as he waited to go in to the "silver sponsors" reception.

Like the competitive bidding process used by site selectors, the selection of the conference location itself was conducted via a request for proposals. A winning bid can cost upward of $100,000, according to two economic development officials who hosted past conferences.

Val Hale, executive director of the Utah Governor's Office of Economic Development, said it is money well spent. "This is the Super Bowl of economic development events," he said.

The conference was the brainchild of Robert Ady, an industry veteran who founded the Guild in 2010 after realizing that economic development officials would pay for the privilege of spending time in the presence of site selectors. (Mr. Ady died in 2012, the first year the annual conference was held.) The Guild runs as a for-profit corporation owned by members and the annual event is its main moneymaker.

True to its founder, incentives remain an agenda item at the conference. According to Mr. Ady's daughter, Janet Ady, he used to say that "you'll never know if you paid too much in incentives. You'll only know if you didn't pay enough."

Write to Cezary Podkul at cezary.podkul@wsj.com

 

(END) Dow Jones Newswires

May 18, 2019 00:14 ET (04:14 GMT)

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