As the Wisconsin Legislature nears another round of voting on the $3 billion incentive package to bring Foxconn Technology Group to the state, supporters of the deal find themselves sandwiched between two philosophical camps.
On the left are those who think government should spend predominantly on education, health care and helping the poor and not invest in attracting or retaining profit-seeking companies. That outlook fails to recognize that those profit-seeking companies spark an economy that generates taxes for government programs at all levels.
On the right are economic purists who think corporations should fend for themselves in an Adam Smith world that no longer exists. To them, government subsidies are antithetical to raw capitalism. That approach ignores today’s competitive world, in which nations, states and neighboring communities constantly seek an edge.
That economic competition isn’t new. Consider the city of Madison, where Mayor Paul Soglin has taken a dim view of the Foxconn package.
One of Madison’s longest-running economic development programs is tax incremental financing, or TIF, which lets a community loan money to development projects with the expectation the loan will be repaid through the higher property taxes the developer or company will pay on the improved property.
Targeted at blighted areas when the Legislature passed a TIF law in the mid-1970s, it was later amended to pay for projects that create large numbers of jobs.
Since Madison created its first TIF district in 1977, it has invested $148 million and leveraged $1.6 billion in property value. That’s a double-digit return spread over about 47 projects over 40 years, with no insolvencies and only three that were withdrawn or shut down before the city invested heavily.
The latest TIF proposal on the city’s radar involves Exact Sciences, a company that was on its last legs when Kevin Conroy and Manesh Arora moved it from Boston to Madison a decade or so ago. Today it has 750 employees and is looking to hire about 200 more in the short term, evidence of the growing market acceptance of its Cologuard test for colorectal cancer.
Exact Sciences is preparing to move into the former Spectrum Brands headquarters on Madison’s Southwest Side, mainly to manage overflow in its current facilities. That site could eventually become home to Exact Sciences’ second processing laboratory – a project that would cost $57.3 million and create another 225 well-paid jobs.
However, the laboratory project depends in large part on whether the city of Madison approves a TIF district that meets a $2.5 million need within the company’s financing plan.
Exact Sciences is looking at another site in nearby Fitchburg for its 137,000-square-foot lab, should that city’s TIF program pencil out a better deal. While a Madison-vs.-Fitchburg choice won’t make a big difference in terms of the metropolitan area economy – it basically functions as one unit – it would be a loss for Madison in terms of property tax revenue.
Because the Spectrum Brands building isn’t being used, the city also has an interest in renovating a potential eyesore on the Beltline and securing a new employment base for nearby neighborhoods that could use a shot in the arm.
Exact Sciences wants Madison to consider amending its TIF rules so it can capture the full $2.5 million loan. That raises the city’s historically conservative risk quotient slightly – but it may keep the company’s newest facility within city limits. The review process reaches a key city committee Sept. 11, and managers at Exact Sciences are hoping for a decision by early October. In the meantime, they’re keeping their options in business-friendly Fitchburg open.
Whether it’s Foxconn, which selected Wisconsin in a multi-state race, or the current 15-state competition for a Toyota-Mazda plant that would create 4,000 jobs, or the Exact Sciences proposal in Dane County, all governments compete in hopes of delivering opportunity to their citizens and tax revenue to their coffers.
The Legislature’s vetting of the Foxconn deal should and will continue, but no one should be fooled into thinking nations, states and communities don’t compete every day. Rather than wishing away such competition, it’s mainly about calculating certain risks for uncertain rewards.