On Monday, September 17, Governor Scott Walker signed into law, legislation that would create a series of incentives for Taiwanese manufacturer, Foxconn, to come to Southeastern Wisconsin. See pictures HERE from the event. The staggering benefits to the State’s economy have been well supported, and the boost to economic development efforts, well-documented. CARW members showed great support of this effort in an all member call to action as well as testimony by members in support of the legislation. A number of firm leaders also submitted an op-ed for the Milwaukee Journal Sentinel HERE that received recognition by leaders in the legislature. Now that the incentives are law, the real work will begin.
The following appeared in the September issue of Wisconsin Real Estate Magazine and was written by WRA Senior Vice President of Legal and Public Affairs, Tom Larson:
Foxconn’s decision to build a multibillion-dollar plant to manufacture flat screens in Wisconsin is a big win for the state and has the potential to transform both the economy and real estate markets throughout Wisconsin. Wisconsin beat out numerous other states — including Indiana, Michigan, Ohio, Pennsylvania and Texas — to land Foxconn; in order to do so, Foxconn had to offer a sizable incentive package that included approximately $3 billion in financial incentives. Some think this is a good investment that will pay off over time while others believe the state is spending too much and the money will not yield a good return on investment. Time will tell.
Regardless of your views, if Foxconn is as successful as projected, the increase in economic activity will have a direct impact on Wisconsin’s real estate industry in several ways.
In southeast Wisconsin, the new Foxconn plant will immediately hire 3,000 workers and up to 13,000 workers over time and could generate over $10 billion in capital investment. During the construction phase, an additional 10,000 jobs directly related and 6,000 jobs indirectly related to the construction activity will likely be created. This does not take into account the thousands of other jobs that will be created due to the construction of new restaurants and other goods and services that will be consumed by the new Foxconn workers.
Foxconn will help create new jobs in other parts of the state as well. In addition to the plant in southeast Wisconsin, Foxconn is considering a second, smaller manufacturing facility in Dane county. Moreover, the state estimates that Foxconn will purchase $1.4 billion in materials and products from other Wisconsin companies located throughout the state, which will create an additional 22,000 jobs in those communities. Again, these estimates do not take into account the jobs and economic activity that will be created in these other communities related to the housing and services needed to support these workers.
Wisconsin has a relatively low unemployment rate of 3.1 percent as of May 2017, which means new workers will likely need to move into the state to fill the new jobs created by Foxconn and other related companies. Other states are facing similar workforce shortage problems.
Accordingly, Wisconsin needs to ensure it has both an adequate supply of workers to meet the increased demand for employers and that the workers have the education, training and skills necessary to be a productive workforce. The Foxconn legislation (AU7/AB1) includes $20 million for worker training and instructs the Wisconsin Department of Workforce Development to work closely with universities, colleges, technical colleges and non-profit organizations to develop a plan to facilitate this training. Moreover, because the education of Wisconsin’s workforce begins at an early age, the proposed 2017-19 state budget includes approximately $650 million in funding for K-12 schools to make sure Wisconsin children have a strong educational foundation to become the future leaders of the workforce.
New jobs mean an increase in demand for new housing units. With a shortage in housing supply in metropolitan areas throughout the state, specifically 5.8 months of available supply in July, new housing will need to be constructed to accommodate the growing workforce. Foxconn workers will have a starting salary of approximately $41,600 per year, and average salaries will equal $53,900 plus benefits, and thus will require a range of affordable housing options including apartments, townhouses and single-family homes. The manufacturing jobs created in other parts of the state related to Foxconn also will require affordable housing options. However, housing prices are on the rise. For example, the price of homes in Racine and Kenosha counties has risen approximately 10 percent over the last year with a median price of $152,000 and $163,950, respectively. As prices continue to rise, those in the new workforce will have difficulty owning their own home. This problem is magnified by the fact that most new homes being constructed today cost more than $250,000.
The Foxconn project highlights the need for regulatory reform in several different areas. First, additional wetland regulatory reform is necessary. Wisconsin is one of the only states in the country to regulate nonfederal or isolated wetlands, which are not connected to navigable waters.
The federal government, specifically the Environmental Protection Agency and the Army Corps of Engineers, regulates federal wetlands. The definition of “wetlands” is broad and includes any land capable of growing aquatic vegetation and has soils that indicate wet conditions, and includes artificial, manmade wetlands. Numerous economic development projects have been stopped from moving forward because of minor, low-quality wetlands. Because Foxconn will be a massive facility at 20 million square feet constructed on approximately 1,000 acres of contiguous property, wetlands will likely be found on the property. The Foxconn legislation allows nonfederal wetlands to be filled in exchange for higher mitigation standards that would require new wetlands to be created within the area at a ratio of 2.0 acres for each acre of wetland that is disturbed; current law requires a permit from the Department of Natural Resources and mitigation at a ratio of 1.2 acres for each acre of wetland that is disturbed. Similar wetland reforms should be applied for other projects in other parts of the state.
Second, tax increment financing (TIF) reform is necessary. TIF is one of the only tools that local communities in Wisconsin have to fund the infrastructure — such as roads, sewers and sidewalks — necessary to accommodate economic development. However, current law limits the amount of property that can be located in tax increment districts (TID) to 12 percent of the total equalized value of property within the community. Approximately 125 communities in Wisconsin are at or near the 12 percent cap. Because Foxconn is a large project that will require major infrastructure investment, the Foxconn legislation creates an exception to the 12 percent rule for any community in which Foxconn locates. In addition, the bill extends the life of any TID created for Foxconn to 30 years rather than the 20 years imposed by current law. Similar TIF reforms should be enacted in other parts of the state to allow those communities that have unique economic development opportunities to build the necessary infrastructure to grow their economies.
Third, Foxconn highlights the need for regulatory changes to ensure Wisconsin has an adequate supply of housing that workers can afford. The cost of housing is an important consideration for employers when considering where to locate, and it is a growing concern of employers that are trying to retain employees, especially in expensive real estate markets. Housing affordability has always been of Wisconsin’s strong suits, but the state has not produced enough housing in recent years to meet current and future demand, which has resulted in steady increases in housing prices. Consider this: From 1999 to 2005, Wisconsin consistently had 25,000 to 30,000 new home starts per year. However, from 2013 to 2016, Wisconsin had only 7,000 to 8,500 new home starts per year. This is a 72 percent decrease from peak building years. Given that people are living longer than ever before and the millennial generation — which is the largest generation in our nation’s history — is starting to buy homes, the current housing supply problem will likely become worse. Two other factors adding to the affordability problem are: (1) the shortage of construction due, in part, to the large exodus of people leaving the construction industry during the downturn in the economy, and (2) the cost of building a new home due to the high fees and lengthy approval processes associated with new residential subdivisions. In some areas of the state, local fees and approval processes add approximately $75,000 to $80,000 to the cost of new homes, according to some experts. Lawmakers at both the state and local level need to work with the housing industry to ensure that Wisconsin continues to have an adequate supply of housing that attracts and retains employers to the state.
One of the reported reasons Foxconn chose Wisconsin over other states is because of Wisconsin’s transportation infrastructure and logistics to accommodate Foxconn’s growth. The specific sites being considered by Foxconn are in southeast Wisconsin, strategically located between Chicago and Milwaukee, close to O’Hare and General Mitchell airports, Lake Michigan and I-94. Moreover, the Foxconn legislation includes $252 million in funds for the I-94 north-south expansion, which will run from the Illinois state line to General Mitchell Airport. This is a much needed investment to enhance Wisconsin’s connection with Chicago, a major global hub. With aging roads and bridges and an estimated $1 billion deficit in Wisconsin’s transportation fund, other parts of the state are in need of a similar investment so they can attract and retain the employers necessary to support their local economies. Foxconn serves as a strong reminder that we need a long-term solution for funding our transportation system that could include greater efficiencies at the Wisconsin Department of Transportation and one or more of the following funding options: tolling, an increase in the gas tax and vehicle registration fees, or a vehicle-miles-traveled system.
The WRA strongly supports the Foxconn legislation because of these and other benefits to the real estate industry. The WRA will work with lawmakers on both sides of the aisle to help enact this legislation into law, and then effectively implement the law to help maximize the benefits to Wisconsin’s economy and real estate markets.