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Iowa's handout to Apple illustrates the folly of corporate welfare deals

198 points by sverige 9y ago

quasse 9y ago
Luckily Wisconsin figured out the solution to this problem... Make the corporate welfare deals an order of magnitude larger and give 3 billion to Foxconn instead of a piddly tenth of that. Even in the best case for "jobs created" (10,000) pushed by our politicians the state might as well just give 10,000 people $30,000 a year for 10 years. Realistic estimates are saying the new jobs might be more in the range of 3,000, which is an astonishing cost of $1,000,000 per job.
- jonlucc 9y ago
  Indiana also has it figured out. We gave a ton of state money to a company to save face for a national political campaign so that they could automate the jobs away faster.
- MattSteelblade 9y ago
  This hits home as a Wisconsin resident. Best case scenario, we're looking at 2042 to turn a profit[1]. [1] http://docs.legis.wisconsin.gov/misc/lfb/bill_summaries/2017_19/0001_ss_ab_1_foxconn_fiserv_legislation_8_8_17.pdf http://docs.legis.wisconsin.gov/misc/lfb/bill_summaries/2017...
  - gtCameron 9y ago
    What year would Wisconsin turn a profit off of Foxconn if it didn’t build a factory there at all?
    - throwaway2048 9y ago
      This is very much a prisoner's dilemma race to the bottom situation. What if nobody was willing to pander to foxconn at all? How much tax would they be paying then?
      - deleted 9y ago
        [deleted]
    - wavefunction 9y ago
      Presumably this year, if they paid each person as outlined above because they'd be getting income tax back from the individuals. They could even pay those people $30,000 a year for ten years to work on civic projects and achieve even more 'profit' or return on investment.
      - esmi 9y ago
        I am confused. Who is "they" in these sentences: Foxconn, WI, or an employer other than Foxconn? It can't be Foxconn because the parent statement requires Foxconn doesn't come to WI. WI getting back in tax a portion of what they paid out in full can't be a net income gain because the employee gets to keep some. If it's an employer other than Foxconn, which doesn't get any deal, then I agree that would be best for WI. But which employer is that?
  - dahdum 9y ago
    Maybe I'm reading that wrong, but it's not an actual loss at any point is it? The refundable tax credits just pay back what the state collected, which isn't really a "loss".
    - MattSteelblade 9y ago
      It's a combination of cash payments and tax exemptions. http://www.jsonline.com/story/news/politics/2017/08/16/how-would-wisconsin-foxconn-deal-work-here-some-answers/572186001/ http://www.jsonline.com/story/news/politics/2017/08/16/how-w...
      - dahdum 9y ago
        But the cash is a refund of employee payroll taxes and other benefits derived from Foxconn's investment isn't it? It's a sweet deal for Foxconn but I still don't see where the rest of the state actually pays out. I could be reading it wrong of course, but that was the impression of the EITM zone I had.
        deleted 9y ago
        [deleted]
  - r00fus 9y ago
    By then Foxconn would almost certainly have moved on.
- diddid 9y ago
  Nobody is giving anyone money, they are just not charging them tax. It's an important distinction I don't understand how people keep glossing over it. If it creates 10,000 local jobs, those 10,000 jobs are still going to get taxed. So the locale is going to get money, just not from the corporate tax. So it's not a great deal but it's not a horrible deal. I'd prefer nobody made them but once on place does they all have to in order to compete. But if they built overseas they'd get no corporate tax either... so some slice of the pie is better than none.
  - colek42 9y ago
    Thank you. It would be like saying Wal-Mart is giving a customer $5 because DVD is $15 there vs. $20 at Best Buy. Yes, if nobody gave tax breaks companies would have to pay more taxes, but that will never happen, Congress likely does not have the power to force states or municipalities to do so either. edited, spelling.
    - geofft 9y ago
      But what is Wal-Mart's cost of buying the DVD? If they get it from their wholesaler at $19.99 and Best Buy is turning the tiniest profit, Wal-Mart selling it for $15 is effectively giving the customer $5. Sure, they can do it if they want to, but that would raise immediate and valid questions about whether the money would be better used in some other way (giving customers $5 without making them buy a DVD), whether this is the sort of anti-competitive behavior that a long-term-productive capitalist society should regulate, and whether there's something shady going on between Wal-Mart and the DVD supplier.
  - kartan 9y ago
    > so some slice of the pie is better than none. That's a run to the bottom. Where's the limit? The USA is already lacking in education, health care, and infrastructure. This is only going to make the problem worse. > If it creates 10,000 local jobs, those 10,000 jobs are still going to get taxed. So the locale is going to get money, just not from the corporate tax. If those jobs have been created in another state without the tax cut they would have gotten the corporate tax and the local jobs taxes (both of them). So you can see it as one state stealing the job taxes from another state at the cost of giving back the corporate tax. One state loses, another wins. The USA as a country just loses because what one loses is bigger than the other wins (being the difference the corporate tax). Only the corporation gets a positive outcome. The country is now in a worse situation.
- kgwgk 9y ago
  Giving 10,000 people $30,000 a year for 10 years requires $3 bn of actual spending. “Giving” $3bn in tax credits is “free”. It doesn’t work “just as well”.
ringaroundthetx 9y ago
cool, does YC's general counsel teach us how to do this when our company gets into the growth phase? role model
drewg123 9y ago
So $208M for 50 jobs. Wouldn't they be better off just giving those 50 lucky folks $4M each? Or giving 800 people $250K ? At least those 800 people would likely spend the money locally and stimulate the state economy.
- gtCameron 9y ago
  They aren’t handing Apple $208m. They are giving them tax breaks. If Apple didn’t build a data center in Iowa they would also collect $0 in taxes from them. The cost/benefit calculation is no where as simple as this article or comments make it out to be. It could still be a bad deal, but there is not really an honest attempt to figure that out here.
  - dahdum 9y ago
    Exactly - states competing on incentives obviously doesn't increase gross tax collection on a national level, but the article makes much bolder claims that it doesn't help anywhere. Specifically this claim: "There is virtually no association between economic development incentives and any measure of economic performance." The article states that the 1.3 billion dollar data center will get $39 million tax break up front on hardware, and another $190 million abatement over 20 years from the city. They will invest at a minimum $20 million into Waukee, a city of 20k people, and expect 50 permanent employees + ancillary services. Waukee will see a construction boom, higher employment, and more tax revenue. The state will see a reduction in the data center decline + additional tax revenue. Unless they were sure Apple had no other option but Iowa for this project, the state and community were better off making a deal than not.
    - vacri 9y ago
      > Waukee will see a construction boom, higher employment, and more tax revenue. The city will also now have a major corporation throwing its weight around to get its way; one with no loyalty to the residents or their concerns.
  - kartan 9y ago
    > If Apple didn’t build a data center in Iowa they would also collect $0 in taxes from them. Iowa can't do that. But the USA can. If another state (instead of Iowa because of the tax break) has gotten the revenue of that taxes and the federal government gets it from that state. The USA can give that money to the Iowa residents.
breck 9y ago
> We were highly skeptical of this deal when it was announced Aug. 24. In the fullness of time, we’ve subjected it to closer scrutiny. And now it looks even worse. Oh great, so you carefully gathered data and put it into some sort of spreadsheet or something? Where's the spreadsheet? Where's the decision tree that shows this is a bad deal for Iowa? Oh, you don't have any of that actual diligence? You started with a conclusion and then wrote a bunch of B.S. with cherry picking and misleading statements throughout? This is why I flagged it.
- privong 9y ago
  > You started with a conclusion and then wrote a bunch of B.S. with cherry picking and misleading statements throughout? This is why I flagged it. Can you expand on this and point to some of the misleading statements and why you think they're misleading?
  - cabaalis 9y ago
    I think it is misleading to say everything was in return for only 50 jobs. Data centers require huge investments in development, connectivity, energy supply. All of these things take people to make happen.
    - Caveman_Coder 9y ago
      This is true...the union halls will be busy with "travelers" to make up for the lack of local IBEW journeyman. There will be a flurry of economic activity during the construction phase but it will taper off eventually as the site completes construction. There will be continual economic activity for the contractors (electricians, pipe fitters, fire protection system technicians, etc.) that will service the data center.
  - breck 9y ago
    Start at the very beginning: "State and local officials in Iowa have been working hard to rationalize their handout of more than $208 million in tax benefits to Apple" That sentenced is aimed to make it sound like the state is giving $208 million to Apple. That is false. If Apple is going to pay $300M in taxes to Iowa, then the state is getting $100M by having Apple come, and $0 if Apple goes to another state. "These corporate handouts might make sense if they spurred economic growth. They don’t." First, that sounds overly confident. And then to support it the author cites two cherry-picked articles. "Unless that expansion occurs...Apple is guaranteed to contribute only one-fifth as much as people were led to believe." Okay, where's your spreadsheet modeling the probability of the expansion occurring? Because if it's 80% likelihood, then the $100M figure is accurate. I don't say I disagree with the author's main claim that the system is flawed in that we have lots of government entities having to negotiate individually with bigger companies (I'd prefer a simpler tax system across the board in general), I'm just saying in this particular case the author has provided no detailed numerical justification why he is right, which leads me to believe he is in fact, likely wrong.
farnsworth 9y ago
I'm a programmer. Every time I go home to Iowa, people try to tell me that Iowa is now a booming tech hub, with Microsoft, Facebook and Apple "offices", and that I should get a job there. I try to explain why I probably won't end up there, but the point is that they are extremely proud of all of these data centers.
- davis 9y ago
  Yup. This is about half of the conversations I have with my family whenever I visit for the holidays.
  - nihonde 9y ago
    Probably the same conversations happening in “booming” industrial cities in China. Cheap land, low cost of living...eventually the race to zero gets you and the big players move on.
- deleted 9y ago
  [deleted]
- girzel 9y ago
  Interesting. I suppose we've learned from the past election that pride is pretty damn important. Still, I have to think that, in the long run, the "everyone in the family has steady good-paying jobs" type of pride will be more decisive than the "there's a huge fucking tech company in our state" type of pride.
- posguy 9y ago
  Yeah, a datacenter hires a few Networking/Sysops people, but not so much programmers, as that is one of those things that isn't quite so location sensitive.
- AaronFriel 9y ago
  I can attest to this, I've had multiple family members ask me why I'm not applying to work for the three companies you listed in Des Moines.
dyarosla 9y ago
It's stuff like this that severely damages the little credibility the govt has with respect to using taxpayer money. So few politicians are incentivized to save money, those who are cut costs in 'unneeded areas' like education and healthcare, and others go out of their way to burn money like in this article. Edit: That said, and reading other comments here, I am curious just how bad of a deal this really comes out to overall. Perhaps the article is really just cherry picking arguments but it does paint a very grim picture.
desdiv 9y ago
>Apple’s deal with Iowa, which includes about $20 million in a state investment tax credit and a 20-year tax abatement from the city of Waukee worth nearly $190 million, underscores all these elements. Dumb question: how do these deals not violate the Equal Protection Clause? Other businesses in Waukee obviously aren't privy to the same state tax credits from Iowa and the same tax abatement from the city of Waukee. Doesn't that mean that the tax code is effectively discriminating against all these non-Apple businesses?
- ceejayoz 9y ago
  > Other businesses in Waukee obviously aren't privy to the same state tax credits from Iowa and the same tax abatement from the city of Waukee. Sure they are - they can request it, just like Apple does, and be evaluated on a case-by-case basis. It's no more an equal protection violation than city government hiring one person over another is.
  - kevin_thibedeau 9y ago
    Just like petitioning a king for favorable treatment.
- harryh 9y ago
  It looks like a graduate student at George Washington wrote a paper on this question: http://taxprof.typepad.com/files/65st0033.pdf http://taxprof.typepad.com/files/65st0033.pdf You've piqued my interest here. It does seem a bit strange.
ourmandave 9y ago
Maybe they're working on the "your first one is free" hook. The 50 jobs at the data center will attract a McDonalds across the street and then Waukee can hit those McGuys with a Burger Tax. Let's see. $208M at 5 cents per burger is only, uh, ... Well, the company slogan is "Billions and Billions Served."
- drewmol 9y ago
  Billions and Billions Served >= 4,000,000,000 Served
- yeldarb 9y ago
  You know, I think you said this facetiously.. but you might be on to something. The Facebook data center in Altoona is on building 4, after all: http://www.desmoinesregister.com/story/money/business/development/2017/05/09/facebook-breaks-ground-biggest-altoona-data-center-yet/314322001/ http://www.desmoinesregister.com/story/money/business/develo... It’s a much easier choice to expand an existing facility than to create an entirely new one.
vturner 9y ago
Just for all the inevitable comments about "the government should have just given X people Y dollars instead..." Iowa isn't "giving money." It does not have the additional revenue before Apple arrives, thus, it can't give anyone those revenues. All it can do is tell Apple you have to give us, Iowa, less than the state next door... now whether this is a good economic plan I disagree. I'd rather have a thousand small businesses be guaranteed no regulatory or other fees for the first five years than a corporate overlord be granted no requirement to pass on the enormous amount of wealth they extract from the land and environment but that's another discussion...
- vacri 9y ago
  So Iowa doesn't have to deal with providing services to the site? Land management services, emergency services, water, sewerage, etc?
  - jessriedel 9y ago
    Why would Iowa agree to an amount of revenue that doesn't even cover the cost of additional services?
    - vacri 9y ago
      I'm just countering the idea that there is no cost to the state.
      - EpicEng 9y ago
        It's only a cost if the expenses are larger than the revenue...
        vacri 9y ago
        You're missing my point. Painting a $20M donation as pure profit is misleading if it ends up costing 99% of that to get the donation. Yes, in absolute terms, there was a net benefit, but in your own words: don't pretend you don't understand the difference.
rdtsc 9y ago
Saw this happen a few times. One instance was when NCR (National Cash Register) headquartered in Dayton, OH decided to move to Georgia because it had gotten $60M worth (in 2009 dollars) of tax breaks and other incentives there. It followed the incentives sure, so from that point can't blame it, but it had cost Dayton, an already struggling city, even more pain. Another motive behind forced moves is to shed experienced (and thus expensive) / senior people who had been there longer. They are more likely to have families, kids in schools, homes, etc and so might not move.
- pfranz 9y ago
  Interesting podcast talking about companies moving from one side of Kansas City to another: http://www.npr.org/sections/money/2016/05/04/476799218/episode-699-why-did-the-job-cross-the-road http://www.npr.org/sections/money/2016/05/04/476799218/episo...
- turk183 9y ago
  Dell in North Carolina--opened up shop to collect the tax break then rolled up the sidewalks when the break expired.
B4CKlash 9y ago
The math isn't as simple as $280M for 50 jobs and it's unfair to frame it from that perspective. The facility itself will cost $1.3B. That's a direct injection of capital into the surrounding community. Even without the jobs; Apple is improving once (~)worthless land. Some property tax revenues or no property tax revenues? A silly race to the bottom.
cmurf 9y ago
Basically it's, would you like to have $0 in taxes paid by Apple (by assuming they won't come to Iowa if they aren't given a discount), or would you like $76 million in taxes and $100 million in public improvement funds that will mainly benefit Apple? But it proves the asymmetric negotiation power Apple has compared to constituents. Apple is in a position to say, take it or leave it. And the constituents can't really do that, for them to move elsewhere is much more expensive, for possibly not much of a gain. So basically Apple gets a significant advantage because local officials are looking at money rather than fairness. Why doesn't everyone get the same discount? Oh well, that wouldn't work would it? It also shows that at scale the property taxes are possibly too high. Which means the property taxes in general are probably too high. But now, because of this "deal", the constituents have even less negotiating power to get their taxes lowered, because the local government sold them out, and now depends on their taxes even more seeing as they can't raise Apple's property taxes for 20 years per this deal. "This puts Iowa on the world stage," Gov. Kim Reynolds Debi Durham, director of the Iowa Economic Development Authority, "All eyes are on Iowa for building this technology ecosystem," she said The handful of eyes that give a crap about this story, will see how far Iowa has debased themselves. Iowa just got its 15 minutes of fame, it's already over, you're not getting anymore out of this deal than what's already happened. Unless of course, you whore yourselves out yet again to another company. That's what you've just advertised, Iowa. Two perspectives from inside Iowa: http://www.desmoinesregister.com/story/news/2017/08/25/7-things-know-apple-data-center-waukee/599347001/ http://www.desmoinesregister.com/story/news/2017/08/25/7-thi... http://www.desmoinesregister.com/story/opinion/readers/2017/08/29/apples-waukee-data-center-deal-win-win-iowa/610288001/ http://www.desmoinesregister.com/story/opinion/readers/2017/...
- throwaway2048 9y ago
  If nobody cut deals like this, apple would be forced to pay taxes somewhere, so no matter what _somewhere_ is losing a huge amount of tax. Its a race to the bottom.
  - cmurf 9y ago
    Fairness and consistency is not a race to the bottom. It's what builds trust.
colechristensen 9y ago
These are property tax abatements. I don't see the big deal. Apple has to pay the property tax equal to the farmland for the next 20 years instead of the much higher tax on the datacenter property. Who cares? Unless someone is arguing the datacenter is going to use a lot of tax funded city services (police? fire? ... ?), Waukee isn't giving Apple anything. On top of that Apple is pledging to give them $100M for various things. Seems more like instead of paying property taxes, Apple is donating money to the city which will probably get it an income tax deduction. It's a scam I don't really care about. If you do care about it, maybe you should be complaining much more about all of the corporations that are "Delaware" corporations to avoid state taxes instead of being corporations where they're actually located.
- starfishjenga 9y ago
  Isn't the Delawarw thing for resolution of legal disputes? I don't think it affects taxes AFAIK.
  - ISL 9y ago
    Yep. Most states charge some sort of "foreign corporation tax" that picks up the lost revenue.
  - jessriedel 9y ago
    More specifically, Delaware has the largest body of settled corporate case law. Legal disputes between corporations incorporated in Delaware are much more predictable.
  - kemiller 9y ago
    You are right. Delaware corp taxes are pretty typical so they are not saving anything. It's all about the chancery courts which are very efficient.
- JumpCrisscross 9y ago
  It sounds sensible for cities and states to consider extending farmland tax breaks to data centers. Both have low infrastructure footprints relative to their land area. Both provide people close by with potential benefits in the form of better service, e.g. fresher fruits and vegetables and faster pings, respectively.
BurningFrog 9y ago
These things feel to me like when cities pay tons of money to get a sports team. It's always sold as an investment that will pay off, but in reality it's - In My Cynical Opinion - about local pride. With an NFL team, Shelbyville becomes a major city, and with an Apple data center Iowa becomes a high tech state. Expensive, sure, but the good things in life aren't free!
- colek42 9y ago
  The state isn't paying for the data center, they are lowering the tax burden.
  - evanwolf 9y ago
    Forgone income is forgone income no matter what you call it.
smegel 9y ago
$208M is around 27 years of salary for 50 employees on $150k.
- brianwawok 9y ago
  Data center grunts and security guards are NOT making 150k.
  - deleted 9y ago
    [deleted]
  - Caveman_Coder 9y ago
    ...depends on what you mean by "data center grunts" As a former "data center grunt" for Google, I can tell you that total comp was around $140k, which was great for Iowa. The fix-it roles made less and the security guards made just a tad bit over min wage.
thanatropism 9y ago
Pretty much unrelated, but that columnist's piece on price-gouging[0] is so analytically atrophied and emotionally charged that I can't help but imagine him as Tom Jumbo-Grumbo, the whale-news announcer from Bojack Horseman[1] [0] http://www.latimes.com/business/hiltzik/la-fi-hiltzik-price-gouging-harvey-20170828-story.html http://www.latimes.com/business/hiltzik/la-fi-hiltzik-price-... [1] https://www.youtube.com/watch?v=lMePJM86Ueo https://www.youtube.com/watch?v=lMePJM86Ueo
mikeash 9y ago
It's odd to see so many comments defending Apple on the basis of their $100 million pledge. I guess you all just skimmed the article and didn't really read it? They pledged up to $100 million. In other words, they're not spending $100 million.
- deleted 9y ago
  [deleted]
- esmi 9y ago
  The minimum initial payment from Apple is $20M. However since we have no data on the cost to Iowa or Waukee we can't say whether or not this is cash positive to the state or county. My guess is because the payment is variable and a function of the size of the facility Apple is basically paying for its hookup to streets, water, electricity, etc. with a park thrown in on the side.
thinkloop 9y ago
If there were a law that states could not make deals with individual entities, it is likely both states and citizens would be better off, and companies would be unharmed.
qaq 9y ago
Oh those horrible shareholders Vanguard, Blackrock, FMR etc. oh wait it's our pension funds how evil
wils124 9y ago
Why does farmland get a preferential tax rate in the first place?
- bb88 9y ago
  You know this is Iowa, right? The farmers are a powerful political force there.
bb88 9y ago
Iowa is a very short sighted state. On one hand they're trying to be this tech savvy state by bringing in Apple and Google data centers, on the other hand getting decent broad band is terrible in all the rural parts of the state. So they did what any conservative state would do and relied upon the free market to get them high speed bandwidth. And that's not been real successful. So they had to subsidize it. From this article in 2015 [1]: "Four communications providers have received more than $53 million in federal funds to expand high-speed Internet service to nearly 90,000 rural Iowa homes and businesses." That's roughly 3% of the population. Okay, so one might say that's just the cost of doing business. The thing is that Iowa already has a $200 million dollar fiber optic network that connects all 99 counties with over 8000 miles of fiber called the Iowa Communications Network. So why don't they use that to extend broad band to rural areas? From the Iowa Communications Network home page [2]: "The ICN provides high-speed flexible broadband Internet, data, video conferencing, and voice (phone) services to authorized users, under Code of Iowa, which includes: K-12 schools, higher education, hospitals and clinics, state and federal government, National Guard armories, and libraries" That's awesome if you're an authorized user. But the sad part is there is more than just those users that could use broadband, and it seems like Iowa decided to leave them out in the cold. [1] http://www.thegazette.com/subject/news/business/rural-iowa-getting-more-broadband-as-gov-branstad-lauds-infrastructure-spending-20150831 http://www.thegazette.com/subject/news/business/rural-iowa-g... [2] http://icn.iowa.gov http://icn.iowa.gov
- bluedino 9y ago
  >> On one hand they're trying to be this tech savvy state by bringing in Apple and Google data centers Which does little if anything. You want Apple and Google offices and manufacturing. Corporate datacenters don't really bring anything to your town/state. Regular datacenters that are open to other companies do.
- gragas 9y ago
  I'm glad we're not a tech savvy state. A huge portion of the people I've met in tech are class-A douche bags. They are obsessed with salary, or the fact that they work for X instead of Y. They are extremely elitist. All of my friends who went to high school in the Bay Area have classmates who killed themselves over (lack of) prestige. You won't see any of that in Iowa. It is a much more honest place. People work hard but aren't obsessed with where you want to college or how much money you make. I would be genuinely sad if Apple or Google opened a SWE location in Iowa. The culture is basically the antithesis of the old Midwest.
watchdogtimer 9y ago
As an Iowa resident, I think it's worth mentioning that all this is happening at a period in time when state government has been experiencing multiple years of unexpected revenue shortfalls. The governor may have to call the legislature back into special legislative session again next month because revenue is again coming in less than expected. The three state universities will be increasing tuition 7% per year for each of the next five years because of budget cutbacks caused by these revenue shortfalls. Part of the decline in revenue is due to the decline in the ag economy, but some have also attributed it to the increasing amount of tax breaks like these that Iowa has been giving out. Furthermore, this is not just farmland. Waukee is a west Des Moines suburb, the fastest growing part of the state and supposedly one of the fastest growing parts of the US. If Apple hadn't purchased that land, it likely would have been purchased and developed by someone else soon.
MechEStudent 9y ago
It isn't folly. Apple bought their politician and received a good payoff for it. It was textbook business. Because this is becoming again a nation where corruption is the norm, this "folly" will be the new norm.
chmaynard 9y ago
Glad to see that Iowa is diversifying its economy. Known primarily for growing corn and soybeans, the state is now going whole hog into pork.
JudasGoat 9y ago
I would think this deal would give any large Iowa employer the idea that taxes are negotiable, especially if a move to another state is threatened. This will begin eating the existing revenue.
acjohnson55 9y ago
As someone who grew up in the era of floppy disks that were actually floppy, this is so mindblowing.

198 points by sverige 9y ago

Luckily Wisconsin figured out the solution to this problem... Make the corporate welfare deals an order of magnitude larger and give 3 billion to Foxconn instead of a piddly tenth of that. Even in the best case for "jobs created" (10,000) pushed by our politicians the state might as well just give 10,000 people $30,000 a year for 10 years. Realistic estimates are saying the new jobs might be more in the range of 3,000, which is an astonishing cost of $1,000,000 per job.

jonlucc 9y ago
Indiana also has it figured out. We gave a ton of state money to a company to save face for a national political campaign so that they could automate the jobs away faster.
MattSteelblade 9y ago
This hits home as a Wisconsin resident. Best case scenario, we're looking at 2042 to turn a profit[1]. [1] http://docs.legis.wisconsin.gov/misc/lfb/bill_summaries/2017_19/0001_ss_ab_1_foxconn_fiserv_legislation_8_8_17.pdf http://docs.legis.wisconsin.gov/misc/lfb/bill_summaries/2017...
- gtCameron 9y ago
  What year would Wisconsin turn a profit off of Foxconn if it didn’t build a factory there at all?
  - throwaway2048 9y ago
    This is very much a prisoner's dilemma race to the bottom situation. What if nobody was willing to pander to foxconn at all? How much tax would they be paying then?
    - deleted 9y ago
      [deleted]
  - wavefunction 9y ago
    Presumably this year, if they paid each person as outlined above because they'd be getting income tax back from the individuals. They could even pay those people $30,000 a year for ten years to work on civic projects and achieve even more 'profit' or return on investment.
    - esmi 9y ago
      I am confused. Who is "they" in these sentences: Foxconn, WI, or an employer other than Foxconn? It can't be Foxconn because the parent statement requires Foxconn doesn't come to WI. WI getting back in tax a portion of what they paid out in full can't be a net income gain because the employee gets to keep some. If it's an employer other than Foxconn, which doesn't get any deal, then I agree that would be best for WI. But which employer is that?
- dahdum 9y ago
  Maybe I'm reading that wrong, but it's not an actual loss at any point is it? The refundable tax credits just pay back what the state collected, which isn't really a "loss".
  - MattSteelblade 9y ago
    It's a combination of cash payments and tax exemptions. http://www.jsonline.com/story/news/politics/2017/08/16/how-would-wisconsin-foxconn-deal-work-here-some-answers/572186001/ http://www.jsonline.com/story/news/politics/2017/08/16/how-w...
    - dahdum 9y ago
      But the cash is a refund of employee payroll taxes and other benefits derived from Foxconn's investment isn't it? It's a sweet deal for Foxconn but I still don't see where the rest of the state actually pays out. I could be reading it wrong of course, but that was the impression of the EITM zone I had.
      - deleted 9y ago
        [deleted]
- r00fus 9y ago
  By then Foxconn would almost certainly have moved on.
diddid 9y ago
Nobody is giving anyone money, they are just not charging them tax. It's an important distinction I don't understand how people keep glossing over it. If it creates 10,000 local jobs, those 10,000 jobs are still going to get taxed. So the locale is going to get money, just not from the corporate tax. So it's not a great deal but it's not a horrible deal. I'd prefer nobody made them but once on place does they all have to in order to compete. But if they built overseas they'd get no corporate tax either... so some slice of the pie is better than none.
- colek42 9y ago
  Thank you. It would be like saying Wal-Mart is giving a customer $5 because DVD is $15 there vs. $20 at Best Buy. Yes, if nobody gave tax breaks companies would have to pay more taxes, but that will never happen, Congress likely does not have the power to force states or municipalities to do so either. edited, spelling.
  - geofft 9y ago
    But what is Wal-Mart's cost of buying the DVD? If they get it from their wholesaler at $19.99 and Best Buy is turning the tiniest profit, Wal-Mart selling it for $15 is effectively giving the customer $5. Sure, they can do it if they want to, but that would raise immediate and valid questions about whether the money would be better used in some other way (giving customers $5 without making them buy a DVD), whether this is the sort of anti-competitive behavior that a long-term-productive capitalist society should regulate, and whether there's something shady going on between Wal-Mart and the DVD supplier.
- kartan 9y ago
  > so some slice of the pie is better than none. That's a run to the bottom. Where's the limit? The USA is already lacking in education, health care, and infrastructure. This is only going to make the problem worse. > If it creates 10,000 local jobs, those 10,000 jobs are still going to get taxed. So the locale is going to get money, just not from the corporate tax. If those jobs have been created in another state without the tax cut they would have gotten the corporate tax and the local jobs taxes (both of them). So you can see it as one state stealing the job taxes from another state at the cost of giving back the corporate tax. One state loses, another wins. The USA as a country just loses because what one loses is bigger than the other wins (being the difference the corporate tax). Only the corporation gets a positive outcome. The country is now in a worse situation.
kgwgk 9y ago
Giving 10,000 people $30,000 a year for 10 years requires $3 bn of actual spending. “Giving” $3bn in tax credits is “free”. It doesn’t work “just as well”.

ringaroundthetx 9y ago

cool, does YC's general counsel teach us how to do this when our company gets into the growth phase? role model

drewg123 9y ago

So $208M for 50 jobs. Wouldn't they be better off just giving those 50 lucky folks $4M each? Or giving 800 people $250K ? At least those 800 people would likely spend the money locally and stimulate the state economy.

gtCameron 9y ago
They aren’t handing Apple $208m. They are giving them tax breaks. If Apple didn’t build a data center in Iowa they would also collect $0 in taxes from them. The cost/benefit calculation is no where as simple as this article or comments make it out to be. It could still be a bad deal, but there is not really an honest attempt to figure that out here.
- dahdum 9y ago
  Exactly - states competing on incentives obviously doesn't increase gross tax collection on a national level, but the article makes much bolder claims that it doesn't help anywhere. Specifically this claim: "There is virtually no association between economic development incentives and any measure of economic performance." The article states that the 1.3 billion dollar data center will get $39 million tax break up front on hardware, and another $190 million abatement over 20 years from the city. They will invest at a minimum $20 million into Waukee, a city of 20k people, and expect 50 permanent employees + ancillary services. Waukee will see a construction boom, higher employment, and more tax revenue. The state will see a reduction in the data center decline + additional tax revenue. Unless they were sure Apple had no other option but Iowa for this project, the state and community were better off making a deal than not.
  - vacri 9y ago
    > Waukee will see a construction boom, higher employment, and more tax revenue. The city will also now have a major corporation throwing its weight around to get its way; one with no loyalty to the residents or their concerns.
- kartan 9y ago
  > If Apple didn’t build a data center in Iowa they would also collect $0 in taxes from them. Iowa can't do that. But the USA can. If another state (instead of Iowa because of the tax break) has gotten the revenue of that taxes and the federal government gets it from that state. The USA can give that money to the Iowa residents.

breck 9y ago

> We were highly skeptical of this deal when it was announced Aug. 24. In the fullness of time, we’ve subjected it to closer scrutiny. And now it looks even worse. Oh great, so you carefully gathered data and put it into some sort of spreadsheet or something? Where's the spreadsheet? Where's the decision tree that shows this is a bad deal for Iowa? Oh, you don't have any of that actual diligence? You started with a conclusion and then wrote a bunch of B.S. with cherry picking and misleading statements throughout? This is why I flagged it.

privong 9y ago
> You started with a conclusion and then wrote a bunch of B.S. with cherry picking and misleading statements throughout? This is why I flagged it. Can you expand on this and point to some of the misleading statements and why you think they're misleading?
- cabaalis 9y ago
  I think it is misleading to say everything was in return for only 50 jobs. Data centers require huge investments in development, connectivity, energy supply. All of these things take people to make happen.
  - Caveman_Coder 9y ago
    This is true...the union halls will be busy with "travelers" to make up for the lack of local IBEW journeyman. There will be a flurry of economic activity during the construction phase but it will taper off eventually as the site completes construction. There will be continual economic activity for the contractors (electricians, pipe fitters, fire protection system technicians, etc.) that will service the data center.
- breck 9y ago
  Start at the very beginning: "State and local officials in Iowa have been working hard to rationalize their handout of more than $208 million in tax benefits to Apple" That sentenced is aimed to make it sound like the state is giving $208 million to Apple. That is false. If Apple is going to pay $300M in taxes to Iowa, then the state is getting $100M by having Apple come, and $0 if Apple goes to another state. "These corporate handouts might make sense if they spurred economic growth. They don’t." First, that sounds overly confident. And then to support it the author cites two cherry-picked articles. "Unless that expansion occurs...Apple is guaranteed to contribute only one-fifth as much as people were led to believe." Okay, where's your spreadsheet modeling the probability of the expansion occurring? Because if it's 80% likelihood, then the $100M figure is accurate. I don't say I disagree with the author's main claim that the system is flawed in that we have lots of government entities having to negotiate individually with bigger companies (I'd prefer a simpler tax system across the board in general), I'm just saying in this particular case the author has provided no detailed numerical justification why he is right, which leads me to believe he is in fact, likely wrong.

farnsworth 9y ago

I'm a programmer. Every time I go home to Iowa, people try to tell me that Iowa is now a booming tech hub, with Microsoft, Facebook and Apple "offices", and that I should get a job there. I try to explain why I probably won't end up there, but the point is that they are extremely proud of all of these data centers.

davis 9y ago
Yup. This is about half of the conversations I have with my family whenever I visit for the holidays.
- nihonde 9y ago
  Probably the same conversations happening in “booming” industrial cities in China. Cheap land, low cost of living...eventually the race to zero gets you and the big players move on.
deleted 9y ago
[deleted]
girzel 9y ago
Interesting. I suppose we've learned from the past election that pride is pretty damn important. Still, I have to think that, in the long run, the "everyone in the family has steady good-paying jobs" type of pride will be more decisive than the "there's a huge fucking tech company in our state" type of pride.
posguy 9y ago
Yeah, a datacenter hires a few Networking/Sysops people, but not so much programmers, as that is one of those things that isn't quite so location sensitive.
AaronFriel 9y ago
I can attest to this, I've had multiple family members ask me why I'm not applying to work for the three companies you listed in Des Moines.

dyarosla 9y ago

It's stuff like this that severely damages the little credibility the govt has with respect to using taxpayer money. So few politicians are incentivized to save money, those who are cut costs in 'unneeded areas' like education and healthcare, and others go out of their way to burn money like in this article. Edit: That said, and reading other comments here, I am curious just how bad of a deal this really comes out to overall. Perhaps the article is really just cherry picking arguments but it does paint a very grim picture.

desdiv 9y ago

>Apple’s deal with Iowa, which includes about $20 million in a state investment tax credit and a 20-year tax abatement from the city of Waukee worth nearly $190 million, underscores all these elements. Dumb question: how do these deals not violate the Equal Protection Clause? Other businesses in Waukee obviously aren't privy to the same state tax credits from Iowa and the same tax abatement from the city of Waukee. Doesn't that mean that the tax code is effectively discriminating against all these non-Apple businesses?

ceejayoz 9y ago
> Other businesses in Waukee obviously aren't privy to the same state tax credits from Iowa and the same tax abatement from the city of Waukee. Sure they are - they can request it, just like Apple does, and be evaluated on a case-by-case basis. It's no more an equal protection violation than city government hiring one person over another is.
- kevin_thibedeau 9y ago
  Just like petitioning a king for favorable treatment.
harryh 9y ago
It looks like a graduate student at George Washington wrote a paper on this question: http://taxprof.typepad.com/files/65st0033.pdf http://taxprof.typepad.com/files/65st0033.pdf You've piqued my interest here. It does seem a bit strange.

ourmandave 9y ago

Maybe they're working on the "your first one is free" hook. The 50 jobs at the data center will attract a McDonalds across the street and then Waukee can hit those McGuys with a Burger Tax. Let's see. $208M at 5 cents per burger is only, uh, ... Well, the company slogan is "Billions and Billions Served."

drewmol 9y ago
Billions and Billions Served >= 4,000,000,000 Served
yeldarb 9y ago
You know, I think you said this facetiously.. but you might be on to something. The Facebook data center in Altoona is on building 4, after all: http://www.desmoinesregister.com/story/money/business/development/2017/05/09/facebook-breaks-ground-biggest-altoona-data-center-yet/314322001/ http://www.desmoinesregister.com/story/money/business/develo... It’s a much easier choice to expand an existing facility than to create an entirely new one.

vturner 9y ago

Just for all the inevitable comments about "the government should have just given X people Y dollars instead..." Iowa isn't "giving money." It does not have the additional revenue before Apple arrives, thus, it can't give anyone those revenues. All it can do is tell Apple you have to give us, Iowa, less than the state next door... now whether this is a good economic plan I disagree. I'd rather have a thousand small businesses be guaranteed no regulatory or other fees for the first five years than a corporate overlord be granted no requirement to pass on the enormous amount of wealth they extract from the land and environment but that's another discussion...

vacri 9y ago
So Iowa doesn't have to deal with providing services to the site? Land management services, emergency services, water, sewerage, etc?
- jessriedel 9y ago
  Why would Iowa agree to an amount of revenue that doesn't even cover the cost of additional services?
  - vacri 9y ago
    I'm just countering the idea that there is no cost to the state.
    - EpicEng 9y ago
      It's only a cost if the expenses are larger than the revenue...
      - vacri 9y ago
        You're missing my point. Painting a $20M donation as pure profit is misleading if it ends up costing 99% of that to get the donation. Yes, in absolute terms, there was a net benefit, but in your own words: don't pretend you don't understand the difference.

rdtsc 9y ago

Saw this happen a few times. One instance was when NCR (National Cash Register) headquartered in Dayton, OH decided to move to Georgia because it had gotten $60M worth (in 2009 dollars) of tax breaks and other incentives there. It followed the incentives sure, so from that point can't blame it, but it had cost Dayton, an already struggling city, even more pain. Another motive behind forced moves is to shed experienced (and thus expensive) / senior people who had been there longer. They are more likely to have families, kids in schools, homes, etc and so might not move.

pfranz 9y ago
Interesting podcast talking about companies moving from one side of Kansas City to another: http://www.npr.org/sections/money/2016/05/04/476799218/episode-699-why-did-the-job-cross-the-road http://www.npr.org/sections/money/2016/05/04/476799218/episo...
turk183 9y ago
Dell in North Carolina--opened up shop to collect the tax break then rolled up the sidewalks when the break expired.

B4CKlash 9y ago

The math isn't as simple as $280M for 50 jobs and it's unfair to frame it from that perspective. The facility itself will cost $1.3B. That's a direct injection of capital into the surrounding community. Even without the jobs; Apple is improving once (~)worthless land. Some property tax revenues or no property tax revenues? A silly race to the bottom.

cmurf 9y ago

Basically it's, would you like to have $0 in taxes paid by Apple (by assuming they won't come to Iowa if they aren't given a discount), or would you like $76 million in taxes and $100 million in public improvement funds that will mainly benefit Apple? But it proves the asymmetric negotiation power Apple has compared to constituents. Apple is in a position to say, take it or leave it. And the constituents can't really do that, for them to move elsewhere is much more expensive, for possibly not much of a gain. So basically Apple gets a significant advantage because local officials are looking at money rather than fairness. Why doesn't everyone get the same discount? Oh well, that wouldn't work would it? It also shows that at scale the property taxes are possibly too high. Which means the property taxes in general are probably too high. But now, because of this "deal", the constituents have even less negotiating power to get their taxes lowered, because the local government sold them out, and now depends on their taxes even more seeing as they can't raise Apple's property taxes for 20 years per this deal. "This puts Iowa on the world stage," Gov. Kim Reynolds Debi Durham, director of the Iowa Economic Development Authority, "All eyes are on Iowa for building this technology ecosystem," she said The handful of eyes that give a crap about this story, will see how far Iowa has debased themselves. Iowa just got its 15 minutes of fame, it's already over, you're not getting anymore out of this deal than what's already happened. Unless of course, you whore yourselves out yet again to another company. That's what you've just advertised, Iowa. Two perspectives from inside Iowa: http://www.desmoinesregister.com/story/news/2017/08/25/7-things-know-apple-data-center-waukee/599347001/ http://www.desmoinesregister.com/story/news/2017/08/25/7-thi... http://www.desmoinesregister.com/story/opinion/readers/2017/08/29/apples-waukee-data-center-deal-win-win-iowa/610288001/ http://www.desmoinesregister.com/story/opinion/readers/2017/...

throwaway2048 9y ago
If nobody cut deals like this, apple would be forced to pay taxes somewhere, so no matter what _somewhere_ is losing a huge amount of tax. Its a race to the bottom.
- cmurf 9y ago
  Fairness and consistency is not a race to the bottom. It's what builds trust.

colechristensen 9y ago

These are property tax abatements. I don't see the big deal. Apple has to pay the property tax equal to the farmland for the next 20 years instead of the much higher tax on the datacenter property. Who cares? Unless someone is arguing the datacenter is going to use a lot of tax funded city services (police? fire? ... ?), Waukee isn't giving Apple anything. On top of that Apple is pledging to give them $100M for various things. Seems more like instead of paying property taxes, Apple is donating money to the city which will probably get it an income tax deduction. It's a scam I don't really care about. If you do care about it, maybe you should be complaining much more about all of the corporations that are "Delaware" corporations to avoid state taxes instead of being corporations where they're actually located.

starfishjenga 9y ago
Isn't the Delawarw thing for resolution of legal disputes? I don't think it affects taxes AFAIK.
- ISL 9y ago
  Yep. Most states charge some sort of "foreign corporation tax" that picks up the lost revenue.
- jessriedel 9y ago
  More specifically, Delaware has the largest body of settled corporate case law. Legal disputes between corporations incorporated in Delaware are much more predictable.
- kemiller 9y ago
  You are right. Delaware corp taxes are pretty typical so they are not saving anything. It's all about the chancery courts which are very efficient.
JumpCrisscross 9y ago
It sounds sensible for cities and states to consider extending farmland tax breaks to data centers. Both have low infrastructure footprints relative to their land area. Both provide people close by with potential benefits in the form of better service, e.g. fresher fruits and vegetables and faster pings, respectively.

BurningFrog 9y ago

These things feel to me like when cities pay tons of money to get a sports team. It's always sold as an investment that will pay off, but in reality it's - In My Cynical Opinion - about local pride. With an NFL team, Shelbyville becomes a major city, and with an Apple data center Iowa becomes a high tech state. Expensive, sure, but the good things in life aren't free!

colek42 9y ago
The state isn't paying for the data center, they are lowering the tax burden.
- evanwolf 9y ago
  Forgone income is forgone income no matter what you call it.

smegel 9y ago

$208M is around 27 years of salary for 50 employees on $150k.

brianwawok 9y ago
Data center grunts and security guards are NOT making 150k.
- deleted 9y ago
  [deleted]
- Caveman_Coder 9y ago
  ...depends on what you mean by "data center grunts" As a former "data center grunt" for Google, I can tell you that total comp was around $140k, which was great for Iowa. The fix-it roles made less and the security guards made just a tad bit over min wage.

thanatropism 9y ago

Pretty much unrelated, but that columnist's piece on price-gouging[0] is so analytically atrophied and emotionally charged that I can't help but imagine him as Tom Jumbo-Grumbo, the whale-news announcer from Bojack Horseman[1] [0] http://www.latimes.com/business/hiltzik/la-fi-hiltzik-price-gouging-harvey-20170828-story.html http://www.latimes.com/business/hiltzik/la-fi-hiltzik-price-... [1] https://www.youtube.com/watch?v=lMePJM86Ueo https://www.youtube.com/watch?v=lMePJM86Ueo

mikeash 9y ago

It's odd to see so many comments defending Apple on the basis of their $100 million pledge. I guess you all just skimmed the article and didn't really read it? They pledged up to $100 million. In other words, they're not spending $100 million.

deleted 9y ago
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esmi 9y ago
The minimum initial payment from Apple is $20M. However since we have no data on the cost to Iowa or Waukee we can't say whether or not this is cash positive to the state or county. My guess is because the payment is variable and a function of the size of the facility Apple is basically paying for its hookup to streets, water, electricity, etc. with a park thrown in on the side.

thinkloop 9y ago

If there were a law that states could not make deals with individual entities, it is likely both states and citizens would be better off, and companies would be unharmed.

qaq 9y ago

Oh those horrible shareholders Vanguard, Blackrock, FMR etc. oh wait it's our pension funds how evil

wils124 9y ago

Why does farmland get a preferential tax rate in the first place?

bb88 9y ago
You know this is Iowa, right? The farmers are a powerful political force there.

bb88 9y ago

Iowa is a very short sighted state. On one hand they're trying to be this tech savvy state by bringing in Apple and Google data centers, on the other hand getting decent broad band is terrible in all the rural parts of the state. So they did what any conservative state would do and relied upon the free market to get them high speed bandwidth. And that's not been real successful. So they had to subsidize it. From this article in 2015 [1]: "Four communications providers have received more than $53 million in federal funds to expand high-speed Internet service to nearly 90,000 rural Iowa homes and businesses." That's roughly 3% of the population. Okay, so one might say that's just the cost of doing business. The thing is that Iowa already has a $200 million dollar fiber optic network that connects all 99 counties with over 8000 miles of fiber called the Iowa Communications Network. So why don't they use that to extend broad band to rural areas? From the Iowa Communications Network home page [2]: "The ICN provides high-speed flexible broadband Internet, data, video conferencing, and voice (phone) services to authorized users, under Code of Iowa, which includes: K-12 schools, higher education, hospitals and clinics, state and federal government, National Guard armories, and libraries" That's awesome if you're an authorized user. But the sad part is there is more than just those users that could use broadband, and it seems like Iowa decided to leave them out in the cold. [1] http://www.thegazette.com/subject/news/business/rural-iowa-getting-more-broadband-as-gov-branstad-lauds-infrastructure-spending-20150831 http://www.thegazette.com/subject/news/business/rural-iowa-g... [2] http://icn.iowa.gov http://icn.iowa.gov

bluedino 9y ago
>> On one hand they're trying to be this tech savvy state by bringing in Apple and Google data centers Which does little if anything. You want Apple and Google offices and manufacturing. Corporate datacenters don't really bring anything to your town/state. Regular datacenters that are open to other companies do.
gragas 9y ago
I'm glad we're not a tech savvy state. A huge portion of the people I've met in tech are class-A douche bags. They are obsessed with salary, or the fact that they work for X instead of Y. They are extremely elitist. All of my friends who went to high school in the Bay Area have classmates who killed themselves over (lack of) prestige. You won't see any of that in Iowa. It is a much more honest place. People work hard but aren't obsessed with where you want to college or how much money you make. I would be genuinely sad if Apple or Google opened a SWE location in Iowa. The culture is basically the antithesis of the old Midwest.

watchdogtimer 9y ago

As an Iowa resident, I think it's worth mentioning that all this is happening at a period in time when state government has been experiencing multiple years of unexpected revenue shortfalls. The governor may have to call the legislature back into special legislative session again next month because revenue is again coming in less than expected. The three state universities will be increasing tuition 7% per year for each of the next five years because of budget cutbacks caused by these revenue shortfalls. Part of the decline in revenue is due to the decline in the ag economy, but some have also attributed it to the increasing amount of tax breaks like these that Iowa has been giving out. Furthermore, this is not just farmland. Waukee is a west Des Moines suburb, the fastest growing part of the state and supposedly one of the fastest growing parts of the US. If Apple hadn't purchased that land, it likely would have been purchased and developed by someone else soon.

MechEStudent 9y ago

It isn't folly. Apple bought their politician and received a good payoff for it. It was textbook business. Because this is becoming again a nation where corruption is the norm, this "folly" will be the new norm.

chmaynard 9y ago

Glad to see that Iowa is diversifying its economy. Known primarily for growing corn and soybeans, the state is now going whole hog into pork.

JudasGoat 9y ago

I would think this deal would give any large Iowa employer the idea that taxes are negotiable, especially if a move to another state is threatened. This will begin eating the existing revenue.

acjohnson55 9y ago

As someone who grew up in the era of floppy disks that were actually floppy, this is so mindblowing.