two-lurking-risks-for-megaprojects-like-foxconn

The estimated $3 billion price tag has received the bulk of attention from Foxconn’s announced $10 billion investment to create a liquid crystal display (LCD) manufacturing facility in Wisconsin. Since the actual project parameters, timing, location, and state and local incentive package details are still to be determined, many questions remain about that price tag and the real costs and benefits for communities in Wisconsin.

What is not in question is that megaprojects – whether Foxconn, Tesla or others – offer substantial potential benefits but also carry significant risk. Specifically, these projects are highly unlikely to play out exactly as projected (they are projections after all) OR to stay at a steady state of operations for years or decades (industries evolve and economies go through cycles).

Most economic and fiscal impact analysis reports provide one set of numbers, often assuming consistent operations at peak levels for multiple years – an unlikely scenario in electronics manufacturing. What do the costs and benefits look like in different economic scenarios?

Turning to project risk, what are the ramifications if the project is not sustained for the expected period of time? In this case, the state incentives may extend 15 years and the local incentives (based on the proposed legislation) may reach 30 years. Taking one aspect of project risk as an example, what do megaproject sites look like in year 10, 20 or 30? Are they still generating fiscal and economic benefits, or will they become a drain on the community?  It is a question worth asking because many communities must devote substantial resources to redeveloping properties where the physical life has exceeded the economic utility. 

These questions are relevant to the Foxconn investment but are not specific to it. Megaprojects have the potential to generate massive economic benefits but these benefits are not automatic. Consideration of both project and economic risk should be part of any incentive cost-benefit analysis, especially for megaprojects.