Both Sides of the Fence

Oshkosh Corp: The book, not the movie

Posted by Christine McLaughlin on Feb. 18, 2010 | 6 comments

Oshkosh Corp., Oshkosh, war economy

The triumph of Oshkosh Corporation (Truck) in winning a big defense contract away from BAE Systems in Texas is satisfying on all sorts of levels. We cheer the local team, the Davids when they take on Goliath. Our ideas about how competition works are satisfied when the low bidder gets the job-and when he's our guy.

So what’s not to like about $3.2 billion and the good it can bring to our neighbors up Highway 41?

Our gain is someone else’s loss. We’re not talking about a net gain in jobs creation as much as a shift. Whatever positive employment and economic impact the contract will have in Oshkosh, Wisconsin, chances are the negative impact on the good people of Sealy, Texas, is greater. I’ve seen mention of creating 800 jobs at Truck, a number that seems inflated. And not all of them will be in Wisconsin. But 3,000 jobs may be lost in Sealy, a town of less than 6,000 souls where the only other major employer, with 800 employees, is Walmart.

To gear up for increased business, the state of Wisconsin and the city of Oshkosh are anteing up a considerable chunk of money, some $40 million to Truck’s $11 million. The money is going into bricks and mortar and tools, strictly physical stuff held (and eventually owned) by the business. It’s money not spent on schools, health, or community infrastructure.

If all goes well, Truck will continue to provide jobs and paychecks, make purchases from local businesses, and generally feed the economy. Everyone will live happily for as long as it works that way.

However, the overall benefit to the community is a little fuzzier than it appears at first glance.

The Oshkosh city monies come from creating a Tax Incremental Fund (TIF). The existing business will be taxed as it has been. But revenue generated from the new TIF development will not be added to the general tax funds during the 5 year period of the $3 billion contract—or for another 20 years after it ends. Instead, it goes to repay the development bonds. So while the need for schools, sewers, public safety, and the rest of services a community needs to stay strong and function well increase with the development, the funds to support them don’t.

If you’re a private property owner near the new TIF district, the value of your property will increase along with theirs. Your taxes will increase.

If anything goes wrong, the taxpayers hold the bag. That may not seem like a major concern, given Truck’s recent history. It may be an extremely good investment. But the $3.2 billion lowball bid sliced the profit margin very close to the bone. Moody's recently upgraded Oshkosh Corps’ corporate family rating and probability of default rating from B2 to B1—but that’s still a junk status rating.

TIF instruments were created as a way to pay for projects for the public benefit where private funding wasn’t available.  More recently, they’ve been used for shopping malls and other questionable “public interest” projects. It would be prudent for citizens to ask some thoughtful questions about the Oshkosh Corporation as a public good.

Sealy, Texas, is learning the hard way how dangerous it is to be a one-big-industry town. Is Truck on the verge of being the business too big to fail in Oshkosh? With 62,000 people, Oshkosh is a more economically diverse community. But there’s only so much Miles Kimball business to rely on for sustainablity. A strong community might want to put eggs in several baskets.

Then there’s the elephant in the room: the war economy. How long will the military need armored trucks for Afghanistan—or for the next place to which the endless war front shifts?

Since I oppose war, I pray for its end. But even more hawkish types must be asking, along with Marketwatch’s Paul Farrell, how long Americans will choose “to surrender 54% of their tax dollars to a war machine, which consumes 47% of the world's total military budgets?” Private fortunes for the few are as much the outcome of this choice as real security for the many.

I hope Truck does well and the people of Oshkosh prosper. Maybe the city will finally outlive the reputation the city earned in the 1890s, when it was a one-business mill town known as “the slave wage capital of the world.”

But I tell my nephew who works at Truck to have an “exit plan.” Work hard, collect overtime, save like a madman, and have your lifeboat ready. Just in case things go bad – or things get better. Either way.

I hope the city is doing the same.