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Is Foxconn Altering the Wisconsin Deal?

Posted on Jan. 31, 2019

Despite a $3 billion subsidy package from Wisconsin, Foxconn is walking back plans to build an LCD manufacturing plant in the state.

On January 30 Reuters reported that Foxconn officials said they are shifting away from building televisions and do not plan on building a factory in Wisconsin. Instead, the Taiwanese multinational will focus on creating a “technology hub” in the state and anticipates hiring around 1,000 workers.

In response to inquiries, Democratic Gov. Tony Evers’s office released a statement in which Wisconsin Department of Administration Secretary-designee Joel Brennan said that despite being in regular weekly contact with senior leadership at Foxconn, the administration was surprised by the news.

In 2017 then-Gov. Scott Walker authorized over $3 billion in public subsidies to Foxconn in exchange for the company's promise to build a $10 billion factory to manufacture LCD TV screens and employ up to 13,000 Wisconsinites. Under the agreement, Foxconn would be eligible for nearly 80 percent of the subsidy by employing 8,500 workers. Only 3,000 jobs were guaranteed.

However, Louis Woo — special assistant to Foxconn CEO Terry Gou — told Reuters that it would be more profitable to make LCD panels in China and Japan, ship them to Mexico for final assembly, and then import the finished product to the U.S.

Woo has spoken plainly about the company’s prospects with the plant, saying there is a reason TVs aren't made in the U.S. anymore. “No matter how you cut it, it’s a risky business,” the Milwaukee Journal Sentinel reported him as saying in 2018.

The 2017 incentive package was the largest corporate tax break in Wisconsin history and the largest tax break any state had given to a foreign corporation. It received significant attention when it was announced at a White House ceremony with Walker, Assembly Speaker Robin Vos (R), then-U.S. House Speaker Paul Ryan, and President Trump. The deal was heralded as a much-needed win for Trump, who personally negotiated the deal with Gou, according to The Washington Post.

At a groundbreaking ceremony in June 2018 with Trump and Ryan, Walker celebrated the “first LCD manufacturing facility in North America,” according to a release from the Wisconsin Economic Development Corporation (WEDC), which facilitated the deal.

The Foxconn bill created the Electronics and Information Technology Manufacturing Zone program, which would allow the WEDC to award $2.85 billion in tax credits to the company over 15 years. The contract with Foxconn tied $1.5 billion of the credits for creating jobs, and $1.35 billion for making capital investments. The tax credits are refundable, according to Good Jobs First, so Foxconn would have been eligible for a refund if the company's tax credits had exceeded its state income tax liability.

The state also offered a $150 million sales tax exemption on construction materials, $252.4 million on road improvements, and $1.49 billion from a tax increment financing (TIF) district to help build the facility.

In August 2017 the Department of Administration estimated that the project wouldn't break even until fiscal 2043. However, the Legislative Fiscal Bureau noted that the department's estimate was highly speculative and flawed in its method, adding that “accounting for the cost of capital could push the break-even point for the project further into the future.” It was noted that potential future wage increases at Foxconn could create a shorter break-even period.

Cracks started to appear in mid-January when Woo sent a letter to the WEDC revising Foxconn's hiring timeline. Of the 1,032 people the company had hired, only 178 were full-time employees; the rest were temporary construction positions.

Foxconn was required to create at least 260 jobs in 2018 to be awarded program tax credits in 2019. However, these same credits can be carried over and awarded in future years, and the jobs did not need to be based in Wisconsin, according to analysis from the state’s Legislative Audit Bureau.

In a joint statement, Vos and Senate Majority Leader Scott Fitzgerald (R) blamed Evers for Foxconn’s altered plans.

“Governor Evers has an anti-jobs agenda and pledged to do away with a successful business incentive for manufacturing and agriculture,” the statement said. The pair highlighted the governor's support for capping the manufacturing and agricultural tax credit, which currently has no ceiling.

Foxconn did not respond to requests for comment by press time. However, local leaders in Racine County — the site chosen for the plant — said in a January 30 statement, “Contrary to what was reported by Reuters, Foxconn reiterated to us, today, its commitment to building an advanced manufacturing operation in Wisconsin, in addition to its commitment to create 13,000 jobs and invest $10 billion in Racine County.”

Similarly, the WEDC issued a statement commending the company’s foresight and adaptability and argued the tax credits are performance-based.

However, the Wisconsin Budget Project pointed out that the TIF bonds, road construction costs, and various other grants amount to over $1 billion and are not tied to job creation.

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