Foxconn deal lowers company’s targets, cuts costs to state

New flexibility could make it easier for company to get credits it has been denied in previous years

Foxconn Groundbreaking
Wisconsin Gov. Tony Evers' administration has negotiated a new agreement sharply reducing the state incentives that were originally offered the company more than three years ago. Shown here at the June 2018 groundbreaking in Mount Pleasant are, from left, Christopher Murdock, then-Gov. Scott Walker, then-President Donald Trump,, Foxconn Founder and CEO Terry Gou and then-House Speaker Paul Ryan. (White House photo)

Under the new deal state officials announced this week with Foxconn for its plant in Racine County, the Taiwan-based company could potentially collect on tax credits for the first time based on its employment through the end of 2020.

The revised agreement qualifies Foxconn for tax credits worth up to $29 million for 2020 if it meets revised targets, according to the new contract documents released Tuesday. Those potential credits include up to $2.2 million for jobs created and just under $26.9 million for capital investment at the plant, located in the village of Mount Pleasant, where the company once promised to make new-generation flat screens, and has since repeatedly changed its plans.   

The revisions negotiated by the administration of Gov. Tony Evers sharply reduce the company’s hiring goal and timeline, but also cut the cost to the state if the company hits its benchmarks. At the same time, the deal frees the company from having to stick to its original, narrowly defined business plan in order to qualify for the state incentives.

Where the company had once promised 13,000 new jobs and $10 billion in capital investments by the end of 2032 to qualify for state tax credits worth $2.85 billion, the new agreement sets both the benchmarks and the rewards at fractions of those numbers.

Foxconn could now receive up to $80 million in tax credits under the revised contract with the state — less than 3% of the original figure. To qualify, the company must create 1,454 jobs paying on average $53,875. Foxconn also must make capital investments of $672 million on the site. The agreement’s new term runs through 2025.

The agreement also allows the state to claw back 100% of the benefits it provides if the company defaults on its end of the bargain.

In return for giving the company much smaller targets, the agreement no longer specifies that the state’s incentives require the company to fabricate the high-end Generation 10.5 liquid crystal display screens that were the original justification for the plant. Instead, the deal is open ended, simply specifying a technology and manufacturing operation on the site.

“The amended terms in the agreement are based on Foxconn’s current projections for digital infrastructure hardware products through 2025,” Foxconn said in a statement released Tuesday afternoon.

Performance report due

The company’s next annual report to the state is due July 1, when it will submit information on its hiring and capital investment through December 31, 2020. The agreement calls for at least 461 full-time jobs and a target number of 601 full-time jobs through that period to qualify for tax credits. 

The company was denied tax credits after its two previous reports because its job numbers had fallen short. The Evers administration has taken the position that without the Gen. 10.5 project written into the original agreement, the company didn’t meet the qualifications.

Land acquisition, infrastructure and road improvements on the site have already cost state and local government more than $1 billion. 

The governor’s office pointed out in its announcement summarizing the details that the new agreement “[allows] Foxconn, like other manufacturers in the state, to earn tax incentives without specific requirements as to what it produces or manufactures, as long as it meets the hiring and capital investment targets.”

The board of directors of the Wisconsin Economic Development Corp. (WEDC) approved the new agreement after a closed session Tuesday to discuss it.

Wisconsin Economic Development Corp. CEO Missy Hughes (Photo courtesy of WEDC)

“The agreement provides the opportunity to be responsive to the marketplace that a modern, forward-looking company like Foxconn needs to pursue innovation,” stated Missy Hughes, the WEDC CEO and secretary-designee. “At the same time, by right-sizing the contract, our state is in a position where we can ensure that all businesses – everywhere – have the resources they need to grow and prosper.”

The deal allows Evers to claim a win on one of his campaign promises when he ran in 2018 against Gov. Scott Walker, whose administration negotiated the original deal.

“When I ran to be governor, I made a promise to work with Foxconn to cut a better deal for our state — the last deal didn’t work for Wisconsin, and that doesn’t work for me,” Evers said in a prepared statement.

The new contract, he added, “treats Foxconn like any other business and will save taxpayers $2.77 billion, protect the hundreds of millions of dollars in infrastructure investments the state and local communities have already made, and ensure there’s accountability for creating the jobs promised.”

Sen. Dan Feyen (R-Fond du Lac), who sits on the WEDC board, endorsed the new agreement and called the plant “a transformational opportunity for our Wisconsin.”

No new operations details

The Walker administration’s original agreement for tax credits approaching $3 billion was met with skepticism, both by Democrats in the Legislature and by national analysts.

After Foxconn announced it was abandoning its original flatscreen plans, the company floated a succession of proposals for the site. Most recently, the company announced plans to work with Fisker Inc., a California start-up firm, to manufacture electric cars.

Hughes, at her confirmation hearing last month, said there was some interest in helping connect Foxconn with Oshkosh Corp. to take part in a federal contract to build new vehicles for use by U.S. Postal Service letter carriers.

Tuesday’s announcements had no details about what work is underway at the Mount Pleasant plant. Feyen’s statement said the company was exploring electric vehicles, digital health care products, robotics and semiconductor technologies, while Foxconn’s own statement was far less specific.

UW-Madison economist Steven Deller (UW-Madison photo)

“Foxconn has had this horrible reputation of floating these ideas with a lot of fanfare — and they’re just ideas,” says Steven Deller, an economist and community development specialist in the University of Wisconsin-Extension department of Agriculture and Applied Economics.

Deller tells the Wisconsin Examiner that the Evers administration, in renegotiating the Foxconn agreement, made the best of a challenging situation.

Most big incentives to lure businesses are “a waste of taxpayer money,” Deller says. Research has shown that while businesses will accept incentives when offered — and the largest companies have learned how to use them to wrest benefits from state and local governments — they are less likely to determine a company’s ultimate decision than other factors.

“These kinds of incentives don’t work,” he says. “Politicians feel as though they need to do something. These are shiny and flashy.”

Deller credits the Walker administration with setting “very specific benchmarks” for the original incentives, but the original targets were going to be unattainable. Wisconsin “should never have been in this position,” he says.

Walking away entirely from Foxconn would likely have been politically untenable for Evers, however.

Assembly Speaker Robin Vos (R-Rochester), who has appointed himself to the WEDC Board in the 2021-22 legislative term, has publicly defended the original contract. Vos claimed in a television interview over the weekend that the company had met its original benchmarks — despite the WEDC analysis to the contrary.

In a statement Tuesday afternoon, Vos dismissed the skepticism of the original deal as “liberal criticism” and said he had toured the company’s facilities and was “excited about the incredible things they are working on.”

But Deller says Evers “had no choice” but to seek a revision. “The original deal was a bad idea,” the economist says, “and Foxconn did not live up to what was originally talked about.”