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Walker Foxconn (copy)

Gov. Scott Walker and President Donald Trump participate in a Foxconn groundbreaking ceremony in June in Mt. Pleasant.

The state's nonpartisan audit bureau is recommending changes to the Wisconsin Economic Development Corporation's procedures to ensure the agency doesn't award tax credits for Foxconn employees who don't work in Wisconsin.

The Legislative Audit Bureau released its first evaluation of WEDC's verification process for tax credits under the state's deal with Foxconn on Wednesday. The audit bureau is required by state law to assess the process annually for the next five years. No tax credits have been awarded to the company yet.

Wisconsin's deal with Foxconn is the largest subsidy to a foreign company in U.S. history. The company, best known for manufacturing Apple iPhones, has promised to invest $10 billion to build an LCD panel manufacturing plant that will create between 3,000 and 13,000 jobs. In exchange, the state will offer about $3 billion in refundable tax credits delivered on a "pay as you grow" basis tied to job creation and capital investment benchmarks. If the company fails to meet certain benchmarks, benefits may be clawed back.

According to the LAB audit, WEDC's procedures for awarding certain tax credits do not comply with state law or with the agency's contract with Foxconn, both of which require the agency to award tax credits based on the wages of employees who "perform services in Wisconsin." However, WEDC written procedures allow tax credits to be awarded for some employees who do not live in Wisconsin as long as they are directed from and paid in the zone that encompasses the Foxconn campus in southeastern Wisconsin. 

In a report submitted to the co-chairs of the Legislature's Joint Audit Committee, auditors recommended WEDC modify its procedures to ensure tax credits can only be awarded for wages earned by employees who perform services in Wisconsin. 

WEDC Secretary and CEO Mark Hogan said the audit gives the agency "ample opportunity to consider LAB’s recommendations and modify our procedures, if necessary, well before any tax credits are verified."

In a letter to state auditor Joe Chrisman, Hogan said the tax credit procedures are designed to encourage Foxconn to expand its footprint throughout the state, by making the wages of employees at Foxconn properties throughout Wisconsin eligible for tax credits as long as their work is "for the benefit of, and directed by, Foxconn's operation in the Mount Pleasant zone."

WEDC's intent is also for wages earned by residents of other states who work for Foxconn and are subject to Wisconsin income taxes to be eligible for tax credits, Hogan wrote.

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WEDC is researching LAB's recommendations and will report to the audit committee by Jan. 31, Hogan wrote.

Audit committee co-chair Rep. Samantha Kerkman, R-Salem Lakes, said the report is "reassuring" to residents near the Foxconn project and throughout the state "to know that this evaluation is setting a baseline for compliance to the terms of the contract."

"Once again, the diligent work of the Legislative Audit Bureau has uncovered a discrepancy that had the potential to cost Wisconsin taxpayers money. This audit has given the Legislature and WEDC the ability to identify this issue and correct it prior to any tax credits being awarded," said committee co-chair Sen. Robert Cowles, R-Green Bay.

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Jessie Opoien covers state government and politics for the Capital Times. She joined the Cap Times in 2013 and has also covered Madison life, race relations, culture and music. She has also covered education and politics for the Oshkosh Northwestern.