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State says Foxconn cannot receive billions in tax credits until new contract is drafted
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DEVELOPMENT DEAL | FOXCONN

State says Foxconn cannot receive billions in tax credits until new contract is drafted

From the Keep up with the latest news on Foxconn in Wisconsin series
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Wisconsin is denying Foxconn Technology Group billions of dollars in state tax credits until officials with the company come to the table to draw up a new contract for the Racine County project — once touted as the “eighth wonder of the world” by President Donald Trump.

Even if Foxconn were to receive state funding, the company could face financial penalties through claw-back provisions included in the existing contract if a new agreement isn’t reached.

In a letter sent Monday to the Taiwan-based company’s Vice Chairman Jay Lee, Wisconsin Economic Development Corp. Secretary Melissa Hughes said “Foxconn’s activities and investments in Wisconsin to date are not eligible for credit” under the more than $3 billion contract first signed back in 2017. The letter also underscores that negotiation attempts between the state and company this summer failed to result in a new contract.

“As we have discussed numerous times, markets, opportunities and business plans can and often need to change,” Hughes said in the letter to Lee, which was obtained by the Wisconsin State Journal through a records request. “I have expressed to you my commitment to help negotiate fair terms to support Foxconn’s new and substantially changed vision for the project.”

The news deals a major blow to the embattled Foxconn project, which Trump described as “transformational” for the state and national economy at a 2018 groundbreaking ceremony. It comes as Trump touts his economic record while trailing former Vice President Joe Biden in state and national polls in the Nov. 3 election.

Republican former Gov. Scott Walker signed the contract in 2017, and Hughes was appointed by Democratic Gov. Tony Evers.

In a statement on Monday, Foxconn said company officials “came to the table with WEDC officials in good faith to discuss new terms of agreement which have consequential impacts to Racine County and the Village of Mount Pleasant, third party partners in this development project.”

“WEDC’s determination of ineligibility during ongoing discussion is a disappointment and a surprise that threatens good faith negotiations,” Foxconn said in a statement.

The company reported in the summer it had created enough jobs in southeastern Wisconsin last year to receive state funds — despite being told almost a year ago that the $3 billion in tax subsidies would not be doled out until a new contract was drafted to match the project. State officials say tax subsidies agreed to in the contract are tied to jobs and capital investment for specific projects, which Foxconn is failing to deliver.

This year would have marked the state’s first payment of refundable tax credits to Foxconn. The company fell 82 jobs short of the minimum required to claim state tax credits in 2018.

Foxconn said it created more than 800 jobs in 2019, above the 520 minimum needed for state subsidies. However, under the contract the goal was to have 2,080 full-time jobs and more than $3.3 billion in capital expenditures by the end of 2019. Foxconn’s jobs report this summer also identified more than $415 million in capital investments — a considerable difference from the $280 million reported by Foxconn in April.

“Foxconn has not received any tax credits from the State of Wisconsin despite achieving employment levels above 520 people and investing $750 million in Wisconsin that includes over a half a billion dollars invested in Foxconn’s manufacturing park,” the company said in a statement.

In a joint statement Monday, Village of Mount Pleasant President David DeGroot, Racine County Executive Jonathan Delagrave and Racine County Economic Development Corp. Executive Director Jenny Trick said they were disappointed to see that the state would not be granting Foxconn any tax credits. Officials said the company had made $8.4 million in tax payments at the end of 2019.

“Despite investing hundreds of millions of dollars and hiring hundreds of people, into Wisconsin, Foxconn has received no tax benefits from Wisconsin,” Sen. Van Wanggaard, R-Racine, said in a statement. “Yet, Foxconn continues to develop a world class facility in Mt. Pleasant, and is quickly becoming a valued partner in southeastern Wisconsin’s economic rejuvenation.”

According to a project verification letter sent Monday, the company employed fewer than the minimum required 520 full-time employees and had invested roughly $300 million in capital expenditures. The report states that only 281 of Foxconn’s reported jobs would be eligible under the current contract.

Not adding up

Regardless of how many jobs were added, WEDC said in the letter, the state is unable to calculate job creation or capital investment tax credits because Foxconn has failed to carry out the project as promised.

“Dr. Lee, there is a path open for incentivizing additional development in the Zone on a win/win basis,” Hughes said. “Once Foxconn is able to provide more accurate details of the proposed project, such as its size, scope, anticipated capital investment, and job creation, WEDC would be able to offer support for the project with tax incentives as it does for many large and small Wisconsin businesses.”

Claw-back provisions in Foxconn’s original contract show that, if the agreement is not amended by the end of 2023, the company could face up to $500 million in recovery payments — if the company were to receive state aid.

Walker’s contract with Foxconn would provide incentives totaling as much as $3 billion over 15 years if the company reached the 13,000-employee benchmark and made a $10 billion capital investment in the state.

However, multiple updates to the company’s plans have resulted in a vastly different project, state officials have said.

Scaled back

While originally promised as a Generation 10.5 facility that would build larger panels for TV screens, the project has downsized to Generation 6, which would manufacture small screens for mobile phones, tablets, notebooks and wearable devices.

“Today’s announcement cements Foxconn’s legacy in Wisconsin as one of broken promises, a lack of transparency, and a complete failure to create the jobs and infrastructure the company touted in 2017,” Assembly Minority Leader Gordon Hintz, D-Oshkosh, and longtime Foxconn critic, said in a statement. “Looking to the future, I hope lawmakers will assess projects based on what is best for Wisconsin, and utilize rigorous, independent economic analysis based in reality, rather than chasing pie-in-the-sky projects reeking of short-term political motives.”

Foxconn officials first came to the state in March 2019 to discuss amendments to the contract. Late last year, Evers’ administration told the company it no longer was eligible for tax subsidies under the existing contract, and a new document would need to be drafted. While amending a contract is a common practice, officials have said the state cannot unilaterally change the agreement without Foxconn’s participation.

Last month, Peter Navarro, White House director of trade and manufacturing policy, told the State Journal he was confident that Foxconn’s project will “bear great fruit“ after the country recovers from the ongoing COVID-19 pandemic.

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