The Wisconsin Economic Development Corp. board Wednesday approved a $3 billion contract with Taiwanese manufacturer Foxconn, a deal the company’s CEO is personally backing should it fall apart.
The board voted 8-2 with member Tom Sylke, an intellectual property lawyer, abstaining.
WEDC CEO Mark Hogan said after the vote that the contract was the product of 28 weeks of negotiations in which the state sought to balance flexibility for the company and protection for state taxpayers.
“What we’ve done on a collective basis has been able to put together a contract that reflects and achieves both of those goals,” Hogan said. “We’re excited about the opportunity for the state to move forward.”
Rep. Dana Wachs, D-Eau Claire, who along with Sen. Tim Carpenter, D-Milwaukee, voted against the contract in closed session, said spending $3 billion on one company within one industry “is a risk that is too much for our taxpayers.”
“I had hoped that this would be a deal I could support, but it just is too much money for this deal,” said Wachs, a 2018 Democratic gubernatorial candidate.
The vote took place in private but was announced immediately afterward.
The company is planning to manufacture liquid-crystal display (LCD) screens at a 20-million-square-foot campus in Mount Pleasant starting in 2020.
Under the terms of the 29-page contract, released publicly for the first time Wednesday, the company will be able to collect up to $1.35 billion in construction-related tax credits if it creates a gradually increasing number of manufacturing jobs up to 8,450 through 2025. It will also be able to collect up to $1.5 billion in tax credits if it creates up to 13,000 manufacturing jobs by 2022 and maintains that number through 2032.
Though Gov. Scott Walker and Foxconn CEO Terry Gou agreed earlier this year on a $10 billion investment by the company, the contract only requires the company to invest $9 billion in the state to be eligible for tax credits. Hogan said the company still plans to invest $10 billion, but the construction tax credits are based on a $9 billion commitment.
The jobs must pay at least $30,000 per year and average $53,875 annually. The job credits pay out 17 percent of the first $100,000 of salary, which is higher than 7 percent for the state’s typical enterprise zone job credits. The construction credits equal 15 percent of capital investment, up from 10 percent in a typical enterprise zone.
The company will be eligible to receive up to $10 million in job credits starting in 2018 if it creates 1,040 jobs in the state. To receive any credits next year, the company must create at least 260 jobs. But if the company doesn’t earn the credits in a given year, they can be carried forward into subsequent years.
Within five years, the state can reclaim any credits it pays out if the company provides false information, leaves the state or ceases operations and doesn’t restart within a year. Those violations could result in the company owing as much as $965 million if they occur in the years after 2022. Also after that point, if the company employs fewer than 6,500 workers the state can reclaim a sliding scale ranging from $500 million in 2023 to $250 million in 2032.
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Compliance with the terms will be audited by an independent accountant based on a sample of the company’s workforce at the end of each year.
Gou and his holding company, SIO International, are pledging to pay back 25 percent of the amount that would be refunded to the state should the company default. Publicly traded parent company Hon Hai Precision Products, the 27th largest company in the world, would back the rest.
After 2032 the deal ends and the state would have no recourse should the company reduce its Wisconsin workforce. The nonpartisan Legislative Fiscal Bureau anticipates the state will recover the $3 billion in lost tax revenue by 2042.
Wisconsin Technology Council president Tom Still, who has supported the deal throughout the process, said Gou’s personal guarantee and connecting the construction tax credits to the company’s manufacturing workforce in the state during construction are unusual for deals of this magnitude.
“It sounds like a pretty good belt and suspenders,” Still said.
The $2.85 billion in tax credits will mostly be paid from the state’s existing tax collections because the company also will benefit from a state tax credit that almost eliminates state corporate taxes for manufacturers. The amount of that benefit to the company is unknown and Hogan said the state didn’t calculate the amount when negotiating with the company.
Foxconn is also receiving a sales tax exemption estimated to be worth $150 million, similar to the Milwaukee Bucks arena deal. And it is eligible to receive a $100 million incentive as part of a $764 million tax incremental financing district for infrastructure improvements offered by local officials in Racine County.
The WEDC board vote is the final layer of public oversight before the contract can be signed and construction can begin, likely sometime next year. Walker and Gou will sign the contract Friday in Racine.
The WEDC board received a copy of the contract Monday ahead of the vote, breaking with the agency’s past practice of only providing a staff report summarizing the deal.
The board had been scheduled to vote on the contract on Oct. 17, but the vote was delayed for unspecified reasons. After public pressure mounted on the agency to release the contract, it announced Friday the contract would be provided to board members.