Bruce Murphy
Murphy’s Law

The Secrets of Foxconn

Walker administration won’t release details of massive subsidy until after contract is signed.

By - Oct 26th, 2017 11:55 am
Foxconn chairman Terry Gou and Governor Scott Walker signing a memorandum of understanding. Photo from the State of Wisconsin.

Foxconn chairman Terry Gou and Governor Scott Walker signing a memorandum of understanding. Photo from the State of Wisconsin.

It’s the biggest corporate handout in state history, and the largest subsidy to a foreign company in American history, now totaling $3.8 billion. And yet the full details of the deal between Foxconn and the Wisconsin Economic Development Agency (WEDC) will not be shared with the public until after the contract is signed.

The Legislature approved and Gov. Scott Walker signed the massive subsidy for the Taiwanese electronics company, with the assurance Foxconn would create as many as 13,000 jobs at a $10 billion, LCD panel manufacturing facility it proposes to build in Mount Pleasant in Racine County. But the proposal did not spell out any protection for taxpayers should the company spend less than it promises in capital expenditures or create less than 13,000 jobs, as I wrote. Meanwhile the $3 billion plan has grown in size, as local governments in Racine County pledged another $764 million in subsidies.

The details of this unprecedented deal were left for the WEDC to determine, in a contract to be negotiated with Foxconn. “During the legislative debates, Sen. Alberta Darling (R-River Hills) and other Republicans said they would leave it up to the expertise of the WEDC to create a contract,” Sen. Tim Carpenter (D-Milwaukee) says, in an interview with Urban Milwaukee.

But no one is being allowed to see the contract. At a meeting of the state Legislature’s Audit Committee, Rep. Melissa Sargent (D-Madison) “had requested the document be made available for public review before it is executed,” as the Cap Times reported.

But Mark Hogan, CEO of the WEDC, told her no, as the story noted. “Any contract that WEDC signs is available to the public” only after it is signed, he said. “I’m not going to comment on the Foxconn contract because we’re currently in negotiations, other than to say I think as with any contract, those negotiations are ongoing. There’s never a point in time until you sign the contract that it’s finalized.”

But it’s not just Sargent, the Audit Committee and Legislature that can’t see the details before it is signed. Even the members of the WEDC board cannot see the contract and are asked to vote on it based on a staff review and summary of it. And that information only comes at the last minute, giving him almost no time to ask questions about the technical details, Carpenter says.

“I had two pages of questions on the (contract summary), and they would only give me a half hour with staff, just before the meeting. That wasn’t enough time.” Not to mention that Carpenter was then supposed to vote immediately, with no time to digest the complicated information.

“They don’t give you enough time to understand the details,” he complains. “We’re always a hundred steps behind them.”

So Carpenter asked for a delay in the meeting. “And they denied it.”

The result of so little scrutiny might have been predicted. At the last minute a lawyer working with WEDC found a problem, that Carpenter has called a “nuclear bomb.” As explained to the Wisconsin State Journal, Hogan told board members “that the way the deal was structured the agency couldn’t guarantee it could protect taxpayers if the company violated the agreement…We could have given them all this money and we wouldn’t have been able to get it back.”

The fact that legislators are being excluded from determining the details of the biggest such subsidy in U.S. history seems incredible, but that becomes more astounding when you consider the track record of the agency that is entrusted with making these decisions. There is no department of the Walker administration that has generated as many negative headlines for as many years as the WEDC. It has had constant turnover (“We’ve gone through different heads of WEDC every year,” Carpenter complains) and repeated reviews by the non-partisan Legislative Audit Bureau which has found many problems with its performance.

The most recent report, from last May, found that of hundreds of millions in tax credits, grants and loans authorized since 2011, the agency “cannot be certain about the number of jobs actually created or retained as a result of any awards.” In fact only 12.5 percent of contract awards “even had an expected result of job creation or retention.”

Carpenter points to the 2012 deal with Kestrell Aircraft, which has defaulted on loan repayments to the state. “If we can’t handle a $4 million deal like that that,” he asks, “how are we going to handle a nearly $4 billion deal for Foxconn?”

Finally, the idea of having the WEDC decide the details of state policy seems all the more questionable given that it is not really a public agency. The public-private hybrid has only four elected officials on the board, who are outnumbered by the seven other board members.

“It’s more of a country club mentality,” Carpenter observes. “The staff of WEDC calls the shots. It’s more of a rubber stamp board.”

For example, Carpenter notes, the WEDC spent $200,000 in taxpayer money to do an internal analysis of how well it was tracking the number of new full-time employees at companies receiving WEDC grants and loans in return for their promise to create jobs. But Hogan refused to release the report to board members, calling it “proprietary information,” Carpenter notes.

The revised Foxconn contract is expected to be reviewed at the next WEDC board meeting, tentatively scheduled for November 8th, “but that could be pushed back, depending on what they find,” Carpenter says. He has asked that board members be given the full staff review and contract summary at least 48 hours before the board is asked to vote on it, but has yet to hear if that will happen.

“This whole process really stinks, the way WEDC handles it,” Carpenter charges.

Adding to the stench, he says, is the track record of Foxconn, which is notorious for backing out of deals, mistreatment of employees and other shady operations. Carpenter worries the company will be allowed to cheat the taxpayers. “This is very serious. It’s not really protecting the taxpayers.”

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14 thoughts on “Murphy’s Law: The Secrets of Foxconn”

  1. Adam says:

    No suprises here. Sounds like the Walker adminstration to a ‘T’.

  2. 4 Tax Equity says:

    Good reporting, Bruce.

    WEDC exemplifies our new state motto: “Wisconsin: Open for Exploitation.”

    Who will want to stay or move to a state that is so corrupt that taxpayers must extravagantly fund billions in giveaways without even a pretense of accountability?

  3. Swblackwood says:

    Wow, what a shock. But I am sure our so-called conservatives will find a way to explain it away. Poor Racine County. They will be the BIG losers if this doesn’t pan out.

  4. daniel golden says:

    I’d hire the three stooges to design a nuclear power plant before I would trust this crew of college dropouts and abject mediocrities to negotiate a three million dollar contract. Isn’t it a red flag that they spend 200,000 for consultants to determine how well the staff was doing, and then refused to share the results with the very board they are supposed to be working for?

  5. daniel golden says:

    My error: three billion dollar deal, not three million. My brain refuses to process the horrors of this fiasco.

  6. James says:

    If you have a concern about fraud, mismanagement, or misconduct committed by WEDC, it’s partners or customers, you may also contact the Legislative Audit Bureau’s fraud, waste, and mismanagement hotline at 1-877-FRAUD17

  7. James says:

    Curious as to who sits on the Board that is not controlling its Executive Director? Here’s a link:

  8. John Casper says:

    Bruce, many thanks.

    Appreciate the many fine comments.

    Democratic capitalism requires gov’t to balance the interests of consumers, workers, and shareholders.

    This is welfare to the shareholders.

  9. Jake formerly of the LP says:

    Oh, and now Scotty and WEDC Secretary Hogan are leaving the country for a few days to do a trade trip to Israel (can you say “Sheldon Adelson money”?). So any questions that may come up over this increasingly shady deal won’t be dealt with any time soon.

    Good article Bruce. Something is clearly up, and given that the Wisconsin taxpayer is fronting the money for this boondoggle, it is absurd that Walker and WEDC feel we don’t have a right to know what we are paying for.

  10. geo says:

    Isn’t openness in government one of AG Schlemiel Schimel pet projects? Perhaps we should call his office and demand that the contract be made available to the taxpaying funders of this project.

  11. Timothy J Haering says:

    I’m still dancing, I’m just a change machine
    Don’t have to tell me I’m only waving my arms
    But there’s so much smoke and so little fire
    And there’s nobody on this line but me

    Carpenter hyperbole. Sure, it’s a risk but it’s not a cow for a handful of beans. It’s pawning your car for 10K shares of a penny stock. Hitting 00 Green and letting it ride. Maybe. WHo knows, if none of us knows the details?

    And hey, Kasper, “Democrat capitalism” sounds like socialism to me. Capitalism, as Rand noted, is about self-interest. Not self-ish-ness, self-interest. They are different. Selfishness is doing whatever you want without regard for others. Self interest can be much the same, except what if I decide it’s in my self -interest to give my life savings to the Red Cross because I thought Liddy Dole’s 1996 convention speech was pretty neat. MY son could retire his student debt on that money.

    FOxconn IS corporate welfare, you got that right. SO was the BUcks arena and Miller Park. That’s just the way it is it is it is, Jackson.

  12. John Casper says:

    Timothy J., did you learn punctuation at Sheriff Clarke’s school of plagiarism?

    To avoid plagiarism–Todd Rundgren in this case–use quotation marks. That avoids you falsely taking credit for something you didn’t write. “Thou shall not steal.” They’re not the TEN Suggestions.

    Haering “hyperbole.”

    There’s no risk for Foxconn’s shareholders. It’s a “cow for a handful of beans.” It’s socialism for the elites. As Adam Smith, “noted,” capitalism doesn’t work outside democracy. It’s the people, not the elites, who decide what has value. Monopolies and oligopolies–what the elites own–stifle innovation. It’s what generates improvements in productivity. That’s what creates wealth. Just because you don’t know everything, doesn’t mean you don’t know something.

    Michael Novak takes a lot of money from the Bradley Foundation. Like you, they want more socialism for the elites. Novak wrote a book, “The Spirit of Democratic Capitalism.” Even stopped clocks are right twice a day. Novak got “democratic capitalism” from Adam Smith.

    Have you ever heard of Adam? He’s an authority on capitalism, Ayn Rand knew Frank Lloyd Wright and wrote as though she was paid by the word.

    Think the word you’re searching for is “enlightened,” as in enlightened self-interest.

    “Without spending–there are no sales;

    Without sales–there are no profits;

    Without profits–there is no demand for workers;

    Without demand for workers–there is no job creation;

    and without job creation–there is no recovery!”

    I got that from economist Pavlina Tcherneva. @ptcherneva

    How could you retire your son’s student debt on money you gave to the Red Cross?

    Here’s a link to Liddy’s speech. What did you like about it?

  13. Eric J says:

    -Conservative ” Free Market” at its best .
    -Picking winners & losers.
    -I don’t hear any Tea party complaints.

  14. Bill Kurtz says:

    Having Scott Walker negotiate with Foxconn is liking entering your family Chihuahua in the national pit bull tournament.

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