Bruce Murphy
Murphy’s Law

Why Foxconn Won’t Leave Wisconsin

It's spent hundreds of millions and gained nothing. Why not fold up its tent and leave?

By - Oct 21st, 2020 03:44 pm
Foxconn deal signing. Photo by Graham Kilmer.

Foxconn deal signing. Photo by Graham Kilmer.

Back in December I wrote a column suggesting the state’s deal with Foxconn was dead. The reason was simple: Foxconn was out of compliance “in many different ways” with the contract it signed with the state and was refusing to renegotiate it despite repeated requests by the Evers administration and Wisconsin Economic Development Corporation to do so.

Rather than renegotiate, which would have resulted in a massive cut in its subsidy, reflecting the massive reduction in the planned project, Foxconn decided to try and game the system. As Urban Milwaukee reported in March, the contract former Gov. Scott Walker created with Foxconn included a huge loophole. The company could hire hundreds of employees on a short-term basis, get the state tax credits for capital expenditures and then lay off the workers.

As the recent bombshell story by The Verge reported, that’s exactly what Foxconn did, hiring hundreds toward the end of 2019, claiming them on its report to the state for the 2019 year, and then quickly laying the employees off early in 2020. One former Foxconn employee called it a “pump and dump” operation.

The story also makes clear that none of the employees were hired to work on any actual project, because Foxconn has yet to figure out what it can manufacture successfully in Wisconsin. The company has considered the following businesses, The Verge reported: fish farms, exporting ice cream, storing boats, cosmetics, designer handbags, gaming teams, dairy exports, and a project involving “camera-festooned autonomous vehicles.” For some reason the story left out my favorite, airport coffee kiosks. 

In response to the story, Foxconn founder Terry Gou released a press release declaring the company will “continue to work… to create more jobs” and “has pressed forward with its Wisconsin plans.” Except that Gou stepped down as head of the company back in January 2019 and while he still serves on the company’s board, is no longer the spokesperson for the company.

Yet the Milwaukee Journal Sentinel, in one of its funniest headlines ever, featured the press release in a story announcing that “Foxconn says its commitment to Wisconsin ‘has not wavered’ though its plans have changed.” And what exactly are those “plans”? The story didn’t explain. 

What has kept Foxconn in Wisconsin? Gou claims “Foxconn has invested approximately $750M in Wisconsin,” which is probably an exaggeration, but it has spent significantly “even though it has not received any incentive payments” from the state, as he noted. And Foxconn has a long history of walking out of deals it promised with other nations and a couple states in the U.S. Yet more than three years into a money losing project it hasn’t left Wisconsin.  

The Verge reporter Josh Dzieza suggests Foxconn has stayed because the company doesn’t want to disappoint President Donald Trump, who has been a huge proponent of Foxconn, tying the project to his promise to bring back manufacturing to middle America. If so, Foxconn would be leaving Wisconsin next month should Trump lose the election.

But I have my doubts. I think what’s keeping Foxconn here is a contract it signed with Mount Pleasant and Racine County, where the company’s supposed “manufacturing” plant — in September the company received a permit to change its intended use to “storage” — is located.  

Local officials went all out for the project. Mount Pleasant’s annual budget is just over $15 million, yet in late 2017 the village and Racine County (whose budget was $151.6 million that year) jointly approved a figure 50 times higher than the village’s budget — $764 million in spending — for land acquisition, road construction and new infrastructure. Some 42 miles of water pipes, 26 miles of gas pipes and 28 miles of telecom wires were constructed, all for what was supposed to be a 20-million-square-foot manufacturing plant and is now a 1.1-million-square-foot storage facility. 

But the village protected itself. To pay for all this it created a Tax Incremental Financing district that was expected to generate $30 million in property tax revenue a year, based on Foxconn being assessed for $1.4 billion in taxable improvements by January 1, 2023. And if Foxconn didn’t build those improvements, which it clearly won’t, it will still be taxed based on $1.4 billion in improvements under the contract.

In short the company is required to pay that $30 million in taxes a year, even if it isn’t manufacturing anything, or making any money at the plant. Right now, given all the plans and products it has considered and rejected. its main way of making money would seem to be getting tax credits from the state. Except that the administration of Gov. Tony Evers has made clear it won’t fall for this. 

What if Foxconn folds up its tent and leaves town? Then the village would have to go to court to try and enforce the contract. That could result in a protracted legal battle, which wouldn’t help Foxconn the next time it tries to do a deal in the U.S. or any other westernized country. 

The irony is that local officials were far tougher than Walker, who gave Foxconn anything it wanted, including a giant loophole that allowed it to get tax credits even if no real jobs were created. But it’s that tougher, smarter local government contract that’s preventing Foxconn from leaving, and Wisconsin from closing the chapter on what is surely the biggest business fiasco in state history. 

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4 thoughts on “Murphy’s Law: Why Foxconn Won’t Leave Wisconsin”

  1. Dan Wilson says:

    I don’t agree that local officials got much protection with the property tax guarantee. Foxconn will eventually default and yes there will be a court battle but in the end, without a hold harmless provision with a state guarantee, Mt. Pleasant, and the City of Racine will have to get used to 30 years of payments that will fall on local property owners and water and sewer rate payers.

  2. dmkrueger2 says:

    This is why I pay for membership. Thank you!

  3. Alan Bartelme says:

    Didn’t the agreement include a state guarantee of the local government incentives? I thought there was language that the state could still get stuck with the bill if Foxconn bails out, which of course runs contrary to the GOP’s assertion that the state is fully protected.

  4. Claude Krawczyk says:

    On-line slang dictionaries provide these definitions of two commonly used words:

    “A fox is a deceitful person, or someone who is always tricking others.”

    “To con someone is to deceive or take advantage of a person through fraud or trickery after winning the person’s confidence.”

    Perhaps it’s time to elevate the name “Foxconn” right up there with “Ponzi” as in: “this must be some sort of Foxconn!”

    Claude Krawczyk

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