Wisconsin Refuses Foxconn Tax Subsidy Payment As Company Abandons Factory Plans

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by Tyler Durden
Monday, Oct 12, 2020 - 03:50 PM

More than two years have passed since President Trump presided over the ground-breaking ceremony - alongside then-Gov Scott Walker - of a new Foxconn plant in Wisconsin, a deal the president hailed as proof of the world's confidence in his job-creating prowess.

Unfortunately, that photo-op turned out to be the high-point of the deal, and what was slated to become Foxconn's first factory in the US has been  plagued with issues from the start. However, the state can only seemingly venture a guess as to what those problems are. 

There was talk about Foxconn needing to bring in its own Chinese engineers due to skilled labor shortages. But we can't say for certain whether this, or another issue - say the souring mood between Washington and Beijing - might be to blame.

The initial deal called for Wisconsin supplying $3.3 billion in state subsidies in exchange for Foxxconn investing $10 billion into a new LCD manufacturing plant, which was projected to create 13,000 "family sustaining" manufacturing jobs; that's a rate of roughly $230,000 per job. However, the state has already sunk money into the project. Though none of what has been spent so far can be clawed back from Foxconn.

From the beginning, the vision for Foxconn's first factory in the US seemed almost too grandiose to be true. And as early as 2018, it appeared that the company had dramatically scaled back its plans. Since then, the company has been - as the Verge put it - "confusing the hell out of Wisconsin", one minute saying plans for the factory had been abandoned, before turning right around and saying they were back on.

At one point, the company promised to instead fill the space with a much smaller number of "knowledge workers" working on a "mysterious" platform called "AI 8k+5G", which sounds like some kind of inside joke.

After walking away from the record-breaking incentive deal struck by Foxconn Chairman Terry Guo and Gov Walker, the new administration in Madison has been pushing Foxconn to return to the table (since the state already spent money on preparing the site where the groundbreaking was held), and on Monday, officials utilized the last bit of leverage available to them: they denied Foxconn's request for some of the tax subsidy "credits" (which take the form of direct payments from the state Treasury to Foxconn) to which the company claimed it was entitled.

Basically, Foxconn tried to juice the number of employees it hired last year by trying to count some jobs outside the scope of the agreement, but the state wasn't buying it.

The Milwaukee Business Journal reported on the details of the application, which was released by the Wisconsin Economic Development Corp, the entity entrusted with overseeing the project on the state's end.

Foxconn Technology Group reported 550 employees in Wisconsin last year and more than $208.3 million in capital spending, which, if verified, would be enough to qualify it for millions of dollars in tax credits under its contract with the state, according to documents released Wednesday.

Those figures released by the Wisconsin Economic Development Corp. from Foxconn showed gains over its activity in 2018, the first year of its contract to receive state tax credits for a major manufacturing and technology campus in Mount Pleasant. The company has fallen under scrutiny after modifying plans for the Mount Pleasant plant and falling behind schedule for original projections to reach 13,000 jobs as early as 2022 and $10 billion in capital spending before 2026.

Foxconn did not seek state tax credits in 2019 after reporting only 178 full-time employees in Mount Pleasant. Nevertheless, Foxconn’s capital spending and worker counts for 2019 are larger than annual figures pledged by other companies that signed tax credit contracts with the state last year.

Though the main building on the site has apparently been completed, construction has continued only haphazardly at the site in Mount Pleasant. Gov Tony Evers says his administration does intend to renegotiate the deal.

Source: Milwaukee Business Journal

Documents explaining the state's reasoning behind the rejection showedthat hundreds of the jobs cited by Foxconn in the application didn't fall under the scope of the agreement, and so didn't count toward the subsidy requirements. The payment would have been the first of the tax credit payments delivered to Foxconn (because this is an example where the taxpayer funded subsidies are actually being doled out in cash).

Secretary Hughes Letter to Dr. Lee 10.12.2020 by Zerohedge on Scribd

But the state gently pressed its wish to renegotiate, citing the fact that "markets, opportunities and business plans can and often need to change." But in a letter documenting the state's reasoning for rejecting the request, the WEDC said Foxconn didn't qualify for subsidies under either the Job Creation credit scheme or the Capital Investment credit scheme. "The fact that the Recipients have neither built, nor started to build or operate, the required Generation 10.5 TFT-LCD Fabrication not in dispute."

23932 FY18 Verification Letter Forms EITMZ Foxconn 20201012 Redacted by Zerohedge on Scribd

Even if Foxconn had managed to clinch this round of subsidies, technically, the state has the right to claw back all the subsidies paid out if Foxconn doesn't complete the project. Still, whether or not denying the payment will be enough to bring Foxconn back to the table remains to be seen.