Evers wants to change Foxconn contract to reflect scaled back project

Last updated on July 2nd, 2019 at 09:11 pm

Gov. Tony Evers is looking to renegotiate portions of Wisconsin’s contract with Foxconn Technology Group, saying the company has scaled back its plans and is unlikely to hire 13,000 people in the near future.

Gov. Tony Evers

“Clearly the deal that was struck is no longer in play and we will be working with individuals at Foxconn and of course with WEDC to figure out how a new set of parameters should be negotiated,” Evers said at a Capitol meeting with reporters. The governor’s office provided BizTimes a transcript of the remarks.

Evers did not say how many jobs he expects Foxconn to create, but he did say 13,000 is “an unreal expectation” and discussed the project in terms of 1,300 to 2,000 jobs.

Foxconn did not immediately respond to requests for comment on the governor’s remarks.

Republican legislative leaders criticized Evers’ comments, arguing he was undermining the project.

“Since the election, I have been concerned that Governor Evers would try to undermine the state’s contract with Foxconn. Luckily, WEDC negotiated an ironclad contract with expectations from both sides,” Assembly Speaker Robin Vos said. “As Foxconn works to create 13,000 jobs in Wisconsin, I’m open to hearing if any flexibility is needed to achieve that goal, which I hope is the intent of Governor Evers.”

Former Gov. Scott Walker struck a deal with Foxconn chairman and CEO Terry Gou in 2017 that called for Foxconn to invest $10 billion and create 13,000 jobs in Wisconsin with the construction of an LCD screen fabrication facility in exchange for $3 billion in state tax incentives. After local incentives and other infrastructure projects, most estimates put the potential public support for the project at more than $4 billion.

Foxconn’s plans, however, have repeatedly changed and evolved since the deal was first announced. In 2018, the company said it would build a smaller plant that would not require an onsite glass manufacturer. Project supporters had touted the possibility of a $1 billion Corning glass plant as one of the deal’s major benefits, but Corning executives said they would need two of every three dollars to be subsidized if they were to build the plant.

Earlier this year, Foxconn confirmed it was again re-evaluating what kind of plant it would build amidst an oversupply of display screens in the market and rising global trade tensions. The company eventually said it was committed to building the smaller plant after talks with the White House and a personal conversation between President Donald Trump and Gou.

Foxconn also announced in January that it created 178 jobs in 2018 that would qualify for tax credits, well short of the 260 minimum it needed to reach in order to receive the credits. To earn the full $9.5 million available last year, the company needed to create 1,040 jobs.

The contract negotiated between Foxconn and the Wisconsin Economic Development Corp. called for the company to rapidly increase employment in the state. Foxconn is currently required to have 2,080 employees to earn around $19.1 million in tax credits and at least 520 employees to earn any payroll tax credits.

Renegotiating the deal with the state could help Foxconn by making it possible to earn credits the current ambitious timeline make it difficult to reach.

Evers said it was too early to say what elements of the contract could be renegotiated.

“That’s premature to say that but all we know is that the present contract deals with a situation that no longer exists so it’s our goal to make sure that taxpayers are protected and environmental standards are protected and we believe that we need to take a look at that contract and see if it needs to be downsized as a result,” Evers said.

The Foxconn contract awards tax credits in two ways. The company earns a 17-cent credit for every dollar of eligible payroll spending and 15 cents per dollar of capital investment. The payroll credits require the company to hit certain minimums but the capital investment credits do not.

It would be theoretically possible for the company to earn more than $500 million in capital spending tax credits by 2022 without ever hitting its minimum job creation targets.

If Evers and Foxconn renegotiate the deal, the two sides could potentially change the rate at which the company earns tax credits, the timeline for how many jobs the company needs to create each year or both.

The Foxconn contract also includes provisions for the state to recover some of the tax credits if the company falls short of its certain benchmarks starting in 2023. Those clawbacks are guaranteed by Hon Hai Precision Products, the publicly traded company behind the Foxconn brand, and a personal 25% guarantee from Gou. Depending on how many tax credits had previously been awarded and when the company breached its contract, Gou could personally be on the hook for more than $240 million.

Foxconn chairman Terry Gou

The Taiwanese billionaire said earlier this week he planned to step back from daily operations at the company to allow a younger generation of leaders to take over. The company called reports he was stepping down as chairman inaccurate.

On Wednesday, a number of outlets reported Gou announced he would run for president in Taiwan. Foxconn said the media reports “misinterpreted Mr. Gou’s actual remarks.”

“Mr. Gou stated he will run for the KMT’s nomination for president if the primary process – which is still being determined by party leadership – is open, transparent and ground,” the company said in a statement. The KMT or Kuomintang is Taiwan’s nationalist party but is also seen as closer to mainland China than the Democratic Progressive Party.

A WEDC spokesman said questions regarding whether Gou’s potential election as head of state of another country was problematic for his guarantee on the contract was “too speculative for us to formulate a position on.”

Evers said he did not think Gou’s possible presidential bid would have an impact on the Foxconn deal in Wisconsin.

“I think we’re at a point now where (we) are relatively confident that the original footprint of that project is going to be much smaller, but it seems to be a footprint that everybody agrees is likely to happen,” Evers said.

He said his focus was on protecting taxpayers, meeting environmental standards and having clarity and consistency in Foxconn’s message.

“Whether Mr. Gou is a part of that enterprise or not, those are still my expectations and I think we’re in a much better place than we were several months ago,” Evers said.

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Arthur covers banking and finance and the economy at BizTimes while also leading special projects as an associate editor. He also spent five years covering manufacturing at BizTimes. He previously was managing editor at The Waukesha Freeman. He is a graduate of Carroll University and did graduate coursework at Marquette. A native of southeastern Wisconsin, he is also a nationally certified gymnastics judge and enjoys golf on the weekends.

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