Foxconn Technology Group’s new deal
with the state of Wisconsin would generate a return on investment by 2028 if the company hits its hiring and investment targets, according to a Wisconsin Economic Development Corp. staff review of the contract.
The roughly 9-year wait – starting from 2020 – for a return is a dramatic shift from the 20 to 25 year window WEDC staff estimated for the original contract with Foxconn. The original deal also offered incentives over a 15-year period compared to a 6-year period under the amended contract
The new deal offers the company the chance to earn up to $80 million in tax credits through the end of 2025 in exchange for creating 1,454 jobs and investing $672 million in capital expenditures.
Even though the new contract is less than 3% of the size of the original $2.85 billion tax credit offered to Foxconn, it is still the largest incentive the state has ever awarded.
If Foxconn hits its job and investment targets, WEDC estimates that income tax from Foxconn employees and construction workers would offset the $80 million incentive by sometime in 2028. The cash flow projections, which are based on information from Foxconn, assume hitting hiring targets, which start at 601 jobs for 2020 and ramp up to 1,454 by 2024.
WEDC used modeling software to account for Foxconn’s hiring along with jobs at suppliers and surrounding economic activity. The agency estimates around $3 million in income tax from those jobs to the state in 2020, ramping up to $7.1 million in 2024. Foxconn’s projections show an average annual wage of $53,875 with roughly 1% increases each year of the contract.
The projections also include nearly $29.8 million in income taxes paid from construction jobs supporting the Foxconn project.
“I believe that with this contract we have found a solution that works for the taxpayers of Wisconsin and for Foxconn,” Missy Hughes, secretary and chief executive officer of WEDC, told reporters this week. “It works because it reflects the basic principles of economic development, reasonably investing in a project to incentivize a company to locate and grow in Wisconsin while assuring that there is a return on the investment made.”
The original Foxconn contract called for the company to build a Gen 10.5 LCD fabrication facility in Mount Pleasant to produce large TV screens. The allure of bringing a new industry to the state, along with an estimated $1.4 billion in annual supply chain purchases with Wisconsin companies, helped justify the larger incentive package. Foxconn was offered 17% credits on its wages and 15% credits on its capital investment on the original deal. The new contract offers 7% and 10% credits on those investments, the same structure WEDC offers on other large incentive packages.
“A guiding principle for us as we renegotiated was to have Foxconn's new agreement be reflective of agreements with many of our other Wisconsin companies, so by right-sizing the agreement to reflect the investment that Foxconn is making and the jobs that they are going to create, we then have the ability to say 'Foxconn is being treated the same as many of our other companies,'” Hughes said.
Still, the Foxconn project has evolved dramatically since it was first announced. By the spring of 2018,
the company had shifted from planning to make large screens to a smaller LCD plant that provided more flexibility. A number of other product ideas were also floated
. The latest plan calls for an emphasis on advanced manufacturing
and making servers for high-performance computing and data centers.
Asked if WEDC had received a clear enough vision for the project from Foxconn to still support the largest incentive in state history, Hughes noted she had seen the assembly lines for data servers when touring the site in the fall. She added that “Foxconn’s prowess is in being a contract manufacturer.”
“As we had conversations with Foxconn, they are exploring different opportunities to bring that manufacturing, that advanced manufacturing, to Wisconsin,” she said.
“The original Foxconn agreement was unusual in that we were agreeing with them that they were going to produce a very specific item and so as we've entered into the new contract with Foxconn, they have gotten the flexibility that they were seeking and we've been able to significantly reduce the taxpayers’ burden over the course of the 15-year contract that was originally entered into,” Hughes added.