The day after informing Foxconn it is not eligible for tax incentives under its current contract, the head of Wisconsin’s economic development agency says the company’s vision for it’s operations in the state is “really important for Wisconsin’s future economy.” “While Foxconn has an incredible vision for the future, we need it to be more
The day after informing Foxconn it is not eligible for tax incentives under its current contract, the head of Wisconsin’s economic development agency says the company’s vision for it’s operations in the state is “really important for Wisconsin’s future economy.”
“While Foxconn has an incredible vision for the future, we need it to be more concreate before we can really interact with it,” said Missy Hughes, secretary and chief executive officer of the Wisconsin Economic Development Corp.
On Monday, Hughes sent a letter to Foxconn leaders informing them of WEDC’s decision the company could not receive tax credits for its work and job creation in Mount Pleasant. The company reached a $2.85 billion tax incentive contract with the state in 2017 that set out yearly targets for job creation and capital investments.
Foxconn acknowledged last year that its 2018 job creation fell short of the targets and did not seek any incentives.
In its 2019 annual report, submitted earlier this year to WEDC, Foxconn said it employed more than 550 people who would qualify for job creation tax credits and had invested more than $280 million in its Mount Pleasant campus.
A BizTimes review of the data Foxconn submitted suggested the company might have been eligible for nearly $45 million in tax credits.
But for Foxconn to receive those incentives, likely in the form of tax refunds because of state income tax credits for manufacturers, the company needed WEDC to verify its eligibility. Under Hughes and Gov. Tony Evers, the agency has taken the position that Foxconn does not qualify for the tax credits because it is no longer building the Gen. 10.5 LCD plant that is specified in its contract with the state.
When Foxconn announced its plans for a $10 billion investment in Wisconsin, the company said it would build a Gen. 10.5 plant designed for making large screens. That plant would have required another $1 billion investment, likely from Corning, for a glass plant located on site. But Corning said it needed two of every three dollars it invested to be subsidized by either Foxconn or the state and the construction of other similar plants around the world created a glut of large screens.
Foxconn changed course and said it would build a Gen. 6 plant in Mount Pleasant, designed for making smaller screens used in laptops, tablets and other applications. The company said this would give it more flexibility moving forward.
In its latest statements, Foxconn refers to the nearly 1 million-square-foot building as an advanced manufacturing facility.
Foxconn and WEDC have tried over the last year to reach a new agreement that would reflect the project’s new direction, but those efforts were unsuccessful.
Asked why the difference in plant matters, Hughes said the entire contract was built around the massive scale of the planned Gen. 10.5 plant.
“It’s not a technicality, it’s the reality of the contract,” she said. “When that foundation isn’t there, the rest of the meeting of the minds between the two parties goes away.”
The legislation enabling Foxconn’s contract essentially took an existing state incentive program and supersized it. Instead of credits of 7% on wages and 10% on capital expenditures, Foxconn could receive 17% and 15% on those two categories respectively.
Supporters of those increases said were justified by the massive size of the project, a planned $10 billion in capital investment and 13,000 jobs. The company said it planned to make $1.4 billion in supply chain purchases in Wisconsin annually, more than three times the combined in-state supply purchases made at the time by Marinette Maine Corp., Quad/Graphics Inc. and Oshkosh Corp.
Even with the changing of its plans, the Foxconn project in Mount Pleasant is still massive. WEDC’s review found around $300 million in capital investment that would have qualified for incentives if the company were building the Gen. 10.5 plant. Only the 2010 enterprise zone for Quad/Graphics is credited with more actual capital investment, according to WEDC records.
A third-party audit required under the contract found more than $415 million in capital expenditures in the state after including money spent outside the Mount Pleasant incentive zone area.
Foxconn says it has now spent more than $750 million in the state.
“Yesterday was a hard day because I didn’t want to discount anything that Foxconn has done up until now,” Hughes said. “We just have this contract that was an artificial fence between us and now hopefully we can say, ‘Hey, let’s talk like neighbors past this fence.’”
The two sides have talked previously, including reaching an agreement, reported by The Verge, designed to keep their talks confidential and outside the scope of open records requests or potential litigation for a 45-day period this summer.
“There’s such scrutiny on this relationship,” Hughes said of the state’s work with Foxconn, adding the agreement allowed the two sides to have “frank conversations.”
Despite not reaching an agreement, the talks were productive, she said.
“I definitely think anytime you have folks sitting down at a table trying to work things through, it’s productive,” Hughes said.
Of course, declaring Foxconn is not eligible for credits could potentially erase that progress. In a statement, the company called the decision “a disappointment and a surprise that threatens good faith negotiations.”
Hughes said she doesn’t think the decision puts the two sides on a path towards litigation.
“I've been on the job for a year and I really spent that time with a mindset that I didn't want this to end up in any kind of a court fight or litigation,” she said. “I feel like that we did everything that we could to avoid that. I really have to say that the relations are not in a place where I think that's where we're headed.”
“This is just one of those unfortunate moments where someone has to say ‘no’ and that's what we did yesterday, but I don’t believe that we're on a path towards litigation and I'll continue to try to avoid that. Nothing good happens in court,” Hughes added.
She’s also not concerned that the state’s decision will deter other companies from expanding or relocating to Wisconsin.
“I think that the Foxconn project was so unique that I’m not concerned about it chilling other projects,” she said.
One of the elements – beyond the massive scale – that makes the Foxconn project unique is the introduction of Foxconn Industrial Internet as an interested party. Fii, a publicly-traded company spun off from Foxconn’s parent company Hon Hai Precision, has been involved in the investments in Mount Pleasant over the last year, including helping set a new direction with an emphasis on technology.
The only problem is that Fii was not among the parties to sign the original contract with WEDC, a point Hughes said the agency raised with the company.
While that complicates the current deal, Hughes said her conversations with Fii leadership provide reason for hope.
“I’m so impressed with what their vision is and what they’re thinking about,” she said. “Their knowledge could help Wisconsin’s manufacturing take leaps and bounds into the future.”
Hughes said she recently toured the multi-purpose building on Foxconn’s Mount Pleasant campus and saw pilot projects focused on assembling motherboards for servers and the manufacturing of ventilators in partnership with Medtronic.
“Foxconn was very enthusiastic about the work that they’re doing and I find talking with Foxconn’s leadership, their energy is infections and I’m really excited about their being here,” Hughes said. “It’s just that we’re faced with the reality that they’re not building a Gen. 10.5 facility and that is what our contract is based on.”
Hughes said she is more optimistic about the Foxconn project than ever before.
“I think that the burden of the largest incentive package in the history of Wisconsin and probably the United States was a big, almost a cloud that was hanging over this, and I hope that we can now move through the storm and find a really successful path together,” Hughes said.
She was open to the idea of providing support to the company when asked if Foxconn’s project is the kind of work the state should be incentivizing, although she declined to speculate on the size of a new deal.
"I think that a company that has a real forward vision and a desire to explore artificial intelligence and advanced manufacturing and a sense that they don't want to be complacent with where we are today is really important for Wisconsin's future economy. I think that the challenge is the state incentive programs are focused on: tell us what your project is, tell us how many jobs you're going to create, how much you're going to invest and then we can help incentivize that,” Hughes said, adding the state needs more concrete details on Foxconn’s plans.
[caption id="attachment_514047" align="aligncenter" width="1024"] Recent aerial photo of the Foxconn campus in Mount Pleasant. Shot by Curtis Waltz of aerialscapes.com[/caption]
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