Foxconn Told It Won’t Get Tax Credits Until It Signs a New Contract

Foxconn has blatantly breached its multibillion-dollar contract with the state.

Foxconn Technology Group will not get any tax credits for its development until it renegotiates its contract with the state for its massive factory project in Racine County that has developed into something wildly out of the scope of the original agreement.

The outright rejection of tax credits was determined by the Wisconsin Economic Development Corp. after it reviewed Foxconn’s 2019 project report. It is the latest development in the ever-changing narrative surrounding the proposed megafactory that promised to revive manufacturing in southeastern Wisconsin when it was announced three years ago. The project came alongside a historic $4 billion taxpayer-funded subsidy package championed by former Gov. Scott Walker and President Donald Trump, who once proclaimed the development the “eighth wonder of the world.”

“The recipients are ineligible for tax credits because of their failure to carry out the project,” wrote Jennifer Campbell, WEDC’s chief legal counsel, in a letter to Foxconn explaining the state’s decision.

WEDC’s decision was first reported on Monday by The Verge when the website obtained documents sent from WEDC to Foxconn. 

Three years in, there are just 281 employees who count toward the contract goals, according to WEDC’s audit of the company’s 2019 project report. The most recent project report showed the Taiwanese electronics manufacturer had only met about 54% of its minimum hiring goal in 2019, according to WEDC’s audit of the report. To receive any of the subsidy whatsoever, the company was required to have 520 qualifying full-time-equivalent employees; for the maximum credit, the state set a goal of 2,080 employees. 

“To see the actual numbers of 281 employees is shocking, given that by the end of December 2019, the goal was 2,080 employees,” said Kim Mahoney, the sole remaining homeowner in the so-called Foxconn Area 1.

The tech company signed a contract in 2017 to build a sprawling, $10 billion factory campus that would have employed 13,000 people and produced large LCD screens in Mount Pleasant, a semi-rural Racine suburb. In return, the company was to receive up to $3 billion in state-funded subsidies and about $1 billion from local government incentives.

Trouble beset the project almost as soon as it was announced, as the company unveiled a flurry of changes that led to severely tempered expectations. Foxconn gradually revealed it planned to scale back the project, shrinking the factory from a 20 million-square-foot “Gen 10.5” facility to a just one-million-square-foot “Gen 6” facility and switching gears from a focus on entry-level manufacturing to research and development.

“If the recipients or other Foxconn affiliates wish to apply for benefits for future activities in the state, WEDC remains ready to work on a new arrangement,” Campbell wrote.

This is the second year in a row Foxconn has missed its hiring goals set in the 2017 contract. By the end of 2018, the company only had 178 employees, well short of the 260 minimum to qualify for credits. Foxconn claims it had more than 550 employees who qualified for the credits; however, 400 of them were brought on in a hiring blitz in the final three months of 2019. 

Missy Hughes, CEO and secretary of the WEDC, told the Milwaukee Journal Sentinel the state determined just 281 of those employees actually qualified, despite the company’s claims.

Since at least last July, the expectation has been that Foxconn will only employ 1,500 people in Racine County, nowhere near the number of workers the company is contractually obligated to hire.

To date, the company has completed a 120,000-square-foot multi-purpose building and the one-million-square-foot factory. It is currently constructing a 100-foot-tall globe-shaped data center. To Foxconn’s credit, the buildings currently constructed were assessed at $522 million in January, a greater assessment than the rest of Racine County’s manufacturing base combined.

But progress has nonetheless been slower than promised. Mahoney, who can see the development from her house, said she would be “surprised if there were maybe 50 construction workers onsite” on any given day.

Mahoney said there are typically about 200 to 215 employees’ cars parked at the multi-purpose building. Those workers may be related to the company’s ongoing effort to produce masks—not LCD screens—in Mount Pleasant during the coronavirus pandemic.

In an emailed statement to UpNorthNews, Foxconn said it will begin using “Phase 0” of the million-square-foot factory this month. The company did not respond to a follow-up question asking what the “Phase 0” space will be used for, nor did the company say how large of a footprint the space will take up in the facility.

Foxconn first proposed revising its contract with the state during a March meeting with Gov. Tony Evers and other state officials, according to documents The Verge obtained last December. However, the company never reached an agreement with the state and contract negotiations came to a halt, according to this week’s WEDC correspondence.

Despite the failed negotiations, Foxconn said in its statement to UpNorthNews that “WEDC’s determination of ineligibility during ongoing discussion is a disappointment and a surprise that threatens good faith negotiations.”

Mount Pleasant and Racine County officials did not agree to an interview with UpNorthNews regarding WEDC’s decision and instead provided a joint statement saying they were “disappointed” in the decision but remained “excited” for the project.

“The Company continues to fulfill its financial obligations under the local contract and is already the largest taxpayer in the Village of Mount Pleasant,” reads the statement, attributed to Racine County Executive Jonathan Delagrave, Mount Pleasant Village President Dave DeGroot, and Jenny Trick, executive director of the Racine County Economic Development Corp.

Assembly Speaker Robin Vos (R-Rochester) and his office did not respond to requests for comment. However, Vos spoke with WDJT on Tuesday and accused Evers’ administration of scrapping the contract in an “effort to hurt the President.” Delagrave, a Republican, likewise spoke with WDJT and expressed frustration with WEDC’s decision.

“When did bringing jobs into the state of Wisconsin and Racine County become political?” Delagrave told WDJT.

Beyond its manufacturing campus, Foxconn promised to build “innovation centers” in Green Bay, Racine, Eau Claire, Madison, and Milwaukee. The company said those centers would contribute to an “AI 8K+5G ecosystem” in Wisconsin. The company has never clearly defined what an “AI 8K+5G ecosystem” is, but on its job recruitment website, it says AI refers to artificial intelligence, 8K refers to screen resolution, and 5G refers to wireless.

Regardless, the innovation center plans have gone nowhere.

Along with the innovation centers, Foxconn in August 2018 said it would give $100 million to UW-Madison to help construct a new school building and launch a research program. As of this August, two years later, the company had given the university just $700,000, or less than 1% what it pledged, according to the Wisconsin State Journal.

As the project has fallen apart, Trump has stopped mentioning Foxconn altogether since Walker lost his re-election bid. He made no mention of the project in a January campaign stop in Milwaukee and once again ignored it in a June trip to Green Bay and Marinette. When Vice President Mike Pence visited Waukesha on Tuesday, a day after WEDC called off further tax credits to Foxconn, he did not mention the word “Foxconn” a single time in his remarks.

Public opinion has also turned sour, with just 35% of respondents to a January Marquette Law School poll saying the Foxconn project “will be worth the money” the state offered.

Assembly Minority Leader Gordon Hintz (D-Oshkosh), one of the most vocal opponents of the state’s deal with Foxconn, used WEDC’s determination as a victory lap.

“Today’s announcement cements Foxconn’s legacy in Wisconsin as one of broken promises, a lack of transparency, and a complete failure to create the jobs and infrastructure the company touted in 2017,” Hintz said in a statement. “If it wasn’t clear by now, there will be no ‘AI 8K + 5G ecosystem’ promised by Foxconn. There will be no innovation centers, and there will no large panel LCD screens manufactured in Mount Pleasant.”