After missing more than three years of big promises and deadlines, Foxconn and Wisconsin have agreed to amend their contract to reflect the reality of a much-reduced project. Under the amendment, which was approved today by the Wisconsin Economic Development Corporation (WEDC), the company will receive significantly smaller tax subsidies in exchange for greater flexibility over the matters it eventually pursues in the state.
Foxconn originally promised to build a huge LCD factory with 13,000 employees and $ 10 billion. The amendment now says they will employ a total of 1,454 people and invest $ 672 million. In return, the company’s tax subsidies were reduced from $ 2.85 billion to $ 80 million.
“When I wanted to be governor, I made a promise to work with Foxconn to make a better deal for our state – the last deal did not work for Wisconsin, and it does not work for me,” he said. governments Tony Evers said. in a statement. ‘Today, I’ll keep that promise with an agreement that will treat Foxconn like any other business and save taxpayers $ 2.77 billion, protect and account for the hundreds of millions of dollars in infrastructure investments already made by the state and local communities. be to create the promised work. ”
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The original Foxconn deal was arranged in 2017 by former Wisconsin Gov. Scott Walker and former President Trump, who called the project ‘the eighth wonder of the world’ and saw it as a victory in its campaign to produce to return to the USA. The Taiwanese giant for electronics manufacturing had to build a 20 million square meter LCD manufacturing plant. In return, Wisconsin offered the company an incentive package worth more than $ 4 billion, a mix of ‘repayable’ tax credits, land and infrastructure.
The project went wrong almost immediately. Manufacturing LCDs in Wisconsin never made economic sense, but abandoning the plan dared Trump’s anger. Instead, the company went from idea to idea for years. The huge “Gen 10.5” LCD factory specified in the contract became a much smaller Gen 6, was then canceled and returned. The company has announced that it is building something called ‘the AI + 8K + 5G ecosystem’, which is to be developed into a network of ‘innovation centers’, buildings that the company bought only to leave empty. It looked at building fish farms, exporting ice, storing boats. It has announced plans to build coffee kiosks and fans that will never move forward. Recently, he said it would build electric cars – although the company might happen in Mexico.
Foxconn’s delays and dead ends put both parties in a difficult position. Wisconsin has already spent at least $ 400 million on land and infrastructure, and Mount Pleasant, the small town where the factory would be built, has incurred hundreds of millions of debts that were supposed to be repaid through taxes generated by the project. Foxconn both had the order of magnitude less than its promises and invested too much to walk away painlessly. It now owns a lot of real estate in Southern Wisconsin and has built a strange collection of buildings, including the million-square-foot structure it called the LCD Fab (although a government report found it to be more similar to a demonstration facility) and a glass ball.
The Evers administration has been urging Foxconn for two years to review its contract to reflect its current plans, but the company has refused. Last October, the latest attempt at negotiation failed, and WEDC denied the company what would be the first tranche of cash subsidies. One probable reason for the company’s refusal to negotiate, such as The edge reported last year, is that the process of amending the contract entails that it does not go to the manufacturers of LCDs and must be disclosed in detail what the new plan, which he did not have.
But Foxconn is back on the table, and the result is this change.
The original contract effectively reimbursed Foxconn 15 percent of its capital investment and 17 percent of its payroll, provided it achieved certain rental targets each year. It was a strange lucrative subsidy. If Foxconn built an expensive and highly automated factory that employed few workers, it could cost about $ 1 million per job. In 2019, at the request of the Evers administration, economist Timothy Bartik compiled a report finding that Foxconn’s incentives were likely to drop from $ 172,000 to $ 290,000 per job. Average U.S. incentives are $ 24,000 per job, he writes.
The subsidy per job under the amendment is about $ 41,000. The company would receive subsidies equal to up to 7 percent of wages and 10 percent of the capital investment, which is in line with the state’s general Enterprise Zone program.
In exchange for the drastically reduced subsidies, Foxconn gets flexibility. The contract no longer stipulates that Foxconn must build an LCD facility. Instead, it defines the project as “economic investment activities related to the detection and operation of a technology and manufacturing ecosystem.” Foxconn Industrial Internet, a subsidiary of Foxconn that came to Wisconsin after the LCD plan fell apart but did not count under the original contract, was also eligible for the amendment.
In a statement, the company thanked Evers and WEDC for finding an amendment “that would give Foxconn the flexibility to pursue business opportunities in response to changing global market conditions.”
The company’s amendment application states that the project will ‘include the construction and development of facilities for the production of data infrastructure and other operations relating to high performance computers, cloud computing and artificial intelligence.’ But as always, the company says it may also “engage in new industries such as electric vehicles, digital health and robotics using AI, semiconductor and 5G technologies.”
It remains to be seen how Mount Pleasant will fare given the reduced scope of the project. The city has pledged to invest nearly $ 1 billion to acquire land and support the project, an amount that was so large that it led to a credit downgrade. The state has promised to cover 40 percent of its debt if taxes on the project fall short.
For Wisconsin and for Foxconn, the agreement puts an end to an expensive and embarrassing saga. The failure of Foxconn has ensured that Wisconsin does not have to pay billions in tax subsidies, but the new agreement means the Evers government is likely to avoid the threat of an expensive legal battle. After spending hundreds of millions of state funds, pushing dozens of people from their homes to clear land, and years of big promises followed by disappointment, the company will only become another manufacturer with a small local presence. Perhaps his new status will eventually enable Foxconn to do something in the state.
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