Wisconsin Governor Rethinks State's $3 Billion Foxconn Contract
By Mark Sommerhauser
Gov. Tony Evers said Wednesday that electronics maker Foxconn Technology Group is unlikely to employ 13,000 workers in Wisconsin as it has said it could and that the state's deal with the company may need to be "downsized" as a result.
The comments swiftly rippled through the state Capitol, with Republican legislative leaders accusing Evers of potentially reneging on the state's commitment to Foxconn.
Evers said he will be working with Foxconn and the Wisconsin Economic Development Corp. "to figure out how a new set of parameters should be negotiated."
But Evers said it's "premature" to say what those changes might be.
"The present contract deals with a situation that no longer exists, so it's our goal to make sure the taxpayers are protected and environmental standards are protected," Evers said. "We believe that we need to take a look at that contract and see if it needs to be downsized as a result."
The contract calls for the state to provide incentives totaling as much as $3 billion over 15 years if Foxconn reaches the 13,000-employee benchmark and makes a $10 billion capital investment in the state.
Foxconn announced last month that it will start construction this summer at its site in Mount Pleasant near Racine on a so-called "Gen 6" facility to manufacture liquid crystal display, or LCD, screens. Such a facility typically produces screens for devices such as mobile phones or tablets.
The state's contract with Foxconn defines its Wisconsin project as including a "Gen 10.5" facility, or one that typically produces larger TV-size screens.
Evers spokeswoman Melissa Baldauff confirmed that Evers believes "the need to discuss potential amendments to the contract is due to Foxconn changing its facility plans and footprint."
Evers said he's not sure how many might be employed but that Foxconn's revised plans make the 13,000-employee-benchmark an "unrealistic expectation."
"So 13,000 people as Foxconn employees is probably difficult for me to imagine right now," Evers said.
Senate Majority Leader Scott Fitzgerald, R-Juneau, said in a statement that Evers' comments complete "the original narrative that the governor has wanted to undermine (WEDC) from day one."
"If the state is willing to renege on its commitment to Foxconn and open up a contract without agreement by both parties, then what guarantee can Wisconsin make to any other company that wants to expand here?" Fitzgerald said.
Assembly Speaker Robin Vos, R-Rochester, also said he has been concerned Evers would try to undermine the state's contract with Foxconn.
"Luckily, WEDC negotiated an ironclad contract with expectations from both sides," 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 Gov. Evers."
A typical Gen 10.5 facility is about four times larger than a Gen 6, according to Bob O'Brien, co-founder and president of Display Supply Chain Consultants, a consulting firm in the display screen industry. The difference is linked to the size of substrate glass panels from which the display screens are cut, he added, with a Gen 10.5 facility using substrate panels about four times larger.
O'Brien said it's possible Evers may want to revise the Foxconn contract to get the company to help cover costs borne by local governments for infrastructure at the Mount Pleasant site. He said Foxconn may also have an interest in revising the contract because it contains minimum job-creation thresholds that, if not met, could make the company ineligible for any state tax credits.
"Maybe this is a trial balloon from Evers' standpoint," O'Brien said.
WEDC CEO Mark Hogan said in a statement that he and Evers' Secretary of Administration, Joel Brennan, have spoken frequently with Foxconn officials since they indicated plans to build the Gen 6 facility.
"These ongoing discussions include consideration of the effect the company's evolving plans may have on WEDC's contract and our steadfast commitment to protect the taxpayers of Wisconsin," Hogan said. "I fully expect these conversations to continue as the construction of Foxconn's manufacturing campus ramps up over the next several months."
The state's contract with Foxconn permits the company to claim as much as $1.35 billion in refundable state tax credits over 15 years, starting this year, for 15 percent of money it spends on capital investment such as facility construction.
Foxconn also may claim as much as $1.5 billion over 15 years for 17 percent of what it spends on salaries for jobs created in Wisconsin. The credits are not paid to the company unless the capital investment or job creation occurs.
Confusion swirled around the project earlier this year after news reports suggested Foxconn was shifting focus from a blue-collar manufacturing operation to a white-collar research and development facility because it couldn't competitively manufacture TV screens in the U.S.
Then Foxconn said in February that it would build a Gen 6 manufacturing facility in Mount Pleasant after President Donald Trump intervened with a personal phone call to company CEO Terry Gou.
(c)2019 The Wisconsin State Journal (Madison, Wis.)