Friday, November 10, 2017

Fox-con is signed, but removing Walker could stop the bleeding

Well, whether we want it or not, the Fox-con is a legal contract between the State of Wisconsin and the Asian company. Since we are going to be stuck with this thing for at least the next few years, I think it's instructive to
look at the draft contract that the WEDC Board agreed to this week and see what it tells us.

First of all, it’s nice that there are specific thresholds of job creation to allow for clawbacks, as that was something that was sorely lacking in the Fox-con package that passed the State Legislature. Here’s how many people have to be working at Foxconn to avoid any chance of WEDC asking for their money back.

Job thresholds, Foxconn
2018 260
2019 520
2020 1,820
2021 3,640
2022 5,200
2023 7,150
2024 7,800
2025 8,450
2026 9,100
2027-2032 10,400

That’s a pretty slow start, although the positive side of that is only $160.4 million of the $1.5 billion in tax write-offs for jobs can come in the first 4 years, with the bigger write-offs coming later.

Now, that doesn’t mean the numbers can’t be gamed by Foxconn. Here’s how the contract defines the “Jobs” figure.
For each [Annual] Period, employ at least the Minimum Cumulative Full-Time Jobs set forth…, which shall be determined based on the number of Full-Time Jobs held by Full-time Employees employed by the Recipients [Foxconn] as of the end of the Period….

In determining whether a Partial-Year Employee is employed by the Recipient as of the end of a Period… (1) Partial-Year Employees who are employed in Full-Time Jobs as of the end of the Period will be counted, and (2) Partial-Year Employees who are not employed in Full-Time Jobs as of the end of the Period will not be counted.
Sure seems like you could ramp-up hiring for the Holiday season at Foxconn and then lay them off in January, and they’d still get the tax credits. And I sure don’t trust WEDC to go hard after Foxconn and the associated businesses on backing up their information and getting the state’s money back, even if they are going to allegedly force the use of a CPA to back up the payroll information that is submitted.

This might not apply year-round

Also concerning to me is how "Foxconn jobs" are defined in the contract.
"Full-Time Job" means an employee position in the [Foxconn Enterprise] Zone or outside the Zone, but within the State of Wisconsin, and for the benefit of the Recipient's operations within the Zone, filled by a Full-Time Employee whose entire Wages are treated as paid in Wisconsin under Wis. Stat 71.25(8)(b).
Sure makes you wonder what is "for the benefit of the Recipient's operations". Could that be a business that supplies the Foxconn cafeteria with food? Could it be contractors doing Foxconn's books located somewhere outside of Racine County? If so, we might be talking a lot less than 10,400 jobs actually occurring at the Foxconn site, and how much of that activity might take away from other business that is not being given tax incentives? Sure seems like a wide loophole.

On the flip side, the 15% payback of expenses that Foxconn would get for building the factory have the same job thresholds starting in 2019. What’s concerning is that if annual expenses of building the plant locations are less than 1/7 of $9 billion in one year, the unused tax credits can be “banked” and used in a future year. This would be true even if there are more expenses in that year that would apply above and beyond the $192.86 mil that is allotted for that year. This could cause a bigger-than-expected hole for the 2019-21 or 2021-23 budgets than the Legislative Fiscal Bureau is already counting on.

What’s also concerning is that even with the slow ramp up of expected jobs for the Foxconn campus, the jobs credits and related clawbacks only apply until the end of 2032. If Foxconn were to close up in 2033, there’s nothing the state would get back from it. Meanwhile, the environmental damage and added local and state debt costs for infrastructure would still have to be dealt with.

And unlike the corporate media in Milwaukee, I’m not going to be suckered by Foxconn Chairman Gao using his personal guarantee of covering 25% of any clawbacks that have to be paid. Any clawbacks to be paid would be several years down the line, and I’m guessing a multi-billionaire like Gao will lawyer up and delay those payments as much as he can.

But the contract also identifies yet another positive that would come with the removal of Scott Walker in 2018. You know Scotty and his WEDC lackey would never admit the Fox-con isn't working out while he would be in office, but a new governor and new members in the Legislature could renegotiate this deal, and possibly cut out of it before the big costs hit (especially if the plant isn’t doing much). Any Democrat should put the Fox-con question to the voters over the next year, and remind them that they don't have to accept this anchor that will ultimately lead to service cuts and tax hikes in other areas.

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