Foxconn audit shows Scotty's and WEDC's backroom deal is still very flawed

Yesterday the Legislative Audit Bureau released their second audit of the Wisconsin Economic Development Corporation's (WEDC) contract with Foxconn And it didn’t go well.

We found that WEDC’s October 2019 written procedures continue to allow WEDC to award program tax credits for the wages paid to employees for services not performed in Wisconsin. These written procedures do not reference s. 238.396 (3s) (c), Wis. Stats., which stipulates that WEDC may not certify Foxconn to claim program tax credits for services performed outside of Wisconsin. These written procedures also do not reference the zone payroll statutes defined in ss. 71.07 (3wm) and 71.28 (3wm), Wis. Stats., which require WEDC to award program tax credits for the wages paid to employees for services performed in Wisconsin. Instead, these written procedures reference provisions in statutes and administrative rules that define a corporation’s state payroll for income tax purposes to include all of the wages paid to certain individuals who perform a portion of their services outside of Wisconsin. Because its written procedures do not explicitly require WEDC to award job creation tax credits only for wages paid to employees for services performed in Wisconsin, WEDC’s October 2019 written procedures do not comply with statutes and WEDC’s contract. WEDC indicated that it did not provide these written procedures to its governing board because its policies do not require it to do so.

WHAAATT? Maybe the WEDC Board should know about what WEDC is doing when it comes to throwing out tax credits for this big project, and maybe they should make sure it is for work performed in Wisconsin. Weird thought, I know.

In addition, LAB says that the way the current contract is written, state taxpayers could shell out a lot to Foxconn for highly-paid, short-term workers. WEDC thought it could limit this, but LAB says they shouldn’t have, because the contract that was written in the Scott Walker era allows for a bigger giveaway with a different standard that other jobs incentive programs.

We found that WEDC did not comply with its contract when it calculated the amount of wages that Foxconn paid in 2018 and that were eligible for program tax credits. The contract requires WEDC to award program tax credits based on the wages actually paid to eligible employees, including those who worked for only part of a given year. We found that WEDC did not calculate program tax credits based on all of the actual wages paid to employees who would have earned more than $100,000 if they had worked for Foxconn the entire year. For example, Foxconn paid one employee $85,000 over a two-month period of time in 2018, which was one-sixth of the year. WEDC’s contract required tax credits to be awarded based on all $85,000 paid to this employee. However, WEDC calculated that it would have awarded program tax credits based on wages totaling $16,667, which is one-sixth of $100,000. As a result of such calculations, WEDC excluded a total of $353,200 in wages, which would have resulted in it under-awarding Foxconn $60,000 in program tax credits. As noted, WEDC did not award any program tax credits because Foxconn did not create a minimum of 260 jobs in 2018.

WEDC indicated that it calculates program tax credits in the same way as it does for other economic development programs it administers. It indicated that its calculations are intended to prevent it from awarding tax credits for all actual wages of employees who have annualized salaries that exceed $100,000. However, WEDC’s contract requires it to award program tax credits for all actual wages, up to $100,000, of each eligible employee, regardless of the annualized salaries of these employees.

As an addendum, if a seasonal worker or apprentice around the Holidays is pulling $15 an hour, that individual would count toward the minimum number of employees that Foxconn needs to get their 17% payback on ALL salaries paid, up to $100,000.

Speaking of that minimum hiring requirement, take a look at this story from Channel 6 in Milwaukee, which indicates that local tech college students were offered jobs at Foxconn and were supposed to be working there by now. But those people haven’t actually started at the company.

When the students spoke to FOX6 on camera, the week of their "tentatively scheduled" start date was almost over. They still had not started work and had not received answers to their questions.

"A lot of the students at Gateway I find are older like me," Hoffman, who is studying accounting after more than 30 years of being a hairdresser, said. "And they’re going to school full time or part time to support families."

"I was lucky enough that I have an employer that put me onto the schedule and I was able to keep my job and still continue on," Hoffman added. "But I know that there are other students that put their notice and that have quit their job in hopes of starting on December 2."

Maybe I’m cynical, but it sure seems like Foxconn could say these individuals were hired and started at $15+ an hour in December, and qualify as “employees” when Foxconn submitted its information to WEDC.

After Channel 6 exposed this, Foxconn suddenly found those students’ employment forms.

A few days after the FOX6 Investigators started asking Foxconn and Gateway Technical College questions, Hoffman and Larsen started getting answers.

Hoffman showed FOX6 an email from Foxconn human resources representative Bradley DeRosa. DeRosa thanked students for their "flexibility." The email did not provide a job description, but it included a new employment offer with a specific location, start time, and start date of December 17.

Hoffman received the email on December 11 and had until December 13 to sign the offer letter, giving her less than one week to give notice to her current employer.

That doesn't seem sketchy whatsoever, does it?

Foxconn playing games with part-time and "projected" employment is dangerous for Wisconsin taxpayers, as capital and jobs credits from both years can be paid out at once if Foxconn hits certain employment numbers.

WEDC’s contract specifies that any job creation program tax credits that WEDC does not award to Foxconn in a given year will carry forward and may be awarded in future years. Because Foxconn did not create at least 260 jobs filled by eligible employees in 2018, all $9.5 million in program tax credits that Foxconn could have been awarded will carry forward.

As shown in Table 2, WEDC may award Foxconn up to $221.5 million in program tax credits for creating jobs and making capital investments through 2019. Such tax credits would be awarded in 2020. To be awarded any tax credits for creating jobs, Foxconn must have 520 jobs filled by eligible employees as of December 31, 2019. To be awarded any of the $9.5 million in program tax credits that were carried forward from 2018, Foxconn must create at least 2,080 jobs filled by eligible employees as of December 31, 2019.

And this portion of the audit is the most concerning to me. Unlike with the 17% payback of salaries, WEDC indicates the Foxconn contract is not "all or nothing" when it comes to the 15% payback for the capital investments.

WEDC’s contract requires Foxconn to create 520 jobs filled by eligible employees and make approximately $1.286 billion in capital investments in 2019 in order to be awarded all $192.9 million in tax credits for making capital investments. If Foxconn were to create fewer than 520 jobs filled by eligible employees, WEDC’s contract indicates that Foxconn would not be awarded all $192.9 million, and the unawarded capital investment tax credits would not carry forward to future years. For example, if Foxconn were to create 390 jobs (75.0 percent of the 520 jobs) filled by eligible employees, it would be awarded no more than $144.7 million (75.0 percent of $192.9 million) for making capital investments. The remaining $48.2 million of capital investment tax credits would not carry forward to future years.

So wait, if Foxconn has less than the 520 jobs at the end of this year, we STILL could be out over $100 million? On top of the hundreds of millions of infrastructure the state has given to Foxconn for a significantly downsized project, and the $912 million that local governments in Racine County will have to pay back somehow?

This deal is worse than we even knew. PULL THE PLUG ON THEM.