Foxconn still looks like little activity, with taxpayers still shelling out a lot

Right on cue, last week Foxconn's CEO tried again to convince people something will happen with his company in SE Wisconsin.

Foxconn Technology Group founder and chairman Terry Gou Tai-ming pledged to begin production at a long-delayed electronics plant in Wisconsin sometime this year, kick-starting a signature US project that is expected to play a pivotal role in expanding the billionaire’s manufacturing empire.

The factory will be up and running in 2020 and drive the vision of Taiwan-based Foxconn – known formally as Hon Hai Precision Industry – of manufacturing components for 5G mobile systems and artificial intelligence applications, according to Gou, without elaborating.

Gou, who failed in his bid to contest the Taiwanese presidential elections, added he will spend a lot of time in the US this year and intends to send more employees over.

“I hope many Hon Hai colleagues will go work in the US to help America boost manufacturing and build a supply chain,” Gou told employees at his company’s Lunar New Year’s party in Taipei.

Someone knew this was BS at the time.

Oh, so to get more tax write-offs from the State of Wisconsin, Terry Gou is now planning to make a show of importing workers to Wisconsin for a small bit of time before the 2020 election (if he does it at all). Is there anything from stopping these workers from being packed up and leaving again after the tax credits come in? OF COURSE NOT.

After Gou's announcement, Urban Milwaukee's Bruce Murphy looked at the empty promises (and building) in Racine County, and concluded that there won't be anything actually being made at the Foxconn campus.

Okay, so the building is, gosh, nearly enclosed and will have a very fine roof. But what exactly will be manufactured in it? The media continues to describe this as a Gen 6 LCD manufacturing plant, since Foxconn has generally called it this. So is that what will be building America’s supply chain in Mount Pleasant?

“I don’t think so,” says Harvard Professor Willy Shih, one of the few U.S. experts on LCD fabrication in answer to a query from Urban Milwaukee. “Not for making LCD panels. Assembling products that incorporate LCD panels, maybe.” ...

First, a Gen 6 plant needs “a massive steel infrastructure to support a vibration-free environment for equipment that has to do ultra precision (manufacturing),” as Shih noted. That steel support substructure is no small undertaking and could be up two floors deep in LCD plants — and nothing like that was done for this building.

Second, this plant is just one story tall, and as Shih wrote for Forbes: “LCD fabs (fabrication plants) are multi-story affairs. The main equipment floor is sandwiched between a ground floor that is filled with chemical pipelines, power distribution, and air handling equipment, and a third floor that also has a lot of air handling and other mechanical equipment…. When they bring the manufacturing equipment in, they load it onto a platform and hoist it with a crane on the outside of the building. That’s one way to recognize an LCD fab from the outside – loading docks on high floors that just open to the outdoors.”

Third, LCD plants are expensive, multi-billion structures. Shih estimated that a real Gen 6 plant, if it was built in Mount Pleasant, would have a price tag of around $5 billion. The spending on this is nowhere near this: the plant is expected to be valued at $400 million.

So in other words, it'll be an assembly plant or a distribution center. Not what Wisconsinites were told the Fox-con project was going to be, but that reality won't mean state taxpayers are off the hook. And not just because of the $252 million used to speed construction on I-94 near Foxconn or the $134 million to upgrade local roads near the project while all other roads in the state developed Scott-holes.

Let's go back to last week's revenue estimates from the Legislative Fiscal Bureau, which noted that while state taxpayers were likely to not give Foxconn as much as was budgeted, they still would be shelling out a sizable chunk of change in the next Fiscal Year.

The second item regards state expenditures related to the electronics and information technology manufacturing (EITM) zone refundable credits for the Hon Hai Precision Industry Co., Ltd (Foxconn) development. 2019 Act 9 estimated the refundable credits at $0 in 2019-20 and $212.0 million in 2020-21. Under the EITM zone tax credit program, the Wisconsin Economic Development Corporation (WEDC) certified three Wisconsin corporations that are affiliated with Foxconn as eligible to claim a payroll tax credit over 15 years for up to an aggregate amount of $1.50 billion and a capital expenditure credit over seven years for up to an aggregate amount of $1.35 billion. The Act 9 estimate assumed that Foxconn would have sufficient payroll and capital expenditures by the end of the 2019 calendar year to receive the $212 million of refundable credits that would be paid in the 2020-21 fiscal year. Based upon reports of the project's progress to date, and assumptions regarding payroll and capital expenditures, preliminary estimates suggest that it is likely that the credits paid to Foxconn in 2020-21 will be in the range of $50 million to $75 million, rather than the amounts contained in Act 9.

Those revenue and budget estimates did not include the expectation of lower payments to Foxconn, so that may be an extra $150 million or so to play with. But at $50-$75 mil, it is still a lot more than what we're giving to another company that is adding a lot more jobs than Foxconn.

To start, check out what we're giving for a 1,500-employee, 2.6 million square foot warehouse in Oak Creek.

Amazon stands to receive as much as $7.5 million from the state in return for building a massive warehouse in Milwaukee County.

The Wisconsin Economic Development Corp. announced on Monday that it had awarded the online retail giant Amazon up to $7.5 million worth of tax incentives if the company lives up to its pledge to spend $200 million on a 640,000-square-foot warehouse in Oak Creek and employ 1,500 people there. Amazon has announced plans to build a warehouse of that sort at the Ryan Business Park, near where Ryan Road meets Interstate 94.

I don't disagree that it's questionable whether a company like Amazon should get a dime, given how huge it is. But I can't help but notice how much less we are giving to them vs Foxconn.

The first big warehouse project for Foxconn involved them getting $7 million from WEDC and a $17 million TIF district from the City of Kenosha for a fulfillment center that is similar in size to what the Foxconn facility will be (if it ever opens). It looks like another $8 million was added at a later point, but that facility in Kenosha is estimated to be home to more than 3,000 jobs – a much better bang for the buck than the Foxconn project 10 miles away.

And the latest large Amazon facility that recently started in Beloit has no state incentives at all, with the only gifts coming in the form of land grants and $13 million in city infrastructure. Now add in smaller properties that Amazon has bought from other closed businesses, such as a warehouse in Sussex that was recently expanded, and Monday’s news of Amazon buying a facility on Madison’s east side that used to house a Swiss Colony distribution center. That type of transaction often requires little to no government assistance, which is the best type of economic development you want.

You look at the growth of Amazon in this state in recent years, and it reiterates what an awful deal the Fox-con is for taxpayers, and how little return we’re getting for it. Worse, the bigger costs are yet to come, either if Terry Gou games the hiring figures to get his 17% kickbacks for a couple of years, or when Foxconn can’t put up the charade any more, packs up and leaves, and the Village of Mount Pleasant needs a state bailout for all the debt they’ve put upon themselves.

No matter how much Foxconn and GOP hacks try to spin, there is little doubt that this state has been put in a significant hole because of this boondoggle, and no one with an ounce of self-respect should believe announcements about what might happen at Foxconn, and instead trust what actually is happening. Wisconsin taxpayers are in a significant hole, and the last thing we should do is delude ourselves into thinking Foxconn will dig us out of it.