Even without tax credits, Foxconn is still scarring the state

The Legislative Audit Bureau released their annual oversight report on the state’s Foxconn incentive package today. It credited the Wisconsin Economic Development Corporation for tightening up some Walker-era procedures and improving its follow-up methods on whether Foxconn was eligible for certain tax write-offs. But LAB did ding WEDC for not allowing work done at Foxconn by out-of-state residents in Wisconsin, but also allowing some work that was done outside of Wisconsin.

We found that WEDC’s written procedures indicated that WEDC will not award program tax credits for the wages paid to certain employees who performed services in Wisconsin. These procedures indicated that if employees were not residents of Wisconsin or contiguous states, Foxconn would not receive program tax credits for the wages paid to these employees, even if these employees performed services in Wisconsin. For example, if a resident of Indiana traveled to Wisconsin to perform services in the zone, these procedures indicated that WEDC would not award Foxconn any tax credits for the wages paid to this employee. In this way, WEDC’s procedures did not comply with statutes.

We again recommend that WEDC comply with statutes by modifying its written procedures to explicitly require it to award program tax credits for only the wages paid to employees for services performed in Wisconsin. We also recommend that WEDC modify its written procedures to require it to award program tax credits for the wages paid to all employees for services performed in Wisconsin, regardless of the residency of these employees.

LAB still notes that WEDC and the Evers Administration were correct to deny Foxconn tax write-offs for 2019, as Foxconn had well under 520 employees working for it on December 31 of that year.

LAB adds that Foxconn could still get some of that money earmarked from 2018 and 2019, but they’d have to hire a whole lot of people by the end of this year.

As shown in Table 2, WEDC may award Foxconn up to $259.8 million in program tax credits for creating jobs and making capital investments through 2020. WEDC would award such tax credits in 2021. To be awarded any job creation tax credits, Foxconn must create at least 1,820 jobs filled by eligible employees as of December 31, 2020. To be awarded any of the $19.1 million in program tax credits that were carried forward and available to be earned in 2020, Foxconn must create at least 5,200 jobs filled by eligible employees as of December 31, 2020. A total of $28.6 million in job creation tax credits will carry forward and may be awarded in future years. None of the $192.9 million in capital investment tax credits that Foxconn could have been awarded in 2020 will carry forward to future years.

In last month’s budget projections, Governor Evers’ Administration made clear that it is not planning on paying Foxconn anything under the current contract.

…the projections are also affected by developments related to the Wisconsin Economic Development Corporation's (WEDC) 2017 contract with three Foxconn affiliates ("Foxconn") for a project in Mount Pleasant, located in Racine County. Under the 2017 contract, Foxconn may earn annual capital and job creation tax credits related to the construction of a Generation 10.5 Fabrication Facility in an Electronics Information and Technology Manufacturing Zone (EITMZ) in Southeastern Wisconsin. The State of Wisconsin and local partners have invested significant resources in real estate, site development, and infrastructure over the last three years in furtherance of the project. However, based on Foxconn's activities in calendar years 2018 and 2019, WEDC has determined that Foxconn has not been eligible for credits under the contract, with the 2019 eligibility determination currently subject to a good faith negotiation period with Foxconn that will lapse at the end of November 2020. WEDC's non-eligibility determinations will likely continue, as the company also does not appear to be on track for credit eligibility based on its calendar year 2020 activities. Based on these realities, the projections contained in this report assume no payment of EITMZ credits to Foxconn in fiscal years 2020-21, 2021-22, and 2022-23.

But there are some WisGOP lawmakers still trying to convince voters that this scam will one day pay off.

Hey Sandwich, I’d suggest you take a drive down to the FoxConn complex. I toured those invisible buildings today and watched 450 imaginary employees assemble high tech servers. They will be expanding their manufacturing abilities by 4 times over the next several months. pic.twitter.com/wAIRRfRys9

— Michael Schraa (@MichaelSchraa) December 3, 2020

1. Hey Mike, even you are calling it an assembly plant. That's not the manufacturing of large-screen panels that was sold to us 3 years ago.

2. It’s the Holiday season, so I’d hope an electronics company is hiring up to get products out for this time of the year. It’s also how Foxconn could game this system by hiring large numbers of people in December, resulting in a high workforce on 12/31, but then doing seasonal layoffs in January (as Josh Dzieza has noted in one of his many exposes on the Fox-con).

But even if Foxconn’s gambit doesn’t result in qualifying for tax credits now and in the future, that doesn’t mean there hasn’t already been a significant cost that has been sunk. We got a reminder of this in an article in The Guardian that came out this week, which centered on a former Mount Pleasant resident named Sean McFarlane, who was relocated by the village in order to make way for Foxconn’s huge project…that has never happened.

To make way for this “wonder”, village officials temporarily placed the McFarlanes in a dilapidated vacant house with no working toilets or heat, then allegedly failed to meet the promised relocation payment of $22,000.

Three years later, the factory for which the family went through hell hasn’t been built. Sitting in his wheelchair on an empty sidewalk in November, McFarlane sighed in disbelief as he scanned the vast patchwork of mud, open fields, ponds and a few underutilized buildings comprising the 3,000-acre Foxconn site.

“They demolished my house for this? A bunch of geese that sit on a hill?” McFarlane, 37, asked. “It’s upsetting. That’s where my old house was, and now it’s just nothing. You know? Nothing.”

The Guardian story goes on to note that Mount Pleasant (over?)paid McFarlane’s mother $500,000 for her property, and then said that money was for both McFarlane family properties. Wasteful and abusive, what a way to operate! In addition to the land purchases, the was the large amount of taxpayer dollars used to upgrade roads around Foxconn that were originally supposed to go to more-traveled roads in other parts of the state.

Lotta road, not a lot of traffic

The Guardian also notes other infrastructure was built up in Racine County well ahead of any kind of economic activity that might warrant such expense.

Pristine new four- and six-lane highways now border and bisect the site’s fields. Village leadership claimed autonomous vehicles would fill the roads, but green John Deere tractors were among the few vehicles in sight on a recent afternoon. Many view nearly $320m in water, sewage and electric upgrades that ratepayers must shoulder as unnecessary for the site’s four underused buildings. And earlier this year, Mount Pleasant began leasing farmland it purchased back to farmers.

In a statement to the Guardian, Claude Lois, a village consultant hired to manage the project, wrote that Mount Pleasant “worked diligently to secure voluntary agreements with property owners … and has succeeded in doing so in the vast majority of cases”. The Mount Pleasant village president, Dave DeGroot, did not respond to a request for comment, but in September told the Racine Journal Times he’s “thrilled” with the progress and called for patience on a project that will now take “decades” to complete.

But as he took pictures of the long, empty sidewalk and highway, McFarlane said he had none of that patience left. “The roads were supposed to be for 13,000 workers but no one is here,” he said. “What is this sidewalk for? I don’t understand it. It’s the sidewalk to nowhere.”

But you know what is here? The payments for the $1 billion in debt that Mount Pleasant and other local governments took on to build things up for Foxconn. The village still hasn’t released the final numbers of how much that’ll cost local taxpayers in the 2021 budget, but in 2020, the Foxconn-related debt payments totaled more than $95 million, and the total cost was over $146 million.

This is where I remind you that if Mount Pleasant is not able to continue to double down on debt, and if Foxconn pulls out and/or refuses to pay the village, then the state is on the hook for 40% to bail out the village for what they owe.

While I am glad we have an administration in Madison that isn’t doing the Walker-era routine of continuing to hand out tax dollars to these grifters because they don’t want to admit that Foxconn isn’t working, don’t tell me that the state doesn’t owe anything else if the jobs don’t come to Foxconn. This mess is still going to cause us headaches in the coming years, and the dollars we threw away on this PR scam vs more productive uses means we have a lot to dig ourselves out from.