Wisconsin amends Foxconn’s contract to reflect radically smaller project - The Verge

After more than three years of grandiose promises and missed deadlines, Foxconn and Wisconsin have agreed to amend their contract to reflect the reality of a much-diminished project. Under the amendment, which was approved by the Wisconsin Economic Development Corporation (WEDC) today, the company will receive vastly smaller tax subsidies in exchange for greater flexibility about what business it ultimately pursues in the state.

Foxconn had originally promised to build an enormous LCD factory employing 13,000 workers and costing $10 billion. With the amendment, it now says it will employ a total of 1,454 people and invest $672 million. In return, the tax subsidies the company is eligible for have been slashed, from $2.85 billion to $80 million.

“When I ran to be governor, I made a promise to work with Foxconn to cut a better deal for our state—the last deal didn’t work for Wisconsin, and that doesn’t work for me,” Gov. Tony Evers said in a statement. “Today I’m delivering on that promise with an agreement that treats Foxconn like any other business and will save taxpayers $2.77 billion, protect the hundreds of millions of dollars in infrastructure investments the state and local communities have already made, and ensure there’s accountability for creating the jobs promised.”

The original Foxconn deal was arranged in 2017 by former Wisconsin Gov. Scott Walker and former President Trump, who called the project “the eighth wonder of the world” and touted it as a victory in his campaign to return manufacturing to the US. The Taiwanese electronics manufacturing giant was supposed to build a 20 million-square-foot LCD manufacturing facility. In return, Wisconsin offered the company an incentive package worth more than $4 billion, a mix of “refundable” tax credits, land, and infrastructure.

The project went awry almost immediately. Manufacturing LCDs in Wisconsin never made economic sense, yet abandoning the plan risked incurring Trump’s wrath. Instead, the company spent years pivoting wildly from idea to idea. The enormous “Gen 10.5” LCD factory specified in the contract became a far smaller Gen 6, then was canceled, then came back. The company announced it was building something called “the AI+8K+5G ecosystem,” to be developed in a network of “innovation centers,” buildings that the company purchased only to leave empty. It looked into building fish farms, exporting ice cream, storing boats. It announced plans to build coffee kiosks and ventilators that never moved forward. Most recently, it said it would build electric cars — though maybe, the company acknowledged, that will happen in Mexico.

Foxconn’s delays and dead ends put both parties in a difficult position. Wisconsin has already spent at least $400 million on land and infrastructure, and Mount Pleasant, the small town where the factory was to be built, took on hundreds of millions in debt that was supposed to be repaid by taxes generated by the project. Foxconn has both fallen orders of magnitude short of its promises and invested too much to painlessly walk away. It owns a lot of real estate in Southern Wisconsin now, and it has built an odd collection of buildings, including the million-square-foot structure it called the LCD Fab (though a government report found it was more akin to a demonstration facility) and a glass orb.

For two years, the Evers administration has been urging Foxconn to revise its contract to reflect its current plans, but the company refused. Last October, the latest attempt at negotiations failed, and WEDC denied the company what would have been its first tranche of cash subsidies. One likely reason for the company’s refusal to negotiate, as The Verge reported last year, is that the process to amend the contract would entail admitting it was not going to manufacturer LCDs and disclosing in detail what its new plan, which it did not have.

But Foxconn came back to the table, and the result is this amendment.

The original contract effectively reimbursed Foxconn for 15 percent of its capital investment and 17 percent of its payroll provided it hit certain hiring targets each year. It was an outlandishly lucrative subsidy. If Foxconn built an expensive and highly automated factory that employed few workers, it could have come to about $1 million per job. In 2019, the economist Timothy Bartik compiled a report at the request of the Evers administration that found Foxconn’s incentives would likely fall around $172,000 to $290,000 per job. Average US incentives are $24,000 per job, he wrote.

The per-job subsidy under the amendment is around $41,000. The company would receive subsidies equal to up to 7 percent of wages and 10 percent of capital investment, which is in line with the state’s general Enterprise Zone program.

In exchange for the radically reduced subsidies, Foxconn gets flexibility. The contract no longer specifies that Foxconn build an LCD facility. Instead, it defines the project as “economic investment activities related to locating and operating a technology and manufacturing ecosystem.” Foxconn Industrial Internet, a Foxconn subsidiary that came into Wisconsin after the LCD plan fell apart but did not count under the original contract, was also made eligible by the amendment.

In a statement, the company thanked Evers and WEDC for finding an amendment “that will give Foxconn the flexibility to pursue business opportunities in response to changing global market conditions.”

The company’s amendment application says the project “will include the construction and development of facilities for the manufacturing of data infrastructure and other operations related to high-performance computing, cloud computing, and artificial intelligence.” But the company, as always, says it might also go on to pursue “new industries such as electric vehicle, digital health, and robotics using AI, semiconductor, and 5G technologies.”

It remains to be seen how Mount Pleasant will fare given the project’s diminished scope. The town had committed to invest nearly $1 billion to acquire land and support the project, a sum so great it resulted in a credit downgrade. The state had pledged to cover 40 percent of its debt if taxes from the project fell short.

For Wisconsin and for Foxconn, the agreement marks an end to a costly and embarrassing saga. Foxconn’s failure had already ensured Wisconsin wouldn’t have to pay billions in tax subsidies, but the new deal means the Evers administration likely avoids the threat of a costly legal battle. After hundreds of millions in state funds were spent, dozens of people pushed from their homes to clear land, and years of grand promises followed by disappointment, the company will become just another manufacturer with a small regional presence. Perhaps its new status will allow Foxconn to finally figure out something to do in the state.

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