Here & Now

Foxconn Contract to be Renegotiated?

Frederica Freyberg:

Blockbuster reporting from “The Verge” on the status of Foxconn in Wisconsin showed how state officials are saying the company is ineligible for hefty tax credits because the scope of the project has changed. The reporting was based on letters written back and forth between the company and the Evers’ administration. “Here & Now’s” Marisa Wojcik also obtained the correspondence and has this report.

Marisa Wojcik:

A torrent of newly-released correspondence dating back to April between Foxconn, Governor Evers’ administration and the Wisconsin Economic Development Corporation show growing conflict over the Taiwanese giant’s ability to collect public tax subsidies. Governor Evers’ administration is arguing Foxconn presently is ineligible for tax credits under Wisconsin law because new plans for its Wisconsin LCD manufacturing facility no longer fit the terms of the original incentive contract. The state is calling on Foxconn to renegotiate the contract to fit the changes, a demand which Foxconn says comes with great surprise and disappointment. In January, Foxconn’s Louis Woo told Reuters that the Mount Pleasant facility was no longer going to be a LCD flat panel TV manufacturing plant, known as a Gen 10.5 factory as originally planned. Instead, Foxconn would build a smaller Gen 6 plant, now currently under construction. Melissa Hughes, the new CEO of WEDC, told Foxconn the project work and plans do not align with the project agreed to by the parties. The Department of Administration says the performance-based agreement was only for the Gen 10.5 project. Foxconn representative Alan Yeung told DOA the changes were necessary due to market and supplier conditions. But the material terms of our contract with the WEDC are jobs and investment. The original 2017 contract signed by Foxconn and Wisconsin under Governor Scott Walker says the state would pay up to $4 billion in tax credits to Foxconn if it invested $10 billion for a production plant to create up to 13,000 jobs. Walker and the WEDC reassured skeptics that clawbacks and provisions in its contract with Foxconn would ensure proper use of the taxpayers’ investment. A new report from the Wisconsin Legislative Audit Bureau says they’re concerned with the numbers Foxconn is reporting on job creation and capital investments. Throughout the eight months of letters between Evers’ administration and Foxconn, they ensure one another both are committed to the project. But in the latest letters lobbed in November, DOA Secretary Joel Brennan says Foxconn was opaque about its project plans. Foxconn’s response quipped distractions like these leave job creators and job seekers wondering if doing business in our great state is welcomed by Governor Evers’ administration. Foxconn’s last words to Wisconsin say Foxconn will continue to play an important and constructive role in the state of Wisconsin. However, at this point, we shall be evaluating all available options relating to the WEDC contract.

Frederica Freyberg:

For the latest on the status of the Foxconn contract with Wisconsin, we turn to Secretary of the Wisconsin Department of Administration, Joel Brennan, and thanks very much for being here.

Joel Brennan:

Thanks for having me.

Frederica Freyberg:

Well, so what specifically does the state of Wisconsin want from Foxconn right now?

Joel Brennan:

Well, I think fundamentally we want Foxconn to be successful. We want the local units of government to be protected. We want the people in southeastern Wisconsin and throughout the state to benefit from this project. But we also want to ensure that everybody understands that nobody gets a blank check in these things and that fundamentally this project has changed from where it was two years ago. Those things are okay, but it also requires us then to revisit some of the fundamentals about the agreement.

Frederica Freyberg:

And so you’d like to amend the contract.

Joel Brennan:

I think it’s important to note that the first discussion of amendment of the contract actually came from Foxconn. There has been this series of communications that have come out over the last few weeks and really going back to March of this year, Foxconn expressed to us their intention to file new applications and to proceed with the amendment process. We proceeded under the assumption they were going to do that for a long period of time.

Frederica Freyberg:

Are they now providing you things that you need to have to make these decisions?

Joel Brennan:

I think that’s really one of the things that’s fundamental to this. Just a little bit about what the justification of this was two years ago. So at that time, Ernst & Young did some very deep analysis of what this was going to be and a lot of the reason for this unprecedented public subsidy was based on some of the evaluation they had done. In that evaluation, they noted that the payoff for the state was based on getting to a point where they were producing six million LCD televisions in Racine County. Foxconn has said they’re no longer doing televisions. What we don’t know is what is the market for what they are going to be doing. Frankly, I think Foxconn may not know that either, which is okay, except that we have a contract that was for the LCD screens from two years ago. So we need to make sure the project they’re doing now is married up with what the contract terms are.

Frederica Freyberg:

Do you have any idea what exactly Foxconn plans to build?

Joel Brennan:

We have a good idea of what they’re doing throughout — up until about the end of 2020. There are three buildings on the site, about 1.4 million square feet of space and there are some exciting things happening there. There’s one company in particular, Foxconn Industrial Internet, FII, that’s doing two of those three buildings, and they’re doing things that are a little separate from what the contract or what the terms that were discussed two years ago. Those are things that have evolved and changed with this project. And that’s, again, those things are good. They’re exciting. They’re going to employ people. However, that’s not what the contract was signed for. And that’s why we have to go back and revisit those things with Foxconn.

Frederica Freyberg:

As to this, Speaker Robin Vos describes that contract as ironclad and he says he doesn’t want to materially change it, saying if you – the Evers administration – want to reduce incentives, it could result in less hiring. What about that?

Joel Brennan:

Well, I think that for anyone to argue that there haven’t been material changes in what Foxconn said they were going to do and contracted for two years ago versus now, they haven’t been really following the news. They haven’t been following Foxconn’s own communications. So it just kind of goes to the fundamentals of this. There was — the state had the option in 2017 to choose project A or project B, what they call the Generation 10.5 plan or Generation 6. They opted for project A, the Gen 10.5. There was a list of things that came along with that. So that’s what was evaluated, what was applied for, what was contracted for in 2017. There are things that are fundamentally different with this other plan. I’ve heard the speaker also say you wouldn’t tell somebody else to produce screwdrivers instead of hammers for a different thing. Well, frankly, if you’re going to produce six million TVs and that’s what all of the evaluation was, if they are going to produce something additional, there’s nothing wrong with that, but are they going to produce 60 or 6,000? Those are the questions I think that we still have and which taxpayers probably want us to be able to answer, too, before we can say that, yes, a horse is a horse is a horse or all these things are the same thing.

Frederica Freyberg:

As it stands, your position is that the company is not eligible for subsidies at all?

Joel Brennan:

The project that they’re doing now is not within the bounds of the contract that was signed in 2017. We made that pretty clear for them over the last several months. And I think it’s important to note, they’ve continued to do work aware of that. We’ve continued to have discussions about those things. And I anticipate we will over the coming weeks.

Frederica Freyberg:

What is your response to Foxconn saying that your position leaves job creators wondering if doing business in Wisconsin is welcome by the Evers administration?

Joel Brennan:

Well, I think over the first several months of the Evers administration there have been several occasions, high-profile announcements with Milwaukee Tool, with Molson Coors of the state providing and frankly being nimble in being able to provide resources so companies like that could grow here and I think that fundamentally the conversations we’ve had, the investments we’ve made have been in companies that are here, that want to grow here, that want to continue to work with us on the entire fabric of the economy. So all evidence is to the contrary about that. And we — every conversation we’ve had with Foxconn has been we want them to be as successful as they possibly can be here in Wisconsin. That’s why it’s to their benefit and in their best interest to make sure that we marry whatever the contract terms are with the project that they are doing now. And that will continue to evolve for them. I think they don’t know — and this is part of how the project has evolved over the last two years in that things are fundamentally different in the world marketplace than they were two years ago. There’s nothing wrong with that. They need to be able to evolve with that. But you can’t have a contract that puts the feet of — the state’s feed in clay and doesn’t allow us to have some of that opportunity to evaluate these things moving forward as well. I make common sense. That’s what rational people would do as we want to move forward on this.

Frederica Freyberg:

Given the friction, as evidenced by the correspondence back and forth between you and others in the administration and Foxconn, does the state run the risk of Foxconn just bailing on this project altogether?

Joel Brennan:

I think the decisions, as has been the case over the past two years, Foxconn is going to make business decisions based not just — and this is what we have heard from them, they’re not going to make those decisions simply based on tax credits. They’re going to make those based on the fundamentals of their business. They’re going to make those based on the world economic realities. So anybody trying to say that the state doing this or that is going to drive them away, Foxconn has continued to evolve their business decision-making over the last two years with the contract that they had, with changes in administration, with changes at Foxconn. So those decisions are going to be made based on Foxconn’s business, not based on anything that the state is doing.

Frederica Freyberg:

When do you expect any kind of resolution to the questions that you have?

Joel Brennan:

I think there’s urgency to it in that there are reports that Foxconn has to file early in 2020. We want to make sure that we’re able to do — in our best way, to incentivize them so that the work that they are doing can be rewarded and the work they’re going to be doing in the future is rewarded. We want to make sure we make those changes with all the appropriate amount of speed, but also the appropriate amount of evaluation and justification. Because that’s really what people need out of this.

Frederica Freyberg:

Are you in current communication with them today?

Joel Brennan:

I haven’t spoke with them today, but we have had conversations with them this week. We have conversations ongoing with Foxconn on a couple different levels about what’s going on the ground and how can the state be helpful in making sure we’re doing that. There are also ongoing discussions about how can we make sure that whatever the state is doing from an incentive standpoint meets up with what Foxconn is doing on the ground and if those two things can move forward together to make us both as successful as possible.

Frederica Freyberg:

Joel Brennan, thanks very much.

Joel Brennan:

Thanks for having me.