During the 2018 campaign, Wisconsin’s governor Tony Evers criticized the Foxconn project as a bad deal, but a done deal: the bill offering the Taiwanese tech giant up to $4.5 billion in subsidies had been passed into law, and the state and local governments had already acquired land and started building infrastructure for what was supposed to be an enormous manufacturing facility. For good measure, outgoing governor Scott Walker, who aggressively wooed Foxconn and repeatedly touted the project in his failed reelection bid, signed lame duck legislation limiting his successor’s ability to oversee it. With so much already in motion, Evers said it was too late to change the project and instead promised to make the Foxconn deal work as best he could for Wisconsin taxpayers.
But six months into the Evers administration, Foxconn has fallen so far behind schedule and changed its plans so drastically that it may have opened the door to revise the contract. In fact, it could now be in the company’s interest to make those revisions.
The Foxconn incentive package was the largest ever offered a foreign manufacturer in the US, and far outside the norm for the state of Wisconsin: $219,000 per job created, if Foxconn created all 13,000 jobs it promised, plus additional commitments for land and infrastructure. And because the deal largely exempted Foxconn from income and sales taxes, these subsidies would likely have taken the form of direct cash payments from the state.
Defenders of the lucrative package often point out that the subsidies are tethered to Foxconn’s hiring. “Not a dollar would be paid out until jobs in the Foxconn development area were created,” Wisconsin’s Republican Assembly Speaker Robin Vos and Senate Majority Leader Scott Fitzgerald said in a statement after Foxconn’s plans came into doubt earlier this year.
That isn’t entirely accurate — the jobs can be outside the development area, and the state has already spent money — but it’s enough to pose a problem for Foxconn. To start getting the $1.5 billion in job-creation subsidies, the company must meet certain hiring benchmarks, and it’s falling further and further behind.
In order to receive jobs subsidies, Foxconn had to employ 260 people at the end of 2018, and it missed that target badly, even though it appears to have fudged the numbers. Although an upbeat year-end letter from Foxconn’s Louis Woo claimed the company employed 178 full-time workers, a filing with the Wisconsin Economic Development Corporation (WEDC) shows workers are already leaving, and only 156 employees remained at the end of the year.
Foxconn did not respond to requests for comment about the discrepancy in its job-number claims, or about what it would push for in a new contract.
Foxconn continues to publicize job fairs, but listings on local jobs boards and interviews with current and former employees indicate hiring continues to lag, with months-long delays in getting hiring budgets or offer letters approved. Foxconn’s hiring benchmarks will only get harder to meet as time goes on: to receive subsidies at the end of this year, it has to employ 520 people.
Even if Foxconn fails to hit its subsidy targets, Wisconsin taxpayers will be out a lot of money. The state has already spent hundreds of millions on land and infrastructure for the project, costs that go to waste if the company simply walks away. Furthermore, the way the contract is structured means Wisconsin could end up paying more per job if Foxconn hires fewer people.
The capital investment portion of the subsidy package is pegged to hiring, but not in the same way as the jobs subsidies. While Foxconn doesn’t get any hiring subsidies if it fails to meet employment thresholds, it can still get subsidies for its investments in buildings and equipment, minus whatever percentage it missed its job target by.
For example, if Foxconn only employs 260 people at the end of this year, half its minimum target, but invests $1 billion in construction, Wisconsin could end up paying Foxconn almost $300,000 per job. Other scenarios take the cost per job above $500,000.
Jon Peacock, director of the Wisconsin Budget Project, worries that the relative ease of getting investment subsidies encourages Foxconn to build a highly automated factory rather than something employing the blue collar manufacturing workers who had featured prominently in President Donald Trump and former Governor Walker’s pitch for the deal. (It’s worth noting that Foxconn is aggressively pursuing automation in its other facilities as labor costs rise.) “I think one of the problems with the contract right now is that it makes it much easier to qualify for investment credits than job credits and that we might be incentivizing robots,” Peacock says.
Which brings up the second reason Foxconn might want to revisit the contract: it might not be eligible for the capital investment credits at all.
The contract ties job subsidies to employees simply working “for the benefit of” Foxconn’s activities in the manufacturing zone, but it doesn’t require them to be doing anything in particular. When it comes to capital investment, however, the contract is more specific: the only investments that are eligible for subsidies are those needed for “the project,” which is defined as a “Generation 10.5 TFT-LCD Fabrication Facility” — not the smaller Gen 6 LCD plant Foxconn now says it will build, not a research facility, and not an “innovation center,” whatever those are.
The WEDC, which oversees the deal, has said it will allow Foxconn to be flexible about what exactly it builds, but Bloomberg reports that there were informal discussions about whether Foxconn was in breach of contract when it changed the type of factory it’s building.
Furthermore, the bill Walker signed during his lame duck period only prevents Evers from appointing a new WEDC CEO until September, and whoever Evers appoints may not be as easygoing about Foxconn building a radically different type of facility than the one specified in the contract. During his campaign, Evers promised to dissolve WEDC, which has been engulfed in repeated scandals over its failures to oversee exactly this type of development project.
Foxconn’s changing plans leave it exposed in other ways. Not only could it fail to get subsidies, it could be sued for breach of contract, since the state of Wisconsin has spent hundreds of millions on land and infrastructure in reliance on Foxconn’s promises to build what it said it would in the contract. If Foxconn fails to deliver, the state has a plausible claim to recover these costs, says Clayton Gillette, who teaches contract and local government law at NYU. He also points out that Foxconn has waived its right to consequential damages, but the state has not waived its rights to them — meaning the state could sue for benefits it would have received if Foxconn had done what it said it would, though what exactly those are would be more difficult to prove.
But proving Foxconn is in breach of contract would not be simple. While the deal specifically defines the project as a Gen 10.5 facility, it is hedged with clauses saying the company must carry out the project “in good faith” and “consistent with [its] business goal.” What “good faith” means is not entirely clear, Gillette says. Does it mean Foxconn must take the state’s interests into account as well as its own, or just that it act honestly? If Wisconsin is going to get damages from Foxconn, it will have to overcome these ambiguities around exactly what Foxconn promised to do.
Gordon Hintz, the Democratic state House minority leader and member of the WEDC board, agrees that the contract provides Foxconn some wiggle room in terms of what it builds, but that the potential for litigation as the project continues to move away from what the contract describes could be something the company wants to address. Foxconn’s more pressing concern, he thinks, is that it might not meet any of the subsidy thresholds.
It’s rare that such cases end in litigation, but the possibility gives Wisconsin additional leverage in its dealings with Foxconn. The company is unlikely to pour money into a project it might not get subsidies for and might get sued over in the future. If Foxconn wants some assurance that building a totally different manufacturing facility won’t violate the contract, the typical way to get that would be to change the contract.
“I think the state has a strong bargaining hand at the table if they do go back and re-negotiate it,” says Greg LeRoy of Good Jobs First, citing the factory change and Foxconn’s delays. “I think Evers is in a very strong place to really call the company on the business case here: Where is the supply chain? What’s the business plan? What changed that you suddenly aren’t going to make bigger screens?”
There are signs that a contract fight is brewing. In an odd back and forth in April, Evers said he wanted to renegotiate the contract, only to be criticized by Republican lawmakers for pushing Foxconn out. Then Evers released a letter saying that it was Foxconn that first broached the possibility. Foxconn didn’t respond to questions about what changes it wanted to make to the contract, but there are some obvious things the company would push for, such as lower employment thresholds for subsidies and greater flexibility around what exactly it builds.
The Evers administration didn’t respond to questions about what it would push for in a renegotiation, but it likely has a longer wish list. Critics of the deal have had almost two years to think about ways the project could be improved. For starters, Peacock says the state should make it easier for Foxconn to qualify for jobs credits while scaling back the capital investment credits, both to reflect Foxconn’s diminished ambitions and to discourage the company from aggressively pursuing automation.
Tim Bartik, an economist with the Upjohn Institute who studies development projects, says that if he were in Evers’ position, he would take the opportunity to bring the subsidies in line with what Wisconsin typically offers: around $20,000 per job rather than $200,000 or more. Instead of cash payments to Foxconn, the state could fund infrastructure, education, and job training. Such programs would still benefit the region even if Foxconn leaves, Bartik says, and avert the race to the bottom that will come from other companies demanding subsidies at the scale Foxconn got.
Hintz would also revise the subsidy levels. “If Foxconn is not going to be doing what they originally set out to do, and it’s just going to be a warehousing or assembly facility, well, we have credits now for other companies that are not as generous and not as costly to the taxpayers to reward new job creation,” Hintz says. “If it’s not going to be the type of transformative economic development that was sold, then maybe they can work through our existing jobs programs.”
Bartik would also take the opportunity to make sure Wisconsin sees more of benefits from the project. The current contract has no measures encouraging Foxconn to hire or source materials locally, and Foxconn has already repeatedly exaggerated its Wisconsin supply chain. Bartik would add specialized job training for Wisconsin residents and a requirement the company consider people referred by the local workforce system.
Hintz, Peacock, and others say the contract should also be amended to bring more transparency to the project, starting with what Foxconn is actually building and its economic impact. “We’re almost coming up on two years,” Hintz says. “None of us have any idea what they’re doing.”
In crafting the subsidy schedule, the Walker administration relied on an economic impact estimate of a Gen 10.5 created by Ernst & Young at the behest of Foxconn. The lack of an independent analysis was a problem from the beginning, Peacock says, and now it’s been compounded by Foxconn building a different type of factory. “The first thing is to find out what they indeed are planning and to have a new, more independent and reliable analysis of the economic impact and the costs and benefits to the state of the project proceeding,” Peacock says.
Second, the Evers administration could push for more transparency around how jobs are defined and measured. Under the current contract, Foxconn’s headcount is taken only at the end of the year, creating the possibility that Foxconn could get subsidies by boosting its payroll with temporary employees. WEDC also has a poor track record of verifying whether its development programs are working as designed; as recently as May it was found to have awarded tax credits for job creation to a company that actually lost jobs, and more tax credits to companies for creating jobs filled by people outside of Wisconsin.
Foxconn likely won’t give way to these changes easily. It’s not just that it would have to forego lucrative subsidies — based on its scaled-back plan, it would be leaving many of them on the table anyway. Foxconn would have to publicly admit it is building a far smaller project, one unlikely to ever create 13,000 jobs, and certainly not the “eighth wonder of the world” Trump took such pleasure in touting last year, earning Foxconn the president’s goodwill in the midst of a trade war. Renegotiating the contract to reflect a much-diminished project could make economic sense for Foxconn while still being politically unpalatable.
The Evers administration also has a delicate political balance to strike.
“He doesn’t want to be the one who is trying to save the deal, then assumes responsibility for its failure,” Peacock says. Letting the project fail also comes with risks, particularly for local governments that have spent millions on land and infrastructure. But unlike when he took office, Evers is in a position to renegotiate the deal, largely thanks to Foxconn’s wavering and delays.