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Foxconn was built to flop

Even if the company misses out on subsidies, Wisconsinites will be paying the price for years to come.

Illustration by Jeremy Nealis.

Foxconn never had a coherent plan for how it would build a world-class LCD display manufacturing facility and bring thousands of jobs to Wisconsin, new documents show. While this means that Wisconsin does not have to pay Foxconn billions in direct subsidies that were originally anticipated, it still leaves state and local governments on the hook for the significant cost of public infrastructure built to accommodate Foxconn—infrastructure that may be unnecessary. The money and energy that Wisconsin poured down the drain trying to land a mega-deal would have been put to much better use bolstering homegrown businesses and making the investments in our families, schools, and communities that our economy needs to grow. 

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Almost exactly three years ago, Wisconsin’s Republican-controlled legislature rapidly passed (with some support from Democrats and some defections from Republicans) and then-Governor Scott Walker signed an incentives package that would funnel as much as $3 billion to Foxconn over a 15-year period, provided Foxconn met certain hiring and capital-investment targets. The legislation formalized a deal that Walker and Foxconn CEO Terry Gou initially scribbled out on a single sheet of paper. State lawmakers who advocated for the deal said it would jumpstart Wisconsin’s manufacturing sector and transform the state’s economy. 

According to the contract, Wisconsin was going to pay Foxconn as much as $300 million a year in subsidies in the coming years. To put that amount in context, it’s more than three times the amount of money that the state provides per year to the Madison Metropolitan School District, the second largest district in the state with about 27,000 students. Because of the way Wisconsin’s income tax code is structured, Foxconn probably wouldn’t have to pay income taxes even without a special deal from the state, so the subsidies would take the form of the state cutting a check to Foxconn, rather than reducing the amount of income taxes Foxconn pays. 

In addition to up to $3 billion in subsidies that would go directly into Foxconn’s pocket, state and local governments agreed to fund an ambitious infrastructure upgrade to make sure that Foxconn could have access to the roads, water, power, and other resources needed to operate the enormous production facility it had signed on to build. These infrastructure costs, which added up to another $1.6 billion, would not directly add to Foxconn’s bottom line, but still represented a significant cost for state and local taxpayers.

Almost from the start, there were signs that Foxconn was not on track to meet the conditions set out in the contract. In 2018, Foxconn fell considerably short of the minimum employment levels specified in the contract, and as a result did not receive a subsidy for that year. It’s worth noting that Governor Walker was still governor in the first year that Foxconn fell short of the contract, something that people have to overlook if they try to pin Foxconn’s shortfalls on Governor Tony Evers. Under both administrations, the company changed its story over and over again.

Now, a series of investigative articles from The Verge and a report from the state shows that Foxconn simply didn’t build the type of state-of-the-art factory specified in the contract, a type of facility called Gen 10.5. Instead, Foxconn is building a significantly smaller facility of a type called Gen 6, even though during the contract negotiation phase Wisconsin officials explicitly rejected subsidizing a Gen 6 facility. The facility under construction will have the 2.3 percent of the production capacity of the originally-planned Gen 10.5 plant. 

Whether Foxconn can even get the Gen 6 plant up and running is questionable. Certainly it isn’t going to happen anytime soon. In a report to the state, an outside consultant noted that Foxconn’s Gen 6 plant would be the smallest of its kind in the world, and warned that “a facility of such a size would appear to be more of a showcase than a business viable for the long term.” Then there’s the matter of the equipment needed to actually start manufacturing LCDs: Foxconn doesn’t have any yet, and it takes at least a year to purchase and install the equipment. Foxconn doesn’t have a plan for how it will get glass to make the LCDs, since there currently are no facilities in the U.S. making the type of glass Foxconn would need. Instead of laying plans for establishing a manufacturing facility with cutting-edge technology, Foxconn has spent the last three years chasing after bizarre ideas like growing trees for profit, exporting cosmetics and handbags to China, and building a fish farm.

In mid-October, the state notified Foxconn that its complete failure to fulfill the terms of the contract means that Foxconn will not receive direct subsidies for 2019. In other words, Wisconsin taxpayers won’t be directly padding Foxconn’s bottom line this year by sending the company a check. But state and local taxpayers have already spent hundreds of millions to rebuild highways, acquire land, build out sewers, and construct utility lines necessary for the enormous plant Foxconn said it would build. 

Some of the costs are covered by a local contract that in theory allows the local governments to recoup money if Foxconn doesn’t meet the terms of the contract—but at this point, does anyone believe that Foxconn concerns itself with adhering to the terms of a contract? And if you are thinking that the local costs don’t concern you because you don’t live in Mount Pleasant or Racine County, think again: the state has pledged to pick up a significant chunk of local Foxconn costs if local governments cannot. 

Wisconsin gambled big bucks on the Foxconn project, and it looks like we lost. Instead of making a high-stakes investment in a single, massive project that could be rendered obsolete by evolving technology, Wisconsin would get far more bang for its buck by investing in our K-12 schools, higher education system, and worker training—investments that are guaranteed to pay off in creating jobs and improving the economy, unlike the Foxconn deal. There isn’t any way to know what the future holds for any one single employer, but we do know that investments made in Wisconsin families and communities today will continue to improve the lives of Wisconsin residents for years and decades, making Wisconsin a great place to live, work, and do business. 

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