Wednesday, November 22, 2017

Wisconsin board approves $3 billion Foxconn contract terms

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MADISON, Wis. (AP) ó Wisconsin's economic development board approved the key terms of a contract Wednesday implementing a $3 billion incentive package for a Foxconn Technology Group plant in the state, including a personal guarantee from the company's leader to protect state taxpayers.

The deal, completed two months after the Legislature approved the incentives, calls for Foxconn Chairman and CEO Terry Gou to personally guarantee one-fourth of any potential payback if the company fails to meet investment and employment benchmarks.

Gov. Scott Walker and Foxconn officials planned to sign the contract Friday. It ties hundreds of millions in tax credits to the number of jobs the Taiwanese electronics giant creates at the facility each year. It also allows the state to recoup the money if the company fails to meet the benchmarks, key provisions sought by critics of the subsidy.

The Wisconsin Economic Development Corporation's board approved a staff summary of the contract on an 8-2 vote during a closed-door meeting. Approval of the summary authorizes agency officials to complete the deal.

"The fine line was to balance the needs of the company and the needs of the state," WEDC chief executive Mark Hogan said after the vote. "We look forward to the next few years when Foxconn becomes a premiere company not just in Wisconsin but in the United States."

Foxconn officials want to build a $10 billion flat-screen manufacturing plant in Mount Pleasant, about 25 miles (40 kilometers) south of Milwaukee. The company has said the facility could employ between 3,000 and 13,000 people.

Walker, who faces re-election next year, signed the unprecedented legislation approving the incentives package in September. It provides the company nearly $3 billion in refundable tax credits from 2018 until 2032, including $1.5 billion in payroll tax credits, up to $1.35 billion in credits on expenditures for fixed assets such as land and buildings and $150 million in sales tax exemptions on construction equipment. It also allows the company to build on wetlands and waterways.

Foxconn would qualify for the full amount of incentives only if it invests $9 billion and employs 13,000 people, according to the terms the board approved Wednesday.

The package bothered some Democrats, who feared Walker was giving away too much to a foreign company without sufficient guarantees that the jobs would materialize and that the credits couldn't be recouped if Foxconn doesn't perform.

A vote on the deal was delayed in October. Democratic state Sen. Tim Carpenter, a member of the development board, said the deal at that point would have exposed taxpayers if Foxconn doesn't hold up its end of the bargain.

Carpenter and state Democratic Rep. Dana Wachs were the only board members to vote against the terms.

Carpenter left the board meeting without speaking to reporters but issued a news release listing his reasons for opposing the deal. He said the contract process was too secretive and more businesses will demand the same environmental exemptions Foxconn got. He also pointed to a Legislative Fiscal Bureau analysis that found taxpayers won't break even on the incentives for at least 25 years.

Wachs, one of roughly a dozen Democrats who are running or considering running for governor, said the deal is too risky and the incentives could have been spread among thousands of startup companies.

"My rationale is $3 billion spent on one company in one industry is a risk that I think is too much for taxpayers," he said.

Under the terms approved Wednesday, Foxconn must make at least $9 billion in capital investments and meet annual job creation thresholds between 2019 and 2025 to collect the maximum annual capital investment tax credits. If the company doesn't meet the job creation benchmarks, the annual tax credits would be reduced according to how far short the company falls.

The contract doesn't require Foxconn to hire Wisconsin residents but it does establish a maximum annual payroll credit and requires the company to meet minimum annual job creation targets to receive any credits. The jobs must pay at least $30,000 annually and the company must maintain an average salary of $53,875.

The state could nix the deal and demand all its money back if the company supplies false information, leaves Mount Pleasant or simply closes its doors. The state also could demand percentages of its tax credits back each year if Foxconn's job numbers fall below certain annual minimums. Hogan said the contract generally provides the state could start the claw-backs if Foxconn's job numbers drop below 6,500.

The company would be liable for 75 percent of the payback. Gou would personally be on the hook for the remaining 25 percent.

Gou's personal guarantee, along with claw-back provisions on capital investments, may have been the key to defusing those concerns, said Tom Still, president of the Wisconsin Technology Council.

"It's fairly remarkable," Still said, "to have, essentially, the Bill Gates of Asia put a personal guarantee on the claw-backs."

Foxconn officials didn't immediately reply to an email left in the company's general media inbox seeking comment Wednesday evening.

___

Associated Press writer Scott Bauer contributed to this report.

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