Gov. Tony Evers wants to renegotiate Foxconn deal, says company won't employ 13,000

MADISON - Gov. Tony Evers said Wednesday he wants to renegotiate the state's contract with Foxconn Technology Group and emphasized the Taiwanese company won't be creating 13,000 jobs in Wisconsin as originally envisioned.  

"Clearly the deal that was struck is no longer in play and so we will be working with individuals at Foxconn and of course with (the Wisconsin Economic Development Corp.) to figure out how a new set of parameters should be negotiated," Evers told reporters in his Capitol office. 

He said it was premature to say what specific changes he would be seeking. Under existing deals, the state and local governments could provide the company up to $4 billion to establish a massive facility in Racine County and create up to 13,000 Wisconsin jobs.

"All's we know is that the present contract deals with a situation that no longer exists, so it's our goal to make sure that the taxpayers are protected and environmental standards are protected," he said. "And we believe we need to take a look at that contract and see if it needs to be downsized as a result."

Asked for reaction, a Foxconn spokeswoman had not responded by Wednesday evening.

Senate Majority Leader Scott Fitzgerald ripped into Evers' latest comments, saying they showed the Democratic governor "wanted to undermine the Wisconsin Economic Development Corporation from day one."

"If the state is willing to renege on its commitment to Foxconn and open up a contract without agreement by both parties, then what guarantee can Wisconsin make to any other company that wants to expand here?” the Juneau Republican said in a statement.

Once hailed as "transformational" by former Gov. Scott Walker and other advocates, and touted by President Donald Trump as the "eighth wonder of the world," the Foxconn project has been drawing increasing skepticism for the last year as the company shifted its stated plans.

FULL COVERAGE:Foxconn in Wisconsin

First came a sharp change in the proportion of factory workers to engineers. Then Foxconn gradually acknowledged that it would not build the massive "Gen 10.5" flat-screen plant specified in its contracts with state and local governments, but rather would construct a smaller, less costly "Gen 6" facility.

Earlier this year, it looked like the company might back away from building any sort of factory in Wisconsin — news that prompted Trump to get on the phone to Foxconn Chairman Terry Gou, quickly followed by a public pledge by the company to forge ahead with a Gen 6 plant.

Through it all, however, Foxconn continued to say it would create 13,000 Wisconsin jobs. 

That won't happen, Evers said Wednesday.  

"I think at this point in time that would be an unrealistic expectation when they are downsizing the footprint of what they're doing," he said. "So 13,000 people as Foxconn employees is probably difficult to imagine for me right now, but I suppose it could (go) in a different direction."

He said state officials have a better understanding of where the project stands than they have in the past.

"I think we're at a point now where we're relatively confident that the original footprint of that project is going to be much smaller, but it seems to be a footprint that everybody agrees is likely," Evers said. 

Evers during his campaign was critical of the Foxconn deal but in the early weeks of his administration said he would abide by it because the state had made a legally binding agreement with the company. 

Evers made his Wednesday comments in response to a question about whether he thought Gou’s potential run for president of Taiwan would affect the Wisconsin project. He said he didn’t think that, but noted the project in Wisconsin would be smaller than originally announced.

Republicans who control the Legislature quickly pushed back against the governor. 

Assembly Speaker Robin Vos of Rochester said for months he feared Evers "would try to undermine the state’s contract with Foxconn" and was glad the state has an "ironclad contract" with the firm.

“As Foxconn works to create 13,000 jobs in Wisconsin, I’m open to hearing if any flexibility is needed to achieve that goal, which I hope is the intent of Governor Evers," the Republican said in a statement. 

GOP Sen. Van Wanggaard of Racine was even tougher, saying in a statement the governor is "hell bent to kill thousands of direct and indirect Foxconn jobs" and attempting to "unilaterally" renegotiate the contract.

Mark Hogan, the CEO of the Wisconsin Economic Development Corp., said the state and Foxconn have been in talks ever since the company disclosed two months ago that its plans in Wisconsin were changing.

“These ongoing discussions include consideration of the effect the company’s evolving plans may have on WEDC’s contract and our steadfast commitment to protect the taxpayers of Wisconsin," his statement said.

Assembly Minority Leader Gordon Hintz, a Democrat from Oshkosh, said he saw the existing contract doesn't make sense because it contemplates a project that is no longer happening. 

"Absolutely nothing they have said since the beginning of their project has been true or has come true," Hintz said. 

The existing contract provides up to $3 billion in state payments to Foxconn. The vast majority of that — up to $2.85 billion — would come as Foxconn creates jobs and spends money on its complex in Mount Pleasant.

Foxconn hasn’t yet gotten any of the job creation or investment subsidies, which are to be awarded only after the company hits targets specified in the contract. The company fell short of the minimum number of jobs required for 2018.

The up-to-$2.85 billion in job creation and investment incentives are in the form of "refundable" tax credits. That means Foxconn would receive the payments whether or not it owes state taxes. Wisconsin exempts almost all manufacturing profits from taxation, so the payments likely would be in cash.

The pay-for-performance provisions provide protection for state taxpayers if Foxconn fails to create jobs and investment, but the payments the company stands to earn if it follows through on its pledges are generous.

Where state incentive deals with companies typically have taxpayers covering 7% of salaries, Foxconn would get 17%. Foxconn would also get 15% of its capital investment paid back instead of the usual 10%.

Racine County and the Village of Mount Pleasant, meanwhile, have been spending money up front to buy land and provide infrastructure such as water lines to Foxconn's proposed factory site. The spending is the first of what had been envisioned as more than $900 million in local expenses to prepare the way for a manufacturing complex spread over about 1,200 acres, and related development expected on an adjacent 1,600 acres.

Should the project be greatly reduced in scope, it's likely that some of that $900 million — which includes money for things such as beefed-up police and fire services and up to $100 million in direct incentive payments to Foxconn itself — won't get spent.

Between them, the local governments so far have borrowed $350 million through three separate bond issues.

Moody's Investors Service lowered Mount Pleasant's credit rating last September because of the borrowing, and raised questions about what would happen if Foxconn didn't live up to its obligations. In January, Moody's issued a subsequent cautionary note after Foxconn disclosed that it would not hit the hiring target for 2018.

In its contract with Mount Pleasant and Racine County, Foxconn guaranteed that its project area would generate new property tax revenue that officials say would be enough to cover the local spending. Unlike the state's pay-as-you-go arrangement, however, the local governments would have to seek to enforce the contract provision after the fact if the development falls short of expectations.

In statements Wednesday, Mount Pleasant Village President David DeGroot and Racine County Executive Jonathan Delagrave said the local contract "ensures strong taxpayer protections and minimum valuation guarantees. The State of Wisconsin’s contract is separate. If and when the state chooses to renegotiate its contract is a state matter.”

DeGroot said Foxconn remains committed to the project, while Delagrave said officials are "optimistic about the progress we've seen and continue to see each day."

Contact Patrick Marley at patrick.marley@jrn.com. Follow him on Twitter at @patrickdmarley.