Foxconn Aerials
Assembly Minority Leader Gordon Hintz (D-Oshkosh) thinks the Walker administration included a huge loophole in its contract with Foxconn. The contract’s language, he says, opens the door to the company hiring workers for part of the year — for as little as a few days — and still claim tax credits for every dollar of capital expenditures. Foxconn claims it has incurred $350 million in capital costs, mostly for its facilities in Mount Pleasant in Racine County, which would be eligible for a 15 percent tax credit.
That means the company would collect $52.5 million from Wisconsin taxpayers while barely employing anyone.
How is that possible? The contract awards two kinds of credits. Employment tax credits are earned on a monthly basis for actual job hours worked. But the contract also awards tax credits for capital expenditures as long as the company has hired the required number of employees, including “partial-year employees,” by Dec. 31 of the previous year. The language allowing partial-year employees is used repeatedly, in three different paragraphs of the contract.
There are suspicions this is what Foxconn plans to do. In mid-December the company told the Milwaukee Journal Sentinel it would have more than the contract’s required 520 employees hired for the 2019 year. And nine days after Lee’s prediction, Foxconn Aerials, the Twitter account that takes overhead photos of Foxconn’s Mount Pleasant campus, tweeted a photo showing the parking lot for its little-used multi-purpose facility filled with cars. “Have never seen many cars at the multipurpose building since it was built more than a year ago. Until 12/21 when the lot was overflowing,” the tweet noted.
If these were employees hired in time to meet the Dec. 31 deadline, there is nothing to stop Foxconn from laying them off any time in 2020, say as soon as it gets the $52.5 million tax credit. “The plain language of the contract says if they are full-time employees for part of the year, they count for the capital investment tax credits,” says Milwaukee attorney Matt Flynn, who reviewed the contract at my request. “Then they can yank the workers in the spring or summer or any time.”
Flynn ran unsuccessfully for governor in 2018 as an opponent of the Foxconn deal. But Hintz, who is a member of the Wisconsin Economic Development Corporation (WEDC), which oversees the contract, has made his own inquiries about the contract, and is convinced it allows seasonal employment to count for the tax credit.
“Clearly this is a loophole,” he charges. “I would like us to take this issue up at the board.”
I contacted WEDC and was told by spokesperson David Callender that this interpretation of the contract was incorrect. In reply, I quoted from the relevant sections of the contract regarding partial-year employees and Callender then offered a quite different response.
“As a practice, WEDC does not provide guidance on how a contract will be interpreted or respond to hypothetical scenarios,” he wrote. “If and when Foxconn applies for tax credits we will follow our standard, rigorous process to verify jobs and capital expenditures.”
I contacted Republican legislative leaders, Assembly Speaker Robin Vos and Senate Majority Leader Scott Fitzgerald, and media representatives for Foxconn, again quoting that contract language and asking for comment. No response from any of them.
As questions about the Foxconn deal have continued to come up, former Gov. Scott Walker has called it an “ironclad contract” and Vos has repeated that phrase. Fitzgerald apparently didn’t get the memo and has used other language to vociferously defend the deal.
Back in 2017, when Republican legislators were poised to pass the Foxconn contract, some Democrats warned that the company was known for using robots whenever possible. “One of our fears was the company would ask for all the capital expenditure credits and not create these jobs,” Hintz says.
He speculates the language regarding partial-year employees was included because “the company was saying the jobs go up and down depending on the market.” Indeed, the contract early on notes that “there are a variety of factors that impact employment and average wages of full-time employees, including but not limited to… market conditions…”
Hintz ridicules the notion that Foxconn is now employing 520 workers. “There is zero chance there are that many people working for the company. I doubt anyone could explain what that many workers are doing now.”
Yet Foxconn claims it has hired 520 workers, without saying for how long, and by April 1 must submit its paperwork to WEDC claiming tax credits for the 2019 year. That could raise yet another concern for the administration of Gov. Tony Evers, which has been urging the company for a year to renegotiate the contract. “The project that they have right now is outside the bounds of the contract,” Wisconsin Department of Administration Secretary Joel Brennan has said.
The partial-year employee loophole, by contrast, is contained in the contract, but it’s just as problematic for taxpayers.
Bruce Murphy is editor of UrbanMilwaukee.
