Tax Credits To Foxconn Could Be Lower Than Budgeted

Up to $150 million could be available to the state due to the downsizing of the Foxconn project, according to a new estimate by the Legislature’s nonpartisan budget office.

The projection, released Thursday by the Legislative Fiscal Bureau, showed the Wisconsin state government is expected to take in a total of $818 million more in tax revenue than previously expected.

The 2019-21 budget included the maximum amount of the cash payments that Foxconn was eligible for under the enabling legislation and contract with the Wisconsin Economic Development Corp. (WEDC).

The original deal called for Foxconn to build what’s known as a “Generation 10.5” liquid crystal display plant, meaning it would have built some of the largest, most technologically-advanced screens in the world. When the deal was pitched to the Legislature, it called for 22 million square-foot manufacturing campus.

The company has since backed away from those plans and is currently building a 1 million square-foot facility that could eventually build “Generation 6” screens, which are smaller.

A $3 billion incentives package was approved for Foxconn by the GOP-controlled state Legislature in 2017. Incentives are based on job creation.

In 2018, Foxconn reported 192 jobs, and WEDC verified 113 jobs as eligible for the credit. Foxconn’s job goal in 2018 was 260, so the company didn’t qualify for tax credits.

Foxconn had to create a minimum of 520 jobs in 2019 to be eligible for state tax credits. The company has until April 1 to report the number of jobs it created last year.

But there are still other incentives the company can receive even if it misses the jobs target once again.

Foxconn is also eligible for tax credits for making “significant” capital investments from 2019 through 2025 if WEDC determines that the company made those investments in a designated zone in Racine County.

The state estimated Foxconn would have “sufficient payroll and capital expenditures by the end of the 2019 calendar year to receive the $212 million of refundable credits that would be paid in the 2020-21 fiscal year.”

Based on reports of the project’s progress to date, and assumptions regarding payroll and capital expenditures, it is more likely that credits paid to Foxconn in 2020-21 will be in the range of $50 million to $75 million, the Legislative Fiscal Bureau report found.

This week, Foxconn Founder Terry Gou told Bloomberg the company’s Mount Pleasant manufacturing factory for “fifth-generation wireless and artificial intelligence applications” would be up and running this year, although he didn’t elaborate further.

After WEDC reviews Foxconn’s report on April 1, a nationally recognized, certified public accountant must also review the report. That accountant will have 45 days to complete the review before WEDC begins the verification process to calculate the amount of credits the Foxconn entities are eligible to claim.

“Given these steps, the amount of the credit to be paid in 2020-21 will likely not be known until after the end of this fiscal year,” the Legislative Fiscal Bureau found.

Democratic Assembly Minority Leader Gordon Hintz, D-Oshkosh, who is a WEDC board member, said he doubts Foxconn will be eligible for any tax credits.

“Because the Foxconn project has fallen apart and is not on schedule, the amount included in the project is available to spend on other things,” Hintz said.

Hintz said while it looks like taxpayers are going to not be paying for Foxconn this year, he cautioned that the state has already spent money on the project.

In 2017, the village of Mount Pleasant and Racine County created a special financing district to pay for a $764 million investment to support the Foxconn project. The investment has since been increased to $911 million.

“If Mount Pleasant, and Racine County aren’t made whole, the state, starting in 2023, is on the hook for 40 percent of it,” Hintz said. “There is definitely upfront money local government put forward. The state has spent more than $150 million on the Foxconn project that would not have been spent otherwise.”

The Fiscal Bureau is highly regarded by both parties but the numbers are an estimate. They could go up or down if there are changes in the global economy before the current budget cycle ends on June 30, 2021.