WEDC hasn’t finished checks on Foxconn
$3 billion subsidy deal has Sept. 30 deadline, but agency couldn’t start probe until this week
MADISON - The state’s top jobs agency has yet to complete a full check on the finances and market position of Foxconn Technology Group — the Taiwanese company seeking up to $2.85 billion in cash from state taxpayers in exchange for thousands of new jobs.
The process will be watched closely since in years past taxpayers have lost money after the Wisconsin Economic Development Corp. neglected to make careful checks of companies receiving state incentives.
WEDC has committed to doing its due diligence on Foxconn before the deal’s Sept. 30 deadline but hasn’t given many details yet on how it would do that.
Foxconn and Gov. Scott Walker signed a memorandum of understanding last month but agency spokesman Mark Maley said that WEDC couldn’t formally begin its underwriting process until after the company turned in its application for state subsidies this week.
WEDC has advantages in backgrounding Foxconn — the highprofile company is one of the largest technology firms in the world and is followed by professional stock analysts in multiple countries. But there are also challenges — the business is headquartered in a foreign nation and traded on a foreign stock exchange governed by its own set of laws and disclosure requirements.
“WEDC is committed to providing the highest level of transparency, accountability and accuracy in all of its awards — from underwriting and negotiating the contract to the ongoing verification and monitoring process. The bottom line is that the contract will be presented to our bipartisan board for final review and that the legislation only pays on performance,” WEDC Chief Executive Officer Mark Hogan said in a
statement.
It’s not yet clear whether these financial checks will be finished before lawmakers vote on legislation to authorize the Foxconn deal. The bill comes before the Assembly Thursday but no vote has been scheduled yet in the Senate.
Under Hogan, WEDC has made progress in strengthening its financial controls and oversight of deals like the Foxconn proposal. But as recently as May, nonpartisan auditors recommended that WEDC make improvements in how it tracks job creation by companies like Foxconn that receive taxpayer money.
The up to $3 billion Foxconn deal is 46 times greater than the largest amount previously offered to a manufacturer in Wisconsin. In exchange, the company is committing to building a $10 billion plant that could one day employ up to 13,000 workers, though Foxconn has not committed yet to a minimum number of jobs.
State taxpayers could pay out cash to the company for up to 15 years if Foxconn builds its plant, hires workers and continues to pay them. Recouping those payments through increased tax revenue could take an additional decade, the Legislature’s nonpartisan budget office has estimated.
In light of that, WEDC is tasked with verifying that the Asian giant has the financial strength, access to credit and position in the marketplace needed to build the plant, run it and profitably sell the products made there for years to come. That’s no easy calculation, given how quickly the consumer electronics market can
“It is also unclear whether the company can manufacture a commodity product like LCD TVs at a competitive cost in the U.S., where labor costs are several times what they are in China.”
MIZUHO SECURITIES REPORT JAPANESE INVESTMENT BANK
change in even several years.
A report last month by the Japanese investment bank Mizuho Securities concluded that the cost of building the flat screen plant in Wisconsin was roughly comparable to the amount of cash Foxconn could generate in a full year.
“It is also unclear whether the company can manufacture a commodity product like LCD TVs at a competitive cost in the U.S., where labor costs are several times what they are in China,” the report reads.
But analysts at the Taiwanese firm Yuanta Securities Investment Consulting said that the Wisconsin plant would give Foxconn “an edge in cost for TVs sold in the U.S. market, which is now dominated by Samsung, Vizio and LGE.”
“The three (competitors) are all going to see an impact from Sharp in the U.S. market over time,” Yuanta reported in a July stock analysis of Foxconn.
Tim Bartik, a senior economist at the W. E. Upjohn Institute for Employment Research in Kalamazoo, Mich., said that given the complexity of the issue, the state should consider hiring a large accounting and consulting firm to help vet the deal.
“It’s a very large deal, so you need to thoroughly analyze all the benefits and costs,” said Bartik, who received his PhD from the University of Wisconsin-Madison.
In 2015, the Milwaukee Journal Sentinel reported on two taxpayer loans of more than $1 million in which WEDC failed to turn up clear red flags about the borrowers ahead of time. In both cases, the state ended up having to sue to recover a small fraction of the public’s money.
Maley, the WEDC official, said Foxconn’s application and finances will be vetted before any contract is signed. But he didn’t say whether the state would hire an outside firm to help do that.
“WEDC will utilize whatever resources it determines are needed to ensure a thorough and comprehensive underwriting,” Maley said.
Despite the vote planned for Thursday, the Assembly likely will have to take up the Foxconn legislation again later, a Senate leader predicted this week.
That’s because the Legislature’s budget committee is likely to make further changes to the measure after the Assembly votes on it, Senate President Roger Roth (RAppleton) told Green Bay-area radio host Jerry Bader on Monday.
“Whatever the Assembly does this week is largely irrelevant,” Roth said.