NOT WHAT THEY WERE EX­PECT­ING

Fox­conn’s Wis­con­sin fac­tory not what was ini­tially promised. Can Mount Pleas­ant still turn into a HIGH-TECH HUB?

Chicago Tribune (Sunday) - - BUSINESS - By Lauren Zum­bach

By the end of the year, Tai­wanese elec­tron­ics gi­ant Fox­conn ex­pects to start pro­duc­tion at a brand-new liq­uid crys­tal dis­play man­u­fac­tur­ing plant in south­east Wis­con­sin.

The mil­lion-square-foot build­ing’s out­line is vis­i­ble from what used to be quiet two-lane roads, widened to ac­com­mo­date the surge of ac­tiv­ity Fox­conn is ex­pected to bring to an area that was once largely farm­land. A hand­ful of ad­di­tional build­ings and a power sub­sta­tion are tak­ing shape nearby.

Fox­conn’s plans have changed dra­mat­i­cally since its ini­tial an­nounce­ment, feed­ing skep­ti­cism over whether it can de­liver on a pledge to cre­ate 13,000 jobs and turn south­east Wis­con­sin into a hub of high-tech elec­tron­ics man­u­fac­tur­ing. Some ques­tion whether the project will pay off for Mount Pleas­ant and Racine County, which are in­vest­ing hun­dreds of mil­lions of dol­lars and have seen sev­eral res­i­dents dis­placed from their homes.

“It’s like a bait-and-switch,” said Kim Mahoney, who lives in the only house still standing in what used to be a small sub­di­vi­sion on the Fox­conn site.

But back­ers say Fox­conn’s ar­rival has been a much-needed shot in the arm for work­force de­vel­op­ment ef­forts in an area lack­ing in skilled man­u­fac­tur­ing work­ers, and they re­main con­fi­dent even a scaled-down project will boost the lo­cal econ­omy.

“You would love the movie if you hadn’t seen the trailer,” said Tim Sheehy, pres­i­dent of the Metropoli­tan Mil­wau­kee As­so­ci­a­tion of Com­merce.

It was “the trailer” that con­vinced the state to of­fer an in­cen­tive pack­age worth up to $3 bil­lion if the com­pany hit benchmarks tied to jobs, wages and in­vest­ment and to fast-track prepa­ra­tions for Fox­conn’s ar­rival. Lo­cal gov­ern­ment agen­cies agreed to front in­vest­ments in in­fras­truc­ture im­prove­ments and buy prop­erty promised to Fox­conn, at a to­tal cost cur­rently es­ti­mated at $808 mil­lion.

The com­pany’s agree­ment with Mount Pleas­ant and Racine County calls for those ex­pen­di­tures to be re­paid over time through prop­erty taxes and special as­sess­ments. Fox­conn is ob­li­gated to make up any short­fall if it doesn’t raise the value of the main site to $1.4 bil­lion by 2023.

Fox­conn con­tin­ues to ful­fill its fi­nan­cial obli­ga­tions un­der the lo­cal con­tract, which “en­sures strong tax­payer pro­tec­tions and min­i­mum val­u­a­tion guar­an­tees,” Racine County Ex­ec­u­tive Jonathan Del­grave said in a state­ment. The com­pany paid

$8.4 mil­lion in prop­erty taxes and special as­sess­ment pay­ments, in ad­di­tion to a one-time $60 mil­lion pay­ment, as of Dec. 30.

Mean­while, Wis­con­sin of­fi­cials have said the com­pany’s shift­ing plans call into ques­tion its el­i­gi­bil­ity for up to $3 bil­lion in in­cen­tives ne­go­ti­ated at the start of the project. Fox­conn missed job cre­ation and in­vest­ment tar­gets re­quired to earn tax in­cen­tives in 2018, and won’t re­port on last year’s progress un­til April.

It’s not that noth­ing is hap­pen­ing in Mount Pleas­ant. Fox­conn said ear­lier this year it has in­vested nearly $372 mil­lion at the site, where it has started build­ing a 260,000-square­foot plant that will man­u­fac­ture and as­sem­ble com­po­nents for com­puter servers and a data cen­ter with of­fices, in ad­di­tion to the mil­lion-square-foot liq­uid crys­tal dis­play fac­tory.

But it’s also build­ing a dif­fer­ent kind of fac­tory than the one agreed to in its con­tract with Wis­con­sin. The com­pany orig­i­nally was to build a Gen­er­a­tion 10.5 fac­tory that would pro­duce large LCD pan­els of­ten used to make large flat-screen TVs. In­stead, it will build a Gen­er­a­tion 6 fa­cil­ity pro­duc­ing smaller pan­els with po­ten­tial ap­pli­ca­tions in ed­u­ca­tion, medicine, en­ter­tain­ment and the mil­i­tary.

A smaller Gen­er­a­tion 6 fac­tory would be less likely to at­tract ad­di­tional sup­pli­ers to hop­ing to do busi­ness with Fox­conn to Mount Pleas­ant, said Bob O’Brien, co-founder and pres­i­dent of Dis­play Sup­ply Chain Con­sul­tants, who was re­cently hired by the state as an ex­pert on the flat-panel dis­play in­dus­try.

Those other busi­nesses would have brought more jobs and helped build out a “Wis­conn Val­ley” be­yond just Fox­conn.

“The no­tion that it will de­liver on all of its ini­tial prom­ise is not con­ceiv­able,” O’Brien said. “But the no­tion it will de­liver on some and you could have an LCD man­u­fac­tur­ing site in Wis­con­sin is still in the realm of pos­si­bil­ity.”

An­a­lysts said it wasn’t sur­pris­ing Fox­conn aban­doned plans for the cut­tingedge Gen­er­a­tion 10.5 plant, as prices for the large TV pan­els made at those fac­to­ries plunged.

“In 2017, you could see an over­sup­ply com­ing un­less you had just crazy ex­pec­ta­tions about how big the TV mar­ket could get,” said Charles An­nis, with tech­nol­ogy re­search firm Om­dia.

Sheehy, of the Mil­wau­kee com­merce as­so­ci­a­tion, said of­fi­cials in Wis­con­sin un­der­es­ti­mated how rapidly the in­dus­try was evolv­ing. Usu­ally, in­cen­tives are of­fered to com­pa­nies with more de­fined plans, he said.

Both Fox­conn and Wis­con­sin have gone through lead­er­ship changes as well. Fox­conn founder Terry Gou stepped down to con­sider a run for the pres­i­dency of Tai­wan last year be­fore with­draw­ing from the race. Wis­con­sin’s gov­er­nor when the deal was signed, Repub­li­can Scott Walker, was re­placed by Tony Evers, a Demo­crat, in 2018.

The changes in Fox­conn’s plans have raised con­cerns about whether the work un­der­way in Mount Pleas­ant is still el­i­gi­ble for the in­cen­tives out­lined in its con­tract with the state, said Missy Hughes, who took the reins of the state’s eco­nomic de­vel­op­ment agency, the Wis­con­sin Eco­nomic De­vel­op­ment Corp., last fall. Tax­pay­ers agreed “to in­vest in a cer­tain kind of project, and that’s changed, tax­pay­ers de­serve to know what’s the new vi­sion,” she said.

“We want to con­tinue to have a part­ner­ship, and com­ing to the ta­ble doesn’t elim­i­nate that part­ner­ship,” she said. “It hope­fully strength­ens it.”

Fox­conn Tech­nol­ogy Group said it made changes to the plan in re­sponse to mar­ket de­mand, and the com­pany has re­mained in dis­cus­sions with the state “re­gard­ing our com­mit­ment to bring sub­stan­tial im­pact to Wis­con­sin’s econ­omy, work­force and ed­u­ca­tional in­sti­tu­tions.” It will con­tinue to re­port on hir­ing and cap­i­tal ex­pen­di­tures.

“While Fox­conn con­tin­ues to re­spond to an ev­er­chang­ing tech­nol­ogy and sup­ply chain land­scape, our com­mit­ment to cre­at­ing a global tech­nol­ogy hub and man­u­fac­tur­ing ecosys­tem in Wis­con­sin re­mains un­changed,” Fox­conn said in the state­ment.

Asked how much the com­pany ex­pected to in­vest, how many peo­ple it ex­pected to em­ploy in Mount Pleas­ant, and how those jobs would be di­vided be­tween re­search and man­u­fac­tur­ing roles, Fox­conn said it “will make busi­ness and hir­ing de­ci­sions based on tim­ing that po­si­tions the com­pany, its em­ploy­ees, and its lo­cal part­ners for long-term suc­cess while con­tin­u­ing to com­ply with the WEDC pay-for-per­for­mance agree­ment.”

De­spite the un­cer­tainty, the com­mu­nity is pre­par­ing for Fox­conn’s pro­duc­tion to ramp up. The an­tic­i­pated need for thou­sands more skilled man­u­fac­tur­ing work­ers helped se­cure $5 mil­lion in state fund­ing for in­vest­ments in ad­vanced man­u­fac­tur­ing pro­grams at Kenosha’s Gate­way Tech­ni­cal Col­lege, in­clud­ing a 35,800-square­foot ex­pan­sion to a fa­cil­ity for man­u­fac­tur­ing and en­gi­neer­ing pro­grams.

Even if Fox­conn falls short of its plans to cre­ate 13,000 jobs, Gate­way Pres­i­dent Bryan Al­brecht said he isn’t wor­ried about keep­ing those cour­ses full. Wis­con­sin com­pa­nies like Rock­well Au­toma­tion, InSinkEr­a­tor and S.C. John­son — even gummy candy maker Haribo, which plans to open a fac­tory in Pleas­ant Prairie this year — have been call­ing for more work­ers with the skills to work with au­to­mated sys­tems, he said.

In Illinois, the Col­lege of Lake County is mak­ing sim­i­lar in­vest­ments in pro­grams that could pre­pare stu­dents for ca­reers in ad­vanced man­u­fac­tur­ing, which will help ac­com­mo­date more stu­dents.

Those in­vest­ments were driven by de­mand from lo­cal em­ploy­ers, but Fox­conn “has been a good thing for man­u­fac­tur­ing be­cause it cre­ated a di­a­logue among a lot of peo­ple con­sid­er­ing their needs and how we can sup­port man­u­fac­tur­ers here,” said Richard Am­mon, dean of en­gi­neer­ing, math­e­mat­ics and phys­i­cal science.

Older work­ers are re­tir­ing and there isn’t a big enough pipe­line of young work­ers to re­place them. Com­pa­nies also are adding new tech­nol­ogy, cre­at­ing more de­mand for work­ers who know how to an­a­lyze data from sen­sors, pro­gram ro­bots or keep au­to­mated sys­tems run­ning smoothly.

“It got to the point where we en­rolled an em­ployee in a nine-month (au­toma­tion tech­ni­cian) cer­ti­fi­ca­tion pro­gram be­cause we fig­ured he’d grad­u­ate be­fore we’d find some­one,” said Robyn Safron, se­nior hu­man re­sources man­ager at Hy­draforce, a Lin­colnshire-based hy­draulic valve maker that brought in its first ro­bot two years ago.

Com­pa­nies com­pet­ing for tal­ent say they’ve raised wages in cer­tain roles and are in­vest­ing in in-house train­ing, as well as ap­pren­tice­ship pro­grams that let em­ploy­ees work while study­ing in the class­room and get­ting on-the-job train­ing.

The prospect of a scaled­down Fox­conn is some­thing of a re­lief to Mun­delein-based Ma­cLean-Fogg, which man­u­fac­tures com­po­nents for the auto in­dus­try.

“We were ner­vous about it as to how it was go­ing to im­pact our abil­ity to be able to fill po­si­tions, be­cause it was hard enough as it was,” said Kristin Mal­basa, ex­ec­u­tive vice pres­i­dent of hu­man re­sources. “At the same time, be­cause it’s hard, we didn’t know where they were go­ing to find 13,000 peo­ple.”

In ad­di­tion to work­force de­vel­op­ment, ef­forts are un­der­way in Wis­con­sin to build the in­fras­truc­ture needed to ac­com­mo­date Fox­conn’s growth.

About $250 mil­lion is be­ing spent on state, vil­lage and county roads around Fox­conn’s Mount Pleas­ant site, widen­ing some and build­ing new ones. The Fox­conn de­vel­op­ment also helped se­cure fund­ing that sped up planned im­prove­ments to nearby In­ter­state 94, said Wis­con­sin Trans­porta­tion De­part­ment spokesper­son Michael Pyritz.

But in Mil­wau­kee, of­fi­cials re­jected plans to pro­vide ad­di­tional public tran­sit op­tions for peo­ple com­mut­ing to Mount Pleas­ant, said Mil­wau­kee Al­der­man

Robert Bau­man, who pointed to un­cer­tainty about the project’s even­tual scale and lack of ded­i­cated fund­ing.

In Mount Pleas­ant, some home­own­ers said they were shocked to learn their prop­erty had been promised to Fox­conn while watch­ing the project’s an­nounce­ment on the news. Oth­ers said it was dif­fi­cult to start look­ing for new homes while wait­ing to hear what the vil­lage would of­fer for their land. Mount Pleas­ant said it paid 140% of fair mar­ket value for homes, plus re­lo­ca­tion ben­e­fits.

Mahoney, who has been un­able to reach an agree­ment on the sale of her prop­erty on the Fox­conn site, said she and her hus­band don’t want the project to fail but don’t be­lieve the vil­lage’s of­fer would “make us whole.” Her hus­band, Jim, oc­ca­sion­ally checks out the con­struc­tion site through a spot­ting scope. Mahoney said she tries not to look past the trees at the edge of their yard.

She’s run­ning for a seat on Racine County’s Board of Su­per­vi­sors and said she wants to know what the county is do­ing to pro­tect it­self in case Fox­conn’s plan falls short.

But other res­i­dents, in­clud­ing some who hadn’t been ea­ger to move, said they re­main op­ti­mistic the deal will be good for the com­mu­nity de­spite the changes.

“What busi­ness doesn’t change as the econ­omy and other things hap­pen out there? It doesn’t bother me … things are still pro­gress­ing for­ward,” said Randy Bur­row, 61, who re­tired after work­ing in UPS’ au­to­mo­tive de­part­ment and moved to Spring Prairie after the vil­lage bought his home in Mount Pleas­ant.

Tom Fleiss, who used to farm land that is now part of the Fox­conn site, was skep­ti­cal the com­pany would cre­ate the 13,000 jobs ini­tially promised but still thinks it will ben­e­fit an area that’s al­ready see­ing de­vel­op­ment.

“Ev­ery­thing around it is go­ing to have a lot of jobs, we’ve just got to get the next gen­er­a­tion to fill them,” he said.

That’s why Hughes is con­fi­dent in­vest­ments in work­force and in­fras­truc­ture will be needed — whether or not Fox­conn drives that need.

“The en­ergy is there. We’ll see whether or not the re­turn comes from Fox­conn or oth­ers, but I have a lot of con­fi­dence that in­vest­ment is strong there,” she said.

STACEY WESCOTT/CHICAGO TRI­BUNE

COBURN DUKEHART/WIS­CON­SIN WATCH

Kim Mahoney, shown at top, has the only house still standing in a small sub­di­vi­sion near the Fox­conn con­struc­tion site in Mount Pleas­ant, Wis­con­sin.

STACEY WESCOTT/CHICAGO TRI­BUNE PHOTOS

Waukegan High School stu­dent Aji Blo­pleh asks a ques­tion on a Jan. 23 ed­u­ca­tional tour of Hy­draForce in Lin­colnshire. Man­u­fac­tur­ers are com­pet­ing for young tal­ent in cer­tain roles.

Jer­maine Jones, 16, a stu­dent at Racine En­gi­neer­ing Arts and Lead­er­ship School, uses a ro­bot at a Gate­way Tech­ni­cal Col­lege class on Feb. 13 in Sturte­vant, Wis­con­sin.

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