‘Nuclear Bomb’ in Foxconn Tax Deal: Wisconsin Democrats

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By Michael J. Bologna

Wisconsin’s economic development agency plans to approve a contract Nov. 8 laying out the state’s legal duties and tax incentives to land a $10 billion Foxconn Technology Group campus, an agency spokesman told Bloomberg Tax Oct. 24.

This commitment by the Wisconsin Economic Development Corporation (WEDC) comes despite concerns from Democratic lawmakers that the contract contains a “nuclear bomb” that would leave taxpayers unprotected. Democrats and good government organizations have demanded WEDC employ a more transparent process for approving the deal, which will grant Foxconn $3 billion in tax credits, exemptions, and subsidies for a 20 million-square-foot campus in southeastern Wisconsin.

Mark Maley, communications director for WEDC, said the agency’s board of directors Oct. 18 approved the creation of an electronics and information technology manufacturing zone, as required under the authorizing legislation, 2017 Wisconsin Act 58.

Act 58 directs the state to grant $2.85 billion in income and franchise tax credits to Foxconn if the company meets certain job-creation and investment targets. The legislation also permits a $150 million sales and use tax exemption on purchases of building materials, supplies, and equipment used for the construction project. Foxconn is the operating arm of Taiwan-based Hon Hai Precision Industry Co.

Staff Review Postponed

Maley noted that WEDC had been scheduled to approve a “staff review” during a closed session of the same meeting, but the decision was postponed. The staff review lays out the essential duties of the parties, including financial commitments, underwriting, incentives, and other legal requirements. The staff review would also direct WEDC Secretary and CEO Mark Hogan to sign the final agreement with Foxconn on behalf of the state.

But Maley said WEDC ultimately elected to defer action on the staff review to address undisclosed concerns by some board members. He described the decision to postpone as an exercise in due diligence ahead of a landmark decision by the agency. Maley said final action on the staff review would likely come during a Nov. 8 meeting.

“There have been reports that there are ‘major issues,’ but really there has never been a deal like this in the history of Wisconsin,” Maley told Bloomberg Tax. “This is many times larger than our next largest project. So there are a lot of details that have to be worked out. We see this as part of the negotiation process. We are very confident and happy with the direction this is going, but as Hogan has said, we will keep working on this until we get it right.”

‘Nuclear Bomb’

Sen. Tim Carpenter (D), a WEDC director, left the Oct. 18 meeting pointing to a “nuclear bomb” in the staff review. Carpenter wouldn’t describe the problem, but he said language in the staff review leaves the state vulnerable to potential abuses.

Carpenter and other lawmakers have called for a more transparent process permitting public scrutiny of the state’s final agreement with Foxconn. Carpenter accused Gov. Scott Walker (R) and the WEDC leadership of engaging in a flawed and irresponsible negotiating process.

“As a member of the WEDC board I find it the height of irresponsibility to be asked to vote on an unprecedented $3 billion dollar deal without first seeing the contract,” Carpenter said in a statement Oct. 23. “This will be the last opportunity to make sure Foxconn will be required to deliver on its promises. Wisconsin taxpayers must be protected before Gov. Walker’s WEDC turns on the spigot and the taxpayer dollars start to flow.”

WEDC released a statement Oct. 23 rejecting demands for the agency to modify its normal processes for approving economic development zones and state-administered incentive programs. The agency said the staff review and contract with Foxconn will become public after execution.

“The process for approving the Foxconn award and contract follows the same process as other Enterprise Zone awards approved by the WEDC Board,” WEDC said. “At some point, the board will vote to approve the staff review, which details the terms of the agreement, designates the zone, and authorizes WEDC staff to go forward with finalizing the contract.”

To contact the reporter on this story: Michael J. Bologna in Chicago at mbologna@bna.com

To contact the editor responsible for this story: Jennifer McLoughlin at jmcloughlin@bna.com

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