Wisconsin taxpayers could pay Foxconn for work done outside of Wisconsin, audit warns for second time

Molly Beck | Milwaukee Journal Sentinel

MADISON - The new leader of the state's jobs agency is pledging to withhold state tax credits from technology manufacturing giant Foxconn for employees who don't work in Wisconsin — but a new state audit shows the agency's procedures leave the door open.

For the second time in as many years, the nonpartisan Legislature Audit Bureau is warning the Wisconsin Economic Development Corp. to change its procedures to ensure taxpayers don't end up paying for work that doesn't benefit the state economy.

Foxconn struck a deal in 2017 with state lawmakers to build a $10 billion LCD panel manufacturing facility in southeastern Wisconsin in exchange for $3 billion in state incentives.

The project — once hailed by President Donald Trump as the "eighth wonder of world" — has since been scaled back, but the state's contract with the company hasn't changed.

FULL COVERAGE: Foxconn in Wisconsin

The new audit released Tuesday of the state program created to provide incentives to Foxconn says the agency's procedures still don't comply with the state's contract with Foxconn and state law.

WEDC disagrees. Responding to the review, CEO Melissa Hughes, who took over the top position at the agency in September, said in a letter to state auditor Joe Chrisman that WEDC has "explicitly disqualified any employee who did not perform services in Wisconsin."

But Chrisman said WEDC's written procedures don't achieve that goal.

Hughes said WEDC's policy is to disqualify employees in non-contiguous states from being counted unless the company can prove that these employees indeed do qualify the company for tax credits.

She said state law gives WEDC authority to determine how best to award the credits.

Chrisman suggested that the WEDC approach is incorrect, however. State law is silent on whether Foxconn employees must live in Wisconsin to be eligible for credits.

Under its deal with Foxconn, Wisconsin would pay more than $200,000 in state taxpayer money per job created.

The state's contract with Foxconn has been under a microscope since former Gov. Scott Walker and Republican lawmakers swiftly passed a new law that could provide Foxconn with billions in subsidies in exchange for a project that was initially touted as being "transformational" for the state economy.

But doubts have emerged over Foxconn's promise to expand the state's supply chain and create 13,000 jobs — key elements to the deal lawmakers agreed to support with public dollars.

Gov. Tony Evers and his administration are seeking to renegotiate the state's contract with Foxconn to reflect the smaller scope of the project in Mount Pleasant, but Foxconn officials have not come to the table, according to records first reported by The Verge.

The company did not qualify for any tax credits in 2018 because it didn't create the minimum number of jobs required to receive them. Foxconn officials said that goal has been met this year, however.

Assembly Minority Leader Gordon Hintz, a Democrat from Oshkosh, said Tuesday the audit "highlights the importance of ensuring that jobs created with taxpayer dollars go to hard-working Wisconsinites."

"With Foxconn constantly shifting what they are building and what they will be producing in Wisconsin, there continues to be more questions than answers about this project," he said. "The uncertainty created by Foxconn and its long term prospects means we have to be even more vigilant about protecting Wisconsin workers and taxpayers.”

Tuesday's audit also found that the information supplied by Foxconn to WEDC regarding the capital investment the company is making doesn't specify whether that work is being done in the Foxconn development zone in Mount Pleasant.

Hughes said WEDC "has not, and will not" award tax credits until verifying capital investments were indeed in the required area.

The audit also found that WEDC could short Foxconn by basing credits on pro-rated wages of highly paid employees who don't work a full year. The contract states the agency must calculate incentives using the employees' actual wages, the audit said.

"WEDC and the state want Foxconn to continue to create jobs and invest in Wisconsin; we also want to ensure the project meets the needs of Wisconsin’s taxpayers who have a stake in its success," Hughes said in a statement. "The best way to achieve our mutual goals is through open communication and a clear understanding of each side’s plans and expectations. We look forward to working with Foxconn to achieve this clarity."

Rick Romell of the Journal Sentinel contributed to this report.

Contact Molly Beck at molly.beck@jrn.com. Follow her on Twitter at @MollyBeck.