Foxconn at two years: Factory being built, innovation centers unfilled, pledge to UW not yet met

In late July 2017, then-Gov. Scott Walker and Terry Gou, then chairman of Foxconn Technology Group, signed a document outlining a deal for Foxconn to spend as much as $10 billion on a manufacturing complex and create up to 13,000 jobs in exchange for up to $3 billion in public money over 15 years.

“This is something,” Walker declared at the signing ceremony, “that will say to the world, ‘We have arrived.’”

Two years later, what the governor said would be “a transformational, once-in-a-lifetime opportunity for Wisconsin” has a way to go if it is to achieve that status.

FULL COVERAGE: Foxconn in Wisconsin

Foxconn has stepped back from building the type of factory it contracted with the state to build and has shifted its planned employment mix away from a heavy emphasis on production workers — changes that have prompted new Gov. Tony Evers, who defeated Walker, to say the contract may need to be revised.

In some cases, Foxconn has not met timelines it laid down in its own announcements — announcements that may have been tied as much to political considerations as to actual business needs. And a University of Wisconsin-Madison spokesman said that because of changes at Foxconn there has been “no significant progress” in discussions related to Foxconn’s announcement last August that it would invest $100 million in the university.

But amid much skepticism, including from Evers, Foxconn has held fast to the key 13,000-jobs pledge. The company said this week that it was “reaffirming our investment and job creation commitments” and was “thrilled to be moving into the next stages of construction” on the country’s first liquid crystal display panel factory. 

“This is a marathon, not a sprint,” said Mark Hogan, who heads the Wisconsin Economic Development Corp. and helped negotiate the state’s deal with Foxconn.

Assembly Democratic Leader Gordon Hintz (D-Oshkosh), a critic of Foxconn and the state’s deal with the company, puts in differently. The originally proposed and agreed-to project “no longer exists by Foxconn’s own admission,” Hintz said in a statement Thursday. “After two years of uncertainty, the reality is we still have very little idea of what is going to take place, what Foxconn is going to be manufacturing, and whether it’s remotely viable in the current market.”

Here’s a look at where things currently stand.

THE FAB: Foxconn has been pouring scores of concrete footings — it looks like the total will easily top 200 — to support its planned flat-screen factory — or, in industry jargon, fab — in Mount Pleasant.

The plant is to cover nearly 1 million square feet — large for a Wisconsin factory but hardly unprecedented. The Mercury Marine plant along Highway I-41 in Fond du Lac is 2.5 million square feet. The Quad/Graphics Inc. printing plant in Lomira, also along I-41, is 2.2 million square feet. When Tower Automotive Inc. still was operating in Milwaukee in 2001, its north side manufacturing complex covered 3.5 million square feet.

The plant Foxconn is building now — the company said it so far has awarded more than $150 million in construction contracts to Wisconsin-based businesses — also represents about 5% of the 20 million square feet of facilities that Walker touted and President Donald Trump declared would be “the eighth wonder of the world.”

As has been frequently noted, the plant will not be the “Generation 10.5” fab called for in Foxconn’s contract with the state, but a smaller and less costly “Generation 6” plant.

Foxconn also has sharply altered its original hiring plans to emphasize engineers and knowledge workers, greatly reducing the chances the factory will provide large numbers of good-paying jobs for the less-skilled.

A May 2017 document prepared by Foxconn’s consulting firm said the company expected to open a Generation 6 fab in the fourth quarter of 2019. Foxconn now says the plant will open in the fourth quarter of 2020.

“I’m not surprised that this has taken this long, but it’s good to see where they’re going right now,” Hogan said.

He said the company needs flexibility to make decisions that lead to business success. All the engineering jobs at Foxconn — executives have said engineers and knowledge workers will number in the thousands — ultimately will spawn new production jobs at firms that supply Foxconn, Hogan said.

THE CONTRACT:  Evers has said he wants to renegotiate the agreement and that Foxconn, too, wants to change the deal.

Evers broached the subject in an April 23 letter to Foxconn executive Louis Woo. In another letter early this month to Hogan, Evers offered a glimpse into his reasoning.

The “unprecedented incentive package” Foxconn got in the contract was justified by the massive scale of a Generation 10.5 display factory and the promise of new manufacturing jobs, Evers wrote. But with the project evolving substantially “from what was originally proposed, evaluated and contracted for,” changes to the contract — or even a new deal — must be considered, the governor wrote.

Hogan said he doesn’t view the change to a Generation 6 plant as an issue. When Foxconn originally proposed building both types of factory — not necessarily in the same location — Hogan said he thought the Generation 6 was preferable because it lent itself to making a wider variety of products.

In any event, he pointed out, as he often has, that the state contract is performance-based: Foxconn won’t get incentive payments if it doesn’t hit job and investment targets.

The firm missed out on jobs incentive payments for 2018, falling 82 jobs short of the 260 minimum requirement. It will need 520 jobs by the end of this year to get any payments for 2019, and 1,820 next year to receive payments for 2020.

THE $100 MILLION PLEDGE TO UW: Last August, University of Wisconsin-Madison Chancellor Rebecca Blank and Gou, then Foxconn’s chairman, announced that Foxconn had pledged up to $100 million to the university, in the form of a matching gift, to support research and other activities.

Asked about the status of the pledge, university spokesman John Lucas said Wednesday by email that UW continues to hold discussions with various Foxconn groups about collaboration.

“However,” Lucas said, “as a result of changes in Foxconn’s executive leadership and business priorities, there has been no significant progress in discussions related to the $100 million investment that was announced in August 2018. 

“UW-Madison is hopeful that discussions will move forward in the coming months.”

Foxconn, for its part, said it “remains committed to investing in engineering and innovative research at the University of Wisconsin-Madison.”

Gou announced last month, amid his bid to be elected president of Taiwan, that he was stepping down as Foxconn chairman effective July 1. He lost in the primary last week. 

THE VENTURE FUND: The $100 million fund announced last August by Foxconn, Advocate Aurora Health, Johnson Controls and Northwestern Mutual was incorporated in April as Wisconn Valley Ventures LP. Venture capital veteran Jason Franklin, a University of Wisconsin-Madison graduate and holder of a doctorate in computer science from Carnegie Mellon University, has been hired to manage the fund.

“Foxconn is pleased to confirm that we paid the $25 million to the Wisconn Valley Venture Fund in June,” the company said by email.

Johnson Controls and Advocate Aurora said they too have made their contributions. A Northwestern Mutual spokeswoman said such funds “operate on a ‘pay as you go’ system,” with partners contributing as opportunities are identified. “We remain fully committed to the fund and have contributed to all requests,” she said.

Franklin did not respond to questions about the fund.

THE INNOVATION CENTERS: Walker, who at the time was facing a tough re-election battle, hailed these as examples of the “Foxconn bonus” benefiting all Wisconsin. As much as a year later, there is meager evidence of activity at centers announced in 2018 for Green Bay, Eau Claire and Racine.

No permits have been sought for work on buildings Foxconn bought in Green Bay and at 1 Main Street in Racine, though the firm said last fall that its goal was to occupy them as early as within a few months. Nor did Foxconn buy a six-story Eau Claire building that it said last July it had entered into a “definitive agreement” to purchase.

Foxconn did pull a permit for $50,000 in roof repairs on a second downtown Racine building it bought, at 601 Lake Ave.

And the company followed through on another announced Eau Claire purchase, buying part of a different downtown building there and saying last fall that it wanted to occupy the 15,000-square-foot space as soon as December. But while Foxconn took out a permit in late January to do $2 million in remodeling at the location, as of late last week the space remained vacant.

In downtown Milwaukee, meanwhile, where Foxconn has said it will turn its seven-story North American headquarters building into “a state-of-the-art facility” that will showcase the firm’s technologies, the large majority of updating scheduled so far has been for two tenants, Robert W. Baird & Co. and Ixonia Bank, which is putting a branch in the building.

Foxconn said work is underway on the first stages of upgrading and modernizing the Milwaukee building.

The innovation centers, the firm said, will be regional hubs for its tech workforce across Wisconsin and will work closely with the operations in Mount Pleasant.

“Our first step is to build out the core of our network at our manufacturing facility in Racine and the hiring at our innovation centers will follow,” the company said.

THE OTHER REAL ESTATE PURCHASES: Beyond the downtown buildings across Wisconsin, Foxconn has bought at least 250 acres of open land outside its project zone. Sixty-five acres are in Kenosha County, about 4 miles south of the future factory. The rest is near the site. Foxconn is to sell some of that land to Mount Pleasant, but the transaction hasn’t closed yet.

All told, Foxconn has spent about $10 million on the land purchases outside the project zone and nearly $44 million on buildings in Milwaukee, Racine, Green Bay, Madison — a purchase that closed just last month — and Eau Claire.

LAND ACQUISITION, RESIDENTIAL DISPLACEMENT AND LOCAL BORROWING: The Village of Mount Pleasant acquired 73 “residential parcels” — and roughly that number of homes — in the Foxconn area. Homeowners were paid what the village has described as 140% of fair market value, and relocation assistance. The great majority of the homes have been torn down. The village’s threat to use eminent domain to seize property in an area it declared to be blighted angered many residents, but few refused to sell.

The village also bought 2,335 acres — more than 3½ square miles. By far the lion’s share of that was open land, most of which had been farmed. The village paid $50,000 an acre for that land — several times the going rate for farmland in the area before Foxconn appeared on the scene.

The village has transferred about 887 acres to Foxconn, but the local contract with the company calls for the firm ultimately to pay for that and for all the land the village has purchased. Foxconn has paid the village $60 million already and is to pay additional annual assessments toward the land-acquisition costs.

The company also has guaranteed there will be at least $1.4 billion of new property value in the tax increment district created for the project. Together with Foxconn’s land-acquisition payments, that will be enough to pay, over as many as 30 years, for the estimated $911 million in local costs, officials say. Besides purchases of property, those costs include such things as new sewer and water lines, potential incentive payments to Foxconn and repayment of the roughly $350 million borrowed by the village and Racine County.

Last August, Moody’s Investors Service lowered Mount Pleasant’s credit rating a notch, citing the Foxconn debt and uncertainty of enforcing the company’s guarantee if necessary. The rating is still in a tier judged to be “of high quality” and subject to “very low credit risk,” but now is in the bottom layer of that tier.

THE ELECTRICAL PROJECT: The high-voltage lines and substation American Transmission Co. is building to feed to Foxconn are to be finished by the end of December. The estimated $117 million cost of the project will be borne by residential and other electric customers over 40 years.

ROADWORK: While Foxconn is behind on the factory-construction timetable contained in its May 2017 request for proposals for state assistance, road construction in the area is either on schedule or close to it, a Department of Transportation spokesman said.

The major project, rebuilding I-94 to eight lanes from Highway 142 in Kenosha County to College Avenue in Milwaukee, was planned well before Foxconn. Timing of the construction, however, appears to have been pushed up because of the development. Contracts awarded for the work total $410 million, which is coming from a combination of state and federal money.

Contracts awarded so far for expansion of local roads next to and near the Foxconn site total about $97 million. Other local road projects have not yet been bid. In October 2017, the Transportation Department estimated the total cost of local roadwork would come to $134 million. The department’s latest master contract schedule suggests a total of $160 million to $170 million.

Contact Rick Romell at (414) 224-2130 or [email protected]. Follow him on Twitter at @RickRomell