Audits show lax oversight by Wisconsin agency counting Foxconn jobs

[August 12, 2017]  By Dave McKinney

CHICAGO (Reuters) - The Wisconsin agency tasked with holding Foxconn accountable for delivering up to 13,000 jobs in exchange for $1.5 billion in state payroll tax credits has a history of failing to verify job-creation claims and rewarding companies that fall short of quotas, according to state audits.

The deal to secure Foxconn's proposed LCD screen plant announced late last month is one of the largest economic development agreements in U.S. history and counts President Donald Trump, who rode into office on promises of creating manufacturing jobs, as one of its proponents.

A May audit found the Wisconsin Economic Development Corporation (WEDC) did not independently verify jobs numbers claimed by recipients of tax credits and posted inaccurate jobs figures online. Earlier such reports by the non-partisan Legislative Audit Bureau identified similar shortcomings in 2013 and 2015.

The agency intends to hire more staff to help manage the Foxconn project and is “committed to providing the highest level of transparency, accountability and accuracy in all of its awards,” spokesman Mark Maley said.

The deal with Taiwan's Foxconn, formally known as Hon Hai Precision Industry Co Ltd, and an unrelated announcement last week by Toyota that it would build a $1.6 billion plant in a yet-to-be-specified state placed renewed focus on tax-funded development deals.

State and local governments since 1976 have awarded at least $105 billion in tax subsidies for corporate headquarter relocations, plant expansions and other developments, according to watchdog group Good Jobs First.

Critics say the subsidies often fail to produce promised economic growth and jobs, yet oversight typically is light and states rarely claw back benefits when companies do not meet commitments.

Indeed, some of the highest-profile deals between manufacturers and U.S. states have a spotty track record of long-term job creation.

Boeing Co has shed nearly 16,000 jobs in Washington state since winning the largest share of a 16-year, $8.7 billion incentive package, and cut nearly 1,200 jobs in South Carolina after securing multimillion-dollar incentives there.

“States should always be skeptical of any job projections. That's why incentives should contain provisions to limit the costs per job-year, and to claw back incentives if a company leaves,” said Tim Bartik, senior economist with the Kalamazoo, Michigan-based W.E. Upjohn Institute for Employment Research.

The WEDC, formed in 2011 as part of Republican Governor Scott Walker’s push to create jobs, helped negotiate the deal with Foxconn that offers $3 billion in total state subsidies.

The May audit also found the agency did not penalize companies even when it became aware they did not meet targets established in their contracts. It allowed one unidentified business to keep $1.4 million in tax credits after missing job-creation quotas and forgave a combined $1 million in loans to two businesses after the they missed job targets, auditors found.

“WEDC cannot be certain about the numbers of jobs created or retained as a result of its awards,” the state’s auditor, Joe Chrisman, said in his report.

Foxconn Chairman Terry Gou talks to reporters as he exits the White House following a second day of meetings in Washington, U.S. on April 28, 2017. REUTERS/Jim Bourg/File Photo

Walker, who negotiated the Foxconn deal along with the WEDC, did not respond to a request for comment.

Wisconsin lawmakers this week raised questions about Foxconn’s commitment to job creation. The state’s memorandum of understanding with the company commits Foxconn to creating up to 13,000 plant jobs, meaning that number is a goal and not a minimum.

“The thing that is missing is if they don’t live up to the job creation on a short-term basis and hit the benchmarks moving out from there,” Wisconsin Senate Majority Leader Scott Fitzgerald, a Republican, told WISN-AM in Milwaukee.

Foxconn said in an emailed response to questions that its Wisconsin project is expected to create "tens of thousands" of jobs in the state but declined to say if it would commit to a specific number.

Some lawmakers expressed skepticism after the non-partisan Wisconsin Legislature Fiscal Bureau estimated it will take at least 25 years for the state to break even on its tax break even if Foxconn creates 13,000 jobs.

The payback period would grow longer if that many jobs do not materialize, the bureau found.

Under the deal with Wisconsin, Foxconn would pull in a $1.35 billion construction credit and benefit from $139 million in sales tax exemptions and $252 million in nearby highway improvements, regardless of how many it hires.

Only the projected $1.5 billion in payroll tax credits could drop based on hiring, pushing Wisconsin’s break-even point “well past” the projected 25 years, the report found.

Concern over Foxconn’s promise to create jobs is based in part on the company’s record around the globe.

In Brazil, government officials had predicted as many as 100,000 Foxconn jobs if the company expanded its plant capacity, but a new factory proposed near Sao Paolo never materialized, leaving the country with fewer than a tenth of the jobs envisioned.

Likewise, a multibillion-dollar factory in Indonesia never materialized, and Foxconn has yet to start construction on a $30 million plant promised in Harrisburg, Pennsylvania.

(Additional reporting by Julia Jacobs, Alwyn Scott and Brad Haynes; Editing by Meredith Mazzilli)

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