Foxconn tore up a small town to build a big factory, then retreated

TĐH: Terry Gou, Chairman of Taiwanese firm Foxconn, with lots of investments in mainland China, has just announced his running for the presidency of Taiwan, against incumbent president Tsai Ing-wen. So now, stories about Foxconn and Tery Gou begin to take the front pages.

This story is somewhat personal to me. The little village Mount Pleasant in this story is right outside the border of City of Racine, where I worked as an accountant in Racine City Hall in my previous life before going to law school to become a lawyer. Last year, in our summer road trip to the US west coast, my wife and I stopped by Racine to take a look and took some pictures and was surprised by so much infrastructure construction going on. Now I understand the reason – the investment promise (still to be fulfilled) by Foxconn.

 
Valerie Bauerlein, The Wall Street Journal, Tuesday April 30, 2019

MOUNT PLEASANT, Wis.—Six miles west of Lake Michigan lies a cleared building site half again as big as Central Park, ready for Foxconn Technology Group’s $10 billion liquid-crystal-display factory.
Contractors have bulldozed about 75 homes in Mount Pleasant and cleared hundreds of farmland acres. Crews are widening Interstate 94 from Milwaukee to the Illinois state line to accommodate driverless trucks and thousands of employees. Village and county taxpayers have borrowed around $350 million so far to buy land and make infrastructure improvements, from burying sewer pipes to laying storm drains.
One thing largely missing: Foxconn.

President Trump and Foxconn Chairman Terry Gou hatched the factory plan in 2017, and both attended last summer’s gold-shovel groundbreaking in Mount Pleasant, 20 miles south of Milwaukee.
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As of Dec. 31, the Taiwanese manufacturing giant, famous as an Apple Inc. supplier, had spent only $99 million, 1% of its pledged investment, according to its latest state filings. The company projected as many as 2,080 in-state employees by the end of 2019 but had fewer than 200 at last year’s end, state filings show. The village is still awaiting factory building plans for review. Locals said Foxconn contractors have recently been scarce on the site.
The impact on Mount Pleasant, by contrast, is palpable. Its debt rating has slipped. Local politics has become fraught. Neighbors have fallen out over land seizures.
“At some point we’re talking about things that are just imaginary,” said Nick Demske, a commissioner in Racine County, where the plant is. “We’re pretending.”
Related video: Apple’s China problem goes deeper than the iPhoneFoxcon

Mount Pleasant and the county referred inquiries to county executive Jonathan Delagrave and an outside spokesman. A project this massive is bound to have hiccups, Mr. Delagrave said. “I think it’s fair for people to question it, absolutely. But I also think that it’s fair to say a lot of good things are happening.”
Foxconn said it “stands by the job creation commitments that we have made, and we look forward to completing” the manufacturing facilities. “After the winter break, which has an impact on construction projects of this scale, we are now looking forward to beginning the next phases of construction…by Summer 2019 with production expected to commence during the fourth quarter of 2020.”
It said it awarded contracts in the past months valued at nearly $34 million for construction of utilities and roadways. “We believe in Wisconsin, its people, and its potential to become a high technology hub.”
Communities across America are in an incentives race for marquis projects, but some big ones have collapsed. Amazon.com Inc. walked away from a $2.5 billion package from New York City. General Electric Co. returned $87 million in incentives after significantly scaling back its headquarters in Boston because it no longer needed the space.
The Foxconn project is among the biggest U.S. public-incentive deals ever offered to a foreign company, a more than $4 billion package of state and local tax breaks and investments. A Foxconn video last year showed renderings of a futuristic campus resembling Apple’s spaceshiplike Silicon Valley headquarters, with light rail shuttling workers. Foxconn said the video was for illustration purposes.
Foxconn, known formally as Hon Hai Precision Industry Co., is the main assembler of Apple’s iPhone and a major employer in China. It reported annual revenue of $5.29 trillion New Taiwan dollars (US$171 billion today) in 2018 and said profits have been under pressure from lower iPhone sales in China.
Foxconn had planned to make large state-of-the-art screens in Mount Pleasant but said last summer it would make small screens of an older technology instead, citing the distance from the Asia supply chain after Corning Inc. said it wouldn’t build a glass facility next door.
In January, Foxconn said it was backing out of the plan to build an LCD factory in the village, citing high U.S. labor and material costs. Days later, after a phone call between Mr. Trump and Mr. Gou, Foxconn reversed course and said it would go ahead with the facility making small screens, adding some other functions.
The community of 27,000 people remained skeptical the project would materialize on the scale promised. Those doubts grew when Mr. Gou said earlier this month he was giving up daily control of the company he founded to run for Taiwan’s presidency. Foxconn said Mr. Gou will remain involved.
On April 23, Wisconsin Gov. Tony Evers said that Foxconn told him it would seek changes to its state contract and that he asked it for details as soon as possible. The state hasn’t paid incentives to Foxconn, because it missed employment goals.
Foxconn said in a media statement the same day it was eager to explore “areas of flexibility within the existing agreement” though it remained committed to hiring 13,000 people in the state. Foxconn’s chief U.S. strategist, Alan S. Yeung, the next day tweeted: “Who has the crystal ball to predict if 13,000 jobs will be created by the year 2032? Esp in April ’19?” He later told reporters he backed the 13,000-job commitment.
Foxconn is still actively investing, local officials said. It built a multipurpose building in Mount Pleasant, largely a staging area for construction for now, and is using a nearby building as a training center. It has sponsored student engineering competitions at the University of Wisconsin and bought downtown buildings in Green Bay, Racine, Milwaukee and Madison; most are empty.
Foxconn executives didn’t participate in a village briefing on the plant in April. Foxconn said its construction contractor attended the meeting on its behalf. He spoke for about five minutes and excused himself without taking questions from the audience.
Claude Lois, a consultant Mount Pleasant hired to manage the deal, said at the briefing the village must abide by its 170-page Foxconn contract, regardless of the company’s delays or tweaks. It would be foolhardy to slow down public investment, he said.
Leslie Maj, a 60-year-old former business manager, raised her hand. “Is our village going to go bankrupt? Is our county going to go bankrupt?” she asked. “I’m telling you, we’re afraid.”
Mr. Lois told her he would try to get a Foxconn executive at the next meeting. The village spokesman said there were financial guarantees in the agreement that require Foxconn to cover the cost of public investments over time.
Mount Pleasant’s Foxconn odyssey started with a presidential suggestion. Mr. Trump was in a helicopter over Wisconsin in early 2017 after giving a “Build American, Hire American” speech at a tool factory. He looked out on an abandoned manufacturing site south of Racine County, he said at the Foxconn groundbreaking. He had heard Mr. Gou was looking to expand, he said, so when they met soon thereafter, he suggested Foxconn look at southeastern Wisconsin.
“I had this incredible company going to invest someplace in the world—not here necessarily,” Mr. Trump said. “And I will tell you they wouldn’t have done it here, except that I became President.” He didn’t mention Foxconn on April 27 during a rally in Green Bay, Wis., though he touted manufacturing-job growth the state.
The Racine County area was once among the wealthiest in the state, credited with inventing products from the garbage disposal to malted milk, and home of the Frank Lloyd Wright-designed headquarters of SC Johnson, maker of Pledge, Raid and Drano. The county lost major employers with the manufacturing decline. The city of Racine has one of the state’s highest poverty rates.
Foxconn offered the chance to reinvent the area as Wisconn Valley Science and Technology Park, an advanced-manufacturing answer to Silicon Valley, said Mr. Delagrave, the Racine County executive. “When you have a chance to transform your community,” he said, “my philosophy is you take that opportunity.”
State and local governments and economic-development groups devised a complex deal in which the state offered $2.85 billion in tax credits, to be paid incrementally if Foxconn hit hiring and investment benchmarks. Mount Pleasant agreed to borrow money to acquire the land for the project within a year and meet aggressive timelines for clearing and preparing the infrastructure.
Messrs. Trump and Gou in the White House in July 2017 announced Foxconn had chosen Wisconsin as the site. The state and local governments signed off on incentives and benchmarks that year.
“What they asked for was speed,” said Tim Sheehy, president of the Metropolitan Milwaukee Association of Commerce, which was involved in early talks with Foxconn. “They’re used to the Chinese government saying, ‘Oh, you need that property? You’re on.’ ”
The village bought hundreds of pieces of property, holding out the possibility of enforcing eminent domain. It worked out deals with Racine County, the water authority and the power company to bring services to the site. The state legislature agreed to bypass some permitting processes, letting Foxconn fill wetlands without getting an environmental-impact statement. The state received a $160 million federal grant to help expand Interstate 94 a decade ahead of schedule.
The public work has met or exceeded target dates, the village spokesman said.
“It’s almost like they were working triple time to make sure it gets done so nobody had the chance to change their mind,” said Cathy Jensen, 50, a retired grandmother who is fighting seizure of her five-bedroom house in state court.
She said she wants to stay in the house where she has lived for 23 years, although the neighborhood has changed. “Out the back was cornfields one year, cabbage another, that was the only changes of scenery,” she said. “Now it’s horrible, you don’t even want to look at it.”
Most homeowners signed deals and moved out. Decisions divided friends, neighbors and couples, Mrs. Jensen said. “It was, ‘Why are you doing this? Why are you fighting, or why are you not fighting?’ ”
Jim Spodick, 62, a retired developer and co-host of a YouTube show, “Talking Racine,” regularly drives the 30 minutes around the property, photographing progress. “People wanted to believe and they did believe,” he said, watching contractors demolish a grain silo, “and there’s a whole lot of shock going on right now.”
Kim and Jim Mahoney, 49 and 48, are rare holdouts still living on the vast site. Ms. Mahoney said the village recently dropped its bid for their 1,800-square-foot house, leaving them on a cul-de-sac with a view of Foxconn’s multipurpose building. The village spokesman declined to comment, citing confidentiality requirements.
“I don’t want Foxconn to fail,” said Ms. Mahoney, a paralegal and a regular at public meetings who keeps an inventory of houses and farms that are cleared. “It would be devastating to the people of Mount Pleasant and this state. We just want Foxconn and the village and the state to be held accountable to the deal they made.”
Moody’s Investors Service downgraded Mount Pleasant’s credit rating in August over its debt for the project. Moody’s in January said Foxconn’s anemic hiring was a negative sign for the village, noting Foxconn has been lowering expectations for hiring and making “continual changes in the scope of the project.” The village spokesman said its credit rating is solid and it is confident it has adequate guarantees.
The Foxconn agreement has a clause that acts as insurance, said the Milwaukee commerce association’s Mr. Sheehy. Foxconn agreed to pay taxes starting in 2023 on at least $1.4 billion in property value, whether it built anything or not. So Foxconn is set to pay a minimum $31 million a year, or $886 million through 2047, roughly what the village committed to invest.
“Whether you have a yurt out there or a modern plant making screens,” Mr. Sheehy said, “it will be worth $1.4 billion.”
The village had bought additional sites, hoping to transfer them to Foxconn for expansion. This month, its board voted to lease back 966 acres to a farmer for $170,000 a year, after buying the property from him last August for $1.7 million.
Mr. Demske, a poet and librarian, ousted a 20-year Racine County supervisor last year. Mr. Demske initially campaigned on better jobs for Racine’s poor and on criminal-justice reform and ended up focused on bringing more accountability to Foxconn, a topic he said came up constantly as he knocked on 1,600 doors. A Marquette University Law School poll found in April that 47% of registered Wisconsin voters think the project will cost more than it is worth.
One of five newly elected supervisors, Mr. Demske said he wasn’t certain Foxconn would produce anything there. He said the relationship between Foxconn and Mount Pleasant gives the company disproportionate say-so. “We’ve dug ourselves in too deep,” he said. “What can you do with an entity that big other than ask them to play nice with you?”

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