With flourishes, Walker and Foxconn chairman sign contract for huge factory, huge state aid

RACINE – Gov. Scott Walker and Foxconn Technology Group Chairman Terry Gou signed off Friday on the biggest development deal in Wisconsin history, inking a contract that provides a once-unimaginable level of state financial aid for a massive manufacturing complex that backers say will transform the state’s economy.

Seated in front of an array of American and Wisconsin flags in a sleek hall at the historic headquarters of S.C. Johnson & Son Inc., Walker and Gou, head of the $135 billion Taiwanese electronics manufacturer, put their signatures on a deal that promises to put an immense liquid crystal display panel factory on 1,000 acres a few miles west, in Mount Pleasant.

In the case of Gou, who wore a white "Wisconn Valley" baseball cap and was given a FOXCONN license plate, it's personal: The self-made multi-billionaire is himself guaranteeing to pay as much as $500 million if Foxconn reneges on its contractual pledges.

For Walker, it likely will become a political marker the Republican governor will point to as he embarks on a bid for a third term.

And for some 300 government, business and education figures who watched video displays of Foxconn's technology and rose several times in standing ovations, the signing had the air of a party.

In the end, the event marked a major step — but not the final one — in a months-long effort dating to last spring, when Wisconsin began wooing Foxconn.

"Just think about it," Walker said shortly before sitting down with Gou to sign the contract. "We’re talking about things we talked about for years (but) we only dreamed of: 13,000 good-paying, family-supporting jobs. That’s just the start.

"We're going to take the world over when it comes to high-tech technology like we're going to build ... right here in the state of Wisconsin," he said.

It's a major bet for Walker. He famously pledged Wisconsin would add 250,000 jobs in his first term — a goal on which he fell well short. And critics of the Foxconn deal believe the state is giving far too much to a company that has failed to follow through on promised expansions elsewhere.

It's also a big bet for Racine County and the Village of Mount Pleasant, which together have committed to $764 million in local incentives for Foxconn, an agreement that has yet to be formally signed.

Beyond the ceremony, a few additional details on Foxconn's plans emerged Friday. The company said it will produce nearly 7 million high-definition LCD panels a year on a campus totaling 32 million square feet. Foxconn previously has said its buildings would cover 20 million square feet.

The complex will be equipped with 3,263 pieces of equipment and will include molding and tool-and-die operations, final assembly and "back-end packaging" of LCD modules.

After presenting videos showing how Foxconn believes its high-definition panels will be increasingly used in fields such as security, medicine and advanced manufacturing, Gou declared that "we believe that we have found the right place" to make those products. 

The signing caps several whirlwind months that saw Wisconsin, amid competition from other states, increase its offers to the company, as Foxconn upped its job numbers. State and local delegations flew to Japan to view the company’s LCD panel operations there, while hundreds of Foxconn employees combed through Wisconsin for potential factory sites.

Ultimately, in July, Walker and Gou jointly committed to the project, signing a handwritten note on a single page of the governor’s stationery. Scrawled on it were a few lines with the basic terms: a $10 billion investment by Foxconn, $3 billion in state incentives, 13,000 jobs to be created.

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That left the task of hammering out an actual contract, which took longer than initially envisioned. A Sept. 30 deadline came and went. Nor did the Wisconsin Economic Development Corp. board act on the deal at an Oct. 17 meeting.

WEDC Chief Executive Officer Mark Hogan repeatedly said he would take whatever time was needed “to get things right.”

The final contract — approved by the WEDC board, 8-2, in closed session Wednesday (two Democratic members of the panel voted no) — requires minimum job numbers for Foxconn to receive up to $2.85 billion in state tax credits. Because Wisconsin levies almost no tax on manufacturing profits, the company likely would be paid in cash.

To get the full payments, Foxconn’s employment here must rise to 5,200 by 2022, to 10,400 by 2027, and to 13,000 by 2032. Workers must be paid at least $30,000 a year, and the average annual salary must be at least $53,900.

The company would have to spend at least $9 billion on its production complex. It also would be eligible for $150 million in sales tax savings.

Through 2022, Wisconsin could recoup all of the tax credit money if Foxconn lies to the state, shuts down its manufacturing operations or moves them elsewhere. Beginning in 2023, those potential penalties are capped at $965 million, and fall to $386 million by 2032.

Wisconsin also could claw back additional money — up to $500 million beginning in 2023 and then steadily decreasing — if Foxconn doesn’t hit minimum jobs numbers.

Hon Hai Precision Industry Co. Ltd. — the overarching corporate entity informally known as Foxconn — would cover 75% of any penalties. Gou himself would cover 25%.

Along with the 29-page contract, Gou also signed three separate "limited guaranty agreements." 

The contract between the company and the Village of Mount Pleasant and Racine County is expected to be signed soon. The parties have signed a memorandum of understanding describing the general terms.