'We're stuck with this white elephant': A Wisconsin town's big ...

'We're stuck with this white elephant': A Wisconsin town's big bet on electronics maker Foxconn hasn't panned out as planned. LeadershipCryptocurrencyInflationGreatResignationInvestingMagazine·Foxconn‘We’restuckwiththiswhiteelephant’:AWisconsintown’sbigbetonelectronicsmakerFoxconnhasn’tpannedoutasplannedBYGradyMcGregorAugust4,2022,10:30AMUTCGroundbreakingforFoxconn’scampusin2018includedthen-CEOTerryGou(secondfromright).BrendanSmialowski—AFP/GettyImages In2017,TerryGou,thenCEOofelectronicsmanufacturing giantFoxconn,announcedintheWhiteHouse’sEastRoomthathisfirmwouldspend$10 billiontobuildastate-of-the-artmegafactoryinWisconsinthatwouldmakeLCDtelevisionandcomputerscreens.“WearecommittedtocreatinggreatjobsforAmericanpeople,”Gousaidatthepressconference,promising13,000newjobsforWisconsinites.  TheannouncementspawnedtheWisconnValleyScienceandTechnologyParkandtheaspirationthatthecornfieldsofsoutheasternWisconsincouldbecomeaglobaltechhubwiththehelpofFoxconn,bestknownforproducingiPhonesforApple.“WebelievethiswillhaveatransformationaleffectonWisconsin,justasSiliconValleytransformedtheSanFranciscoBayArea,”Wisconsin’sthen-Gov.ScottWalkerdeclaredatthepressconference,alongsidethen-PresidentDonaldTrumpandtopWisconsinlawmakers. Nowfiveyearsintotheexperiment,so-calledWisconnValleyhasfailedtoliveuptoexpectations.Insteadofasprawling20-million-square-footfactorycomplex,Foxconnhasbuiltafarsmallercampus.Thereisa1-million-square-footwarehouse,a260,000-square-foot“smartmanufacturingcenter,”a120,000-square-foot“multipurposebuilding,”anda100-foot-tallglassglobethatbulgesfromotherwiseemptyfarmlandlikeanotherworldly“orb,”saysGordonHintz,amemberofWisconsin’sstateassembly.  Nobodyisquitesurewhatthebuildingsarebeingusedfor,thoughit’sclearlynotmanufacturing.“Thewholethinghasjustbeenajoke,”saysHintz.  ButthetownofMountPleasant,hometotheproject,isn’tlaughing.  ThegovernmentofMountPleasantandthatofitscounty,Racine,collectivelyborrowednearly$1 billiontofundFoxconn’sincentivepackage.ThetownnowdependsonFoxconn’staxbilltopayoffthatdebt.  ButwithFoxconn’sannualtaxbillsettosoarfrom$16.6 millionin2021toatleast$36 millionfrom2023until2047,andthesitegeneratinglittleapparentrevenue,localresidentsfearFoxconncouldbackoutandleavethemonthehookforhundredsofmillionsofdollars.ThescrambleisontosalvageenoughoftheinitialWisconnValleydreamtokeepthetownof27,000peopleafloat.  AfewmonthsaftertheWhiteHouseannouncementaboutFoxconn’splant,MountPleasantwasunveiledasthechosensite.Atthetime,itwaseasytobuyintothehype—especiallyconsideringFoxconn’seye-popping$10 billioncommitment.“WeareaRustBeltcitywhohaslostatremendousamountofmanufacturingjobsoverthelastcoupleofdecades,”saysKellyGallaher,aMountPleasantresidentof29years.Thefactoryfeltlikeitcouldbe“amagicbulletthatwasgoingtobringmanufacturingback,”shesays.  Buttheplandrewskepticismwhendetailsaboutitbegantotrickleout.Gallaher,nowavocalcriticoftheproject,souredonFoxconnafterrealizingthemunicipalityhadbegunthreateningtoseizelandfromherneighborsundereminentdomaintomakeroomforthefactory.“Thetimeinwhichwewentfrombeingexcitedtoveryworriedwasabout72hours,”saysGallaher. “Thetimeinwhichwewentfrombeingexcitedtoveryworriedwasabout72hours.”KellyGallaher,MountPleasantresident BuildinganLCDfactoryinWisconsinmakeslittlesenseinisolation.SomethoughttheFoxconnfactory,farfromChinesesupplychainsandcheaplabor,wouldstruggletooperateefficiently.“Itjustdoesn’tworkintheU.S.,”saysVictorShih,aprofessorofChinesefinanceandpoliticsattheUniversityofCaliforniaatSanDiego.  TopayupfrontfortheFoxconnsiteandinfrastructuresuchaswaterpipesandroadupgrades,MountPleasantcreatedaspecialdistrict,calledataxincrementfinancing,orTIF,district.Itallowedthetowntoborrow$911 milliononanannualbudgetof$23 million.“Let’ssayyouhaveanincomeof$50,000,”saysLawrenceTabak,authorofFoxconned,abookaboutFoxconn’sWisconsinfactory.“Thatwouldbelikebuyinga$10 millionhouseandthentryingtofigureouthowyou’regoingtopaythetaxesandmortgagedebt.”  Atthetime,thetheorywasthattheTIFdistrictwouldquicklypayforitself.Foxconn’srapiddevelopmentofthepropertywouldgenerateenoughrevenuesandraisetheproperty’svaluetoletthetownlevyhighertaxesonthecompany.  YetFoxconnneverfoundaproductiveusefortheland.AfterabandoningplanstobuildLCDpanels,offeringnoexplanationastowhy,Foxconnhaspledgedatvarioustimestomakeelectricvehicles,avaguelydescribed“AI8K+5Gecosystem”techproduct,ventilators,androbotsthatmakecoffee.  In2020,newssiteTheVergereportedthatFoxconnemployedhundredsofpeopleatthesite,atleastsomeofwhomdidn’tknowwhattheirjobswere.TheimplicationwasthattheworkerswerehiredforthesolepurposeofmeetingminimumrequirementsforFoxconntocontinuereceivinginstallmentsfromaseparatestateincentivepackage.  ButWisconsinhadsomeprotections.Thestatefundingofupto$4.8 billionwasstructuredaroundtaxincentivesthatwouldbedoledoutover15yearsandtiedtospecificbenchmarks.Lastyear,afteritwasdeemedthatFoxconnhadfailedtoliveuptoitsendoftheagreement,WisconsinandFoxconnrenegotiatedthatpackage.Thestateslasheditstaxincentivesto$80 million.Atthesametime,Foxconn’sinvestmentcommitmenttumbledfrom$10 billionto$672 million,anditcutitspledgeof10,000jobstomerely1,454by2025. Eventhefactoryproject’sbackersagreethatMountPleasanthasalotmoreridingonthesuccessofFoxconn’scampusthaneitherFoxconnorthestategovernment.Wisconsinhasagreedtocover40%ofMountPleasant’sdebtshouldFoxconnbail,butotherwiseMountPleasantwouldbeonthehook.“There’sabsolutelynowaytheycanpayoffthedebt”ifFoxconnstopspayingitstaxes,Tabaksays.  ButAlanYeung,formerdirectorofU.S.strategicinitiativesatFoxconnandauthorofFlyingEagle,abookabouttheWisconsinproject,dismissedtheideathatFoxconnwouldeverrenegeonitstaxcommitment.“It’snotonlygroundless,itisirresponsibletospeculate,”hesays.  FoxconnhasbuiltonlyafractionoftheindustrialspaceithadinitiallypromisedinMountPleasant.MikeDeSisti—MilwaukeeJournalSentinel/ImagnContentServices Foxconnsaysit’scommittedtopayingthebill.ClaudeLois,theFoxconnprojectmanagerforMountPleasant,saysFoxconnhashonoreditstaxpaymentssofar.MountPleasantalsoplanstoseizeFoxconn’slandandassetsifFoxconnbacksout,Loissays.  Anotherreasontobelievethemanufacturerwillpayitsannualtaxbillisthat$36 millionis“notalotforacompanylikeFoxconn,”saysShih,theUC–SanDiegoprofessor.Indeed,itrepresentsasmallfraction,just0.02%,ofFoxconn’s$181 billioninannualrevenues.  Othersaren’tsosure. DougFuller,anassociateprofessorattheCityUniversityofHongKongfocusingonhightechinAsia,pointsoutthatGou,theFoxconnfounder,isa“notoriouscost-cutter.”ThosetraitsarepartlywhyGouhasbeensosuccessfulandalsowhyhemaytrytofindawaytobackoutofthetaxbill,Fullersays.  Tabakreferenceda2018newsarticlebasedonleakedemailsbetweenFoxconnandlocalWisconsinofficialsshowingthattopFoxconnexecutiveshadcomplainedaboutthehighpriceofhotelroomsinnearbyMilwaukee.“Ifthey’reunwillingtopay$200anightforahotel,whatmakesyouthinkthatthey’regoingtopay[$36 million]ayearfornothing?”Tabaksays.  Hintz,theassemblyofficial,cautionsthatit’stooearlytodeclareFoxconn’ssitedead.It’sstilla“viableproject”thatcouldprovidejobsandtaxrevenuesforMountPleasant,evenifitmaynotbeonthescaleofFoxconn’sinitialplans,hesays.Electric-vehiclestartupFiskerandchipgiantIntelbothrecentlyconsideredsettingupfactoriesonFoxconn’ssitebeforebackingout.There’shopeothercompanieswilleventuallycommit.  Yeungsaysthatfiveyearson,it’sstilltooearlytojudgewhethertheprojectisasuccessandthatFoxconncouldstillbuildasuccessfulfactoryinMountPleasantorleaseittoanothermanufacturer.“IamstillabelieverinWisconnValley,”hesays.  Butwheresomeseepotential,othersseeacolossalwasteoftimeandresources.  “Wearestuckwiththiswhiteelephant,”saysGallaher,thelocalresident,“intheformofagigantic,billion-dollardirtfarm.”  Downsizedambition ThefollowingshowshowFoxconn’sprojecthasbeenscaledbackovertime. Plannedjobs 2017:13,000Today:1,454 Foxconn’splannedspending 2017:$10billionToday:$672million Projectsize 2017:20millionsquarefeetToday:1.41millionsquarefeet Stateincentives 2017:Upto$4.8billionToday:$80million ThisarticleappearsintheAugust/September2022issueofFortunewiththeheadline,“Fleetingtechfactorydreams.” Signupforthe FortuneFeaturesemaillistsoyoudon’tmissourbiggestfeatures,exclusiveinterviews,andinvestigations. MostPopularFinanceRevised:Oddsoffallinghomepricesinyourlocalhousingmarket,astoldbyone...August28,2022BYLanceLambertAsiaAcollegedropoutisnowthe3rdrichestpersonintheworldbehindElonMuskand...August30,2022BYAlexanderSazonovandBloombergCommentaryCompaniesare‘flex-washing’toattracttalent—buttherewillbeabacklashAugust29,2022BYHolgerReisinger