Public-Private Tech Deal Poses Risks and Rewards for a Wisconsin County

A large manufacturing campus in Racine County, Wis., promises a significant economic boost. But officials must weigh it against the potential risks.

by Jason Stein, Milwaukee Journal Sentinel / October 9, 2007

(TNS) -- In Mount Pleasant, a proposed flat-screen plant could trigger explosive growth, adding $1.4 billion of tax base to a village in which all the properties added up to just $2.5 billion last year.

The village and Racine County could win outsized rewards by investing $764 million to help Foxconn Technology Group of Taiwan turn farm fields into one of the world's largest manufacturing campuses.

But the complex project also brings revolution and risk, as local governments borrow for and build everything from sidewalks to sewers, streets and fiber optic cable lines.

The local agreement with Foxconn provides an unusual series of safeguards against failure — from guaranteed property tax payments by the company to a big financial cushion, land held as collateral by taxpayers and triggers to block incentives for Foxconn if the deal is going badly.

"It's more protected from loss than any (such deal) that I've seen," said Dale Knapp, a research director for the Wisconsin Taxpayers Alliance who reviewed the 39-page plan.

But at least some risk remains for local residents, if only because the massive size of the 25-year deal means that its collapse could prove catastrophic. Standing behind them will be state taxpayers, who could be on the hook for as much $199 million of this local obligation if the deal doesn't perform as expected.

Alan Marcuvitz, general counsel to the village of 26,000 people, says he has helped craft an agreement in which that won't happen.

"This is something that under the best of circumstances will be absolutely wonderful and under the worst of circumstances won't be terrible," said Marcuvitz, who has spent decades working on similar agreements.

This local deal comes in addition to the state's separate and so far more controversial package for Foxconn, under which taxpayers could provide the company with up to $3 billion in subsidies if targets are met. The state and local incentives — nearly $3.8 billion together — are unlike anything ever seen in Wisconsin.

"I don't think anyone has ever worked on a project of this magnitude," Marcuvitz said.

The factory, too, is exceptional. Up to 13,000 people could find Foxconn jobs turning out liquid crystal displays in a complex the size of 11 Lambeau Fields.

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But first village and county officials have to reach a series of final agreements among themselves and with Foxconn and then approve them. Those steps come with a number of public meetings to explain the deal, including a 4:30 p.m. session Wednesday at the Mount Pleasant Village Hall and a 5 p.m. Thursday meeting at Memorial Hall in Racine.

Under the tax incremental financing deal,Mount Pleasant and Racine County would borrow a total of $285 million to buy land and build a sweeping array of infrastructure for the Foxconn development. Then they would use the property taxes on the new complex to pay off the loans.

To show just how big that borrowing is, the village's budget for its day-to-day operations is barely $15 million this year. But the deal contains a number of protections:

A guarantee that from 2022 to 2049, Foxconn will pay property taxes as if it has a factory assessed at a value of $1.4 billion, even if the real assessment of the complex comes in below that. At today's tax rate, that comes out to just over $31 million a year, and if the plant turns out to be worth more, then the company will pay more. This helps respond to concerns that Foxconn has promised but not delivered on big investments in other places such as Brazil and Pennsylvania.

The ability — unusual in a deal of this type — for the village to use $100 million of the taxes from Foxconn to pay for additional police officers and firefighters through 2043. An additional $8 million could be used for public safety investments such as a police or fire station.

A financial cushion of $195 million between the money that the local governments are expected to take in from the deal and their projected costs.

A parcel of nearly 1,100 acres that would be purchased for about $60 million by the company but owned by the local governments as a hedge in case the deal goes badly. If the project goes well, Foxconn would eventually get the land and suppliers or other companies could locate there, paying taxes that would help retire the local debts more quickly.

Including the reimbursement to Foxconn for this parcel, the deal includes up to $234 million worth of incentives that the company receives only if the local debts are being paid off as expected.If not, the company wouldn't get as much or any of these sweeteners.

In a worst-case scenario, local taxpayers could potentially end up with the Foxconn plant and its nearly 1,200-acre site and could attempt to market it in some way.

Unveiling the package last week, Racine County Executive Jonathan Delagrave said it protects homeowners in his county from paying higher property taxes to subsidize the project.

"Our estimations are very conservative. We feel like first and foremost when we formed the (incentive package) that taxpayer protection was of the utmost importance," Delagrave said.

Knapp, the Taxpayers Alliance analyst, said he was impressed by the thought that went into the protections. But he noted that Foxconn's $1.4 billion guarantee is dependent on the company remaining viable for decades to come.

Right now, Foxconn is tied with Amazon.com as the world’s third-largest technology company. But within the marketplace for digital devices, a lot can change in just a few years, let alone two decades.

"That risk is to some degree inherent in any (such deal)," Knapp said. "That is always there, but it's amplified here because it is one company and because of the (project) size."

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