CHICAGO – Racine County took a rating hit ahead of its sale of $79 million in notes tied to the proposed $10 billion Foxconn Technology Group plant, which has been trumpeted by Wisconsin Gov. Scott Walker as an economic boon for the state.
The county is competitively bidding the bond anticipation notes Tuesday. Proceeds will provide interim financing for land acquisition tied to the Taiwanese manufacturer’s plans to construct a complex in the village of Mount Pleasant -- located in Racine County -- where it will manufacture and distribute LCD screens.
The company in July announced its choice of Wisconsin to host the facility. Gov. Scott Walker offered a $3 billion tax incentives package for the complex that could employ up to 13,000.
The Walker administration and the legislature has signed off on incentives, and the village and county late last week signed off on a developer agreement. Construction is expected to begin next year, with completion targeted for 2023.
Moody’s Investors Service last week lowered the county’s general obligation rating on $61 million of debt to Aa2 from Aa1 and assigned its top MIG 1 rating to the notes. The outlook is stable. The county will eventually swap out the BANs for long-term bonds.
The downgrade “reflects current and anticipated growth in the county's direct debt burden and likely growth in its overlapping debt burden tied to borrowing in support of” the Foxconn project, Moody’s wrote. “The county's rising debt burden is balanced by its very healthy financial position, moderate revenue raising flexibility, and large tax base.”
Moody's said the county could eventually see an upgrade if its tax base expands significantly or other socioeconomic indicators improve.
Racine County is located north of the Illinois border about 30 miles from Milwaukee. It has a population of 195,000 and a tax base of $14.2 billion. More rapid growth in the county’s debt burden or overlapping debt burdens could drive further credit deterioration, Moody’s said.
Racine County and Mount Pleasant’s developer agreement approved by local authorities on Thursday and signed Friday by leaders and Foxconn provides $764 million in incentives.
“As part of its efforts to support the Foxconn development, the county will significantly increase its leverage, though we expect direct debt will remain manageable,” Moody’s said. The $79 million BAN issue will raise the county's direct debt burden to 1.0% of full value and 1.36 times operating revenue. The county anticipates net direct debt will rise to nearly $200 milllion over the next couple years.
The county's overlapping debt burden will also grow, as Mount Pleasant intends to issue up to $113 million of debt to support the Foxconn development.
“Based on current borrowing plans, we expect the county's direct and overlapping debt burdens will remain in line with the current rating. Additional borrowing would present more significant credit challenges,” Moody’s wrote.
“The protections and guaranties outlined in this agreement ensure Racine County taxpayers will benefit from this unprecedented development,” County Executive Jonathan Delagrave said in a statement. Under the agreement, the county and village expect to eventually cover their costs through tax increment financing revenue and Foxconn’s upfront cash investment of $60 million and special assessments.
The project has been billed as the largest economic development project in the state’s history. It’s also the largest subsidized incentives package ever awarded by a state.