Wisconsin’s revised deal with Foxconn Technology Group that cuts tax breaks to $80 million from nearly $3 billion for the downsized project represents a neutral exchange for the state while not adding to, or abating, local government risks, Moody’s Investors Service says.
For the state, the renegotiated deal represents a neutral change as tax breaks remain tied to job creation. The deal doesn’t alter local government agreements between the company and Mount Pleasant and Racine County, which drew downgrades for taking on more debt to support the project.
“The scaling back of potential tax incentives in response to the electronics manufacturer’s significantly reduced Wisconsin footprint keeps the state's position relatively neutral because it will not receive the economic and financial benefits it expected from the original incentive package,” Moody’s said. “Local governments face no additional risk but remain highly leveraged.”
The deal doesn’t impact local agreements with Foxconn but the requirement that the company remain in good standing on its local fiscal obligations that go to repay debt issued by the village and county to receive state tax credits was built into the revised agreement, according to state officials.
State subsidies totaling $2.85 billion and local commitments to support land acquisition and infrastructure improvements were offered in exchange for landing the $10 billion manufacturing complex for advanced LCD displays for TVs and other products that was to be the state’s largest-ever economic development project with the promise of 13,000 jobs.
The increased debt load required to support commitments to the Taiwanese-based company brought downgrades to
Walker, a Republican, lost the 2018 election to Tony Evers, a Democrat. Doubts quickly arose about the company’s commitment to the original project. The manufacturing plan shifted to other products and the scope was downsized. The company fell short on job creation goals and no tax credits have been awarded to date. Evers pressed to renegotiate the state contract and the deal was announced last month.
The
Foxconn said in a statement it expects to invest $627 million in the science and technology park that will produce digital infrastructure hardward products.
The revised agreement with the Wisconsin Economic Development Corp. cuts tax breaks to a maximum of $80 million from $2.85 billion. It’s expected to cost the state $37 million over the next two years.
“The state also remains relatively insulated financially because of the contingent nature of its support,” Moody’s said. The state provides tax incentives based on job creation and a moral obligation pledge on $120 million of tax increment district revenue bonds issued by the village of Mount Pleasant which represents less than 0.6% of the state's fiscal 2020 operating revenue.
Moody’s rates the state at Aa1 with a stable outlook while Mount Pleasant is rated Aa3 with a negative outlook and Racine County is at Aa2 with a stable outlook.
“The updated WEDC agreement does not introduce new risks to either Mount Pleasant or Racine County … nor does it mitigate the existing risks that have contributed to declines in credit quality for both local governments,” Moody’s said.
Unlike the state incentives that were tied to jobs, the local incentives were tied to Foxconn capital investments.
The village committed to building a significant amount of infrastructure and providing public safety to support the Foxconn development. Foxconn, in turn, guaranteed a minimum economic value of development to generate sufficient tax increment revenue to support debt issued by the village to build that infrastructure and to pay a special assessment to support debt issued by the county to acquire land.
“With the vastly reduced number of anticipated jobs, however, Mount Pleasant and Racine County will not see the large influx of new residents and workers they initially expected, and significant ancillary development is unlikely,” Moody’s said.
The village sold about $200 million of debt for the project. That includes $120 million of revenue bonds that carry the state’s moral obligation pledge. The other $83 million was sold as sewer revenue bond anticipation notes that will be refunded through the state’s Clean Water Fund Program in June. Racine County sold
“Regardless of the ultimate security pledge, the local governments expect special assessments and tax increment revenue will cover all debt service related to the project,” Moody’s said. “Favorably, over the past two years, Foxconn has paid both its property taxes and special assessments.”
