RACINE COUNTY — The $10 billion Foxconn project will be paid for without a sales tax and without raising property taxes anywhere in Racine County, officials revealed Wednesday.
Rather, the manufacturing complex, and development to follow, will be paid for entirely by a tax increment finance district, according to officials and the development team that negotiated the TID agreement with the company.
On Wednesday, the day officials revealed that Foxconn will build its 20 million-square-foot manufacturing plant in the southwestern corner of Mount Pleasant, the other major revelation was the public financing part of the plan: a TID. Tax incremental financing allows a municipality to pay for improvements in a district with the future taxes generated as development occurs there.
The financing plan, or TID plan, contains a $100 million incentive to the Taiwanese company — albeit an incentive that is entirely paid for by new tax valuation and property tax revenue created by the development itself.
“The costs that are necessary are all paid for by the property taxes the company pays as a result of its development,” said Jenny Trick, the executive director of the Racine County Economic Development Corp.
The financing anticipates a total investment in the project from the TID of $764 million. Foxconn’s $10 billion investment will generate more than $31 million per year in new tax revenue that will more than pay for all public improvements and development costs, according to materials provided to The Journal Times and according to the 39-page TID project plan.
Foxconn is providing financial guarantees to support a minimum valuation of $1.4 billion. That evaluation is expected to be reached in four years with a projected $350 million in new property valuation each of those years.
Racine County Executive Jonathan Delagrave said negotiators were able to avoid raising property taxes or adding a sales tax by using the TID economic development tool.
“We took advantage of that and crafted a well-constructed project,” he said.
Delagrave said the team didn’t know at the outset of negotiations if it would be able to avoid a new tax to land Foxconn, a maker of liquid crystal display technology.
“We didn’t know either way,” he said. “I wanted to make sure that we had all options on the table. That’s why we were looking at it in the legislation; but just because it was in the legislation didn’t mean we wanted or needed to enact it. I just wanted to make sure that everything was possible going into this project.”
“We worked hard at (the financing package),” Mount Pleasant Village President Dave DeGroot said. “We knew that we didn’t have much of a chance getting through our village, our County Board, if the project costs were going to fall on the taxpayers.”
First financing step: bonding
The financing of Foxconn’s project will start later this year with a $55.2 million bond issuance by Racine County for land acquisition in the area where the manufacturing campus will be built.
That will be followed next year by an estimated $53.7 million bond issuance by the Village of Mount Pleasant to fund sanitary-sewer infrastructure. That money will be repaid in 2020 by the state’s Clean Water Fund Loan Program.
Foxconn has also agreed to provide $60 million in up-front money for land acquisition in area two, its potential future expansion area. Mount Pleasant will hold title to that land until Foxconn can acquire pieces of it by developing chunks of that area.
The $764 million in project costs to be financed by the growth within the new TID include:
An estimated $168 million for land acquisition.
$160 million for water and wastewater infrastructure. That includes no expansion of either the Racine water nor wastewater treatment plants, which have the capacity to handle Foxconn, Trick said.
$116 million in added police and fire capacity. That will include construction of a new fire station in the area. A new police station is not anticipated, although more officers, squad cars and such are.
$12 million for road improvements and widening.
A $28 million contingency fund.
$5 million for fiber optics and other such costs.
$175 million in financing expenses.
The $100 million incentive to Foxconn which, if it meets all its benchmarks for hiring and so on, will end up paying that much less in property taxes from new taxes generated by Foxconn’s added property tax valuation.
“Everyone else gets paid back first,” DeGroot said. “Foxconn is last in line.”
The TID can have a life of up to 30 years; 20 is normal. The TID plan is designed to finance the project based solely on what is built in area one, Trick said. Any additional development that occurs in that zone will increase the speed of repayment.