MOUNT PLEASANT — In the summer of 2017, Racine County and Mount Pleasant officials estimated it would cost them $763 million to execute the Foxconn Technology Group development. The new estimate is about $912 million, according to numbers provided by the village and county.
As of the end of 2018, both the village and county have spent $190 million on the infrastructure, land acquisition and finance related expenses, but that includes $60 million paid to the county from Foxconn for land acquisition.
Foxconn, which has started construction on the property, will start paying taxes to the village next year, after the village assesses what’s been built in Area I of the project this December.
The village plans to receive major revenue from Foxconn starting in 2023 per the agreement with the state and village.
Causes for the increase
Todd Taves, senior municipal adviser for Ehlers, a consultant to the village, said one of the major causes for the increase in the project estimate is land acquisition.
Currently, the village pays for the assessed value of homes plus an additional 40 percent and $50,000 per additional acre of property. The village also pays for any relocation costs, and reimburses the property owner if they obtained their own assessment during the negotiation process.
That formula was not included in the original estimate. So far, in land acquisition alone, the village has paid almost $170 million, but that includes the $60 million that Foxconn has pitched in for land acquisition.
Another major cause of the increase is interest payments on the debt from the long- and short-term borrowing, which is estimated to cost slightly more than $248 million.
Originally, the village and county took short-term loans on Areas II and III in expectation that Foxconn would begin to develop those areas within the next five years. But plans for the project changed, and those short-term loans were refinanced into long-term loans, a major factor in the increase in interest payments.
To pay for the interest on the debt, the village has issued a special assessment on Foxconn, which is scheduled to be paid back to the village every year for the next 20 years totaling roughly $202 million.
Caledonia water, sewer
The village also saw estimated increases in regard to sewer and water infrastructure which is estimated to cost $185 million, which is roughly $25 million more than anticipated.
However the village will make up that difference with payments from the Village of Caledonia, which plans to pay $30 million to have its sewer and water lines hook up to what is being built in Mount Pleasant.
“This was an opportunity for Caledonia to address a long-term problem,” Taves said. “So what the villages agreed to is that the design was changed to accommodate flows from Mount Pleasant as well as what Caledonia needed.”
The rest of the difference is to be paid with revenue from Tax Incremental District 5, which the village estimates will generate $30 million of revenue.
At the same time, the county and village have raised almost $375 million in revenue through long- and short-term borrowing that will be paid back over many years, along with $60 million paid to the county by Foxconn for land acquisitions.
Foxconn, which has started construction on the property, will start paying taxes to the village next year after the village assesses what’s been built in Area I of the project.
So far the village has transferred about 877 acres to Foxconn for this project.
Available parcels of land in the Foxconn area not transferred over to the company include: in Area I, one home owned by Jim and Kim Mahoney, and two parcels of land along the frontage road; in Area II, 420 acres owned by the Creuzigers; and in Area III one parcel of vacant land consisting of 2.8 acres.
Paying it back
The village’s estimate that the Foxconn TID will generate $30 million of revenue a year is based on Foxconn being assessed $1.4 billion in taxable improvements in Area I, which is to be the main location for the Foxconn campus.
Taves said that according to the development agreement, Foxconn must have made “taxable improvements worth at least $1.4 billion in place by Jan. 1, 2023.”
“In the event that they don’t reach that target, they will still have to be taxed on that $1.4 billion amount,” Taves said.
For example, if Foxconn were to only have $700 million worth of taxable improvements, the company will get taxed at that amount and then will receive a bill for the remaining $700 million.
“If they fail to reach that ($1.4 billion) amount, they’re still on the hook for the equivalent taxes,” Taves said.
Another example is if Foxconn has created $2 billion worth of taxable improvements, $600 million more than the $1.4 billion requirement, the company will be taxed at the $2 billion valuation.
The village plans for the Foxconn project to be funded by the $1.4 billion valuation in Area I, which is expected to generate roughly $30 million per year.
However, if Foxconn does plan to develop Areas II and III, it could provide upwards of an additional $22 million of revenue, according to estimates from the village.
There is no guarantee that Foxconn will develop Areas II and III, but they have up to 10 years to begin working on that property.
If the 10 years elapse and no work has been done, the village can then sell the land to other interested parties; however, according to village officials, that money would go to Foxconn to reimburse them on its payments on the special assessment for that land.
A piece of property simply called the North Area which is located north of Highway 11 and in between Interstate 94 and Highway H, is included in the TID however it is not part of the Foxconn project.
“The money generated from that area could build up in a surplus, they could be used to pay other costs that may be necessitated in that North Area,” Taves said. “The North Area is different from Areas I, II and III in that Foxconn does not have access to increment generated in that area, in terms of that flow of funds in the development agreement.”
The land in the North Area, which is 1,106 acres, is not owned by the village and if Foxconn wanted to purchase that land they would have to approach the property owners directly.
“In short, the market is going to dictate development in the North Area,” Taves said.