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Deal will bring Microsoft data centers to Foxconn land in Wisconsin

Six years ago, amid much hoopla, Foxconn Technology Group announced plans to invest $10 billion in a manufacturing plant in Mount Pleasant, Wisconsin.

Those plans, laden with state and local incentives, came far from fully materializing. But a new deal with Microsoft may help fill the void.

Last week, the village of Mount Pleasant and Racine County approved a plan for Microsoft to buy 630 acres from the village for nearly $100 million to construct new data centers. The company is also set to buy 400 acres from a private landowner. 

A rendering of a planned Microsoft data center in Mount Pleasant, Wisconsin.

Microsoft

The deal follows Microsoft’s $1 billion investment announced earlier this year, which is already among the largest single private sector investments in Wisconsin history, according to a press release from the village of Mount Pleasant and Racine County.

In total, Microsoft will own 1,345 acres in Mount Pleasant, making the technology giant the largest landowner in Mount Pleasant Tax Incremental District No. 5.

“The Microsoft news is obviously good news for the village,” said Scott Nees, an analyst at S&P Global Ratings. “If you look at our rating outlooks over the years, we’ve consistently said that the key to upside rating momentum is going to be new economic growth actually materializing in a way that moderates these debt ratios.” 

S&P assigns an underlying A rating and stable outlook to Mount Pleasant.

While the village didn’t fully see the Foxconn deal come to fruition, the Microsoft project has potential to create that upside momentum, he added. 

When Foxconn chose Mount Pleasant for the site of its manufacturing plant in 2017, the village established TID 5 to facilitate the development, and both the village and Racine County acquired land within the area. Per the deal, Foxconn agreed to create or pay taxes on a minimum valuation of $1.4 billion by 2023 — but by 2022, the company’s value had only reached roughly one-third of that. 

Former Gov. Scott Walker, who spearheaded the incentive deal, said Foxconn would make a $10 billion capital invesetment that would generate 13,000 full-time jobs.

Through 2021, Foxconn created 579 eligible jobs and made $266 million of capital investments, according to an update the tax increment district prepared for the village and county governments in 2022.

In 2018, Moody’s Investors Service gave Mount Pleasant’s issuer and general obligation bond ratings a one-notch downgrade to Aa3 from Aa2 citing the village’s Foxconn financial obligations. 

In the rating agency’s most recent credit analysis from May, it revised Mount Pleasant’s outlook from to stable from negative, affirmed the Aa3 rating, and noted that Microsoft’s plans announced earlier this year to invest in Mount Pleasant would modestly diversify the incremental base, but that the village of 27,500 would remain exposed to the Foxconn development. The village has about $262 million of debt outstanding, Moody’s said. The rating agency did not have further comment following the recently announced Microsoft deal. 

The village separately sold $120 million of bonds for the tax increment district in 2018, backed by the moral obligation of the state of Wisconsin.

The Microsoft agreement announced in May required the company to begin construction on its first building by July 1, 2026, and the company did so in August in addition to pulling permits to begin foundations for two additional buildings.

The agreement also outlined that Microsoft would receive an incentive payment up to a yearly maximum of $5 million related to improvements on the land, with payments conditioned on incremental revenues generated on the Microsoft property being first used to pay debt service on Mount Pleasant’s 2018 TID bonds and 2021 sewer system revenue bonds. 

Now, the county, village and Microsoft have agreed to amend the original agreement, adding Microsoft’s commitment to create or pay taxes on a minimum valuation of $1.4 billion by 2028 up to $15,000,000 annually, according to a voluntary investor notice filed by the county and village. 

As for Foxconn, the company is still obligated to create or pay taxes on a minimum valuation of $1.4 billion. But it will release its developer acquisition rights to the land Microsoft plans to purchase in exchange for tax generated from development being used to pay the village and county’s debt that financed TID five project costs, and to reimburse Foxconn for funds due under the original agreement. 

Foxconn will use the money it’s due from the Microsoft land sale for payments due to the trustee of Mount Pleasant’s 2018 TID bonds. The amended agreement also requires the net proceeds from the Microsoft sale to be paid to the trustee for the 2018 TID bonds to fund a Foxconn payment due in 2024, to defease a portion of Racine County’s series 2019B taxable general obligation refunding bonds, to fund improvements in TID five and to reimburse certain amounts that Mount Pleasant owes Racine County. 

While the original Foxconn agreement would have guaranteed repayment in any event, this new deal with Microsoft will accelerate the process of paying county and village debt service as more revenue will be available, said Todd Taves, a senior municipal advisor for Ehlers Public Finance Advisors, the advisor for Mount Pleasant. 

The investor notice also said that the expected net proceeds from the land sale and tax generated will bring in new revenue to pay debt service on the 2018 TID bonds, 2019 county refunding bonds, 2021 sewer system bonds and Mount Pleasant’s series 2022A dated March 15, 2022. 

“We will have more revenue coming in on an annual basis than we need to pay our debt obligations,” Taves said. “So as we start to accumulate that balance of cash within the TID, we can start looking at — down the road — potentially paying off obligations early when we get to the call dates or setting up defeasement escrows.”

The agreement is “further evidence of Microsoft’s long-term commitment to Racine County,” Bo Wallace, corporate vice president of data centers in the Americas region for Microsoft, said via the press release from Mount Pleasant and Racine County. “We are focused on bringing benefits to the community through our investments in our data centers and through partnerships with local organizations.” 

Nees of S&P said the rating agency is cautious when looking at situations like the planned Microsoft purchase: “We want to actually see vertical construction and assess value being added to the tax roll.” 

Moving forward, he said S&P will likely analyze the growth in the tax base in order to pay off the existing debt, as well as the time frame between actual construction being added to the tax rolls and revenues being collected. However, as the specifics of the project’s timeline is unclear, he added it’s hard to identify any exact metrics. 

It will take a “bit of time for us to actually see the evidence that those debt ratios are moderating relative to the size of the tax base,” Nees added.

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