A new plan is needed for massive Foxconn site
Foxconn and the Wisconsin Economic Development Corp. appear to be on the brink of redoing the company’s tax incentive plan, presumably to right-size the incentives to match Foxconn’s performance.
The question is whether this will solve the more concerning problems with the Wisconn Valley Science & Technology Park development or merely postpone the inevitable.
A simple amendment might keep Foxconn in the park. But it would likely ignore the blunt reality that the nearly 3,000-acre real estate deal is failing fast.
Wisconn Valley is so behind schedule that it’s highly unlikely the park buildout can catch up enough to justify the $30 million annual property tax bill Foxconn committed to pay starting in 2023.
“The whole TIF district and everything else is built on a set of cash flows that aren’t going to materialize,” one bond expert told me after looking at the tax increment finance district and bonds created by the Village of Mount Pleasant and Racine County.
In other words, financial truth trumps wishful political thinking.
Three years in, Foxconn is the only company in the park. And what it has constructed — three industrial buildings and a 100-foot high, glass-paneled orb, the so-called High-Performance Computing Data Center Globe that has all the makings of a corporate events space — are the only buildings in the park.
I’ve argued that Foxconn could help us benefit from the repatriation of manufacturing jobs, drive digital transformation and grow a globally competitive advanced manufacturing ecosystem. But I’m beginning to think it may not be the best partner in that effort — or in the effort to build the park.
The basic financial model for Wisconn Valley Park relies on three things:
Foxconn employs 13,000 people who pay state income tax that covers the cost of the state’s tax credits for Foxconn — a net revenue gain to Wisconsin
Foxconn’s manufacturing plants raise Mount Pleasant’s tax base, increasing tax revenues to support bonds issued for improvements to the land — a net revenue gain to Mount Pleasant
WE Energies and ATC fund a gas pipeline and electric infrastructure for the park’s manufacturers, who buy gas and electricity — a net revenue gain to the utilities.
Simple, right? Unfortunately, it isn’t working.
Add up all the investments made by federal, state and local governments, the utilities and others into land acquisition, infrastructure, improvements to I-94 and other roads and we’re about $1.4 billion in on a science and technology park that has produced a couple hundred jobs and a handful of buildings surrounded by empty land.
If the project doesn’t accelerate
quickly, real estate values likely won’t rise fast enough to satisfy the debt service — unless Foxconn pays its taxes due from other sources.
Foxconn supporters brush off the idea that it might be a stretch for Foxconn to pay the $30 million of annual property taxes, noting that the company paid its $1 million 2019 assessment and is on schedule to pay its $2 million 2020 assessment. Those numbers are a long way from $30 million.
In truth, Foxconn is the low-tech relative of the Apple iPhone. Foxconn only returns 6% profits on $199 billion of revenue, according to its 2019 annual report. It may be best in the world at taking an order and figuring out how to make a lot of something — a skill that drove its expansion with Apple, Dell, Google and others. But that doesn’t mean going out and finding new customers and building new products in North America is a core competency. Most of Foxconn’s markets — smartphones, desktop and portable computers, routers and servers — are mature and slowing.
The company needs a new market and its behavior in Wisconsin suggests it hasn’t found one here yet.
The problem is that Foxconn can’t get the job done. If Apple or one of Foxconn’s other high-tech customers were part of the park, that would change everything. But as it stands, then-Gov. Scott Walker’s mistake was believing Foxconn was the silver bullet.
Without a credible long-term solution, Wisconn Valley Science & Technology Park may end up with a court-appointed receiver selling the property at a substantial loss to all stakeholders. In these situations, it’s often New York financiers who take control of the real estate at 30% to 40% of its value and sell it to long-term investors, sometimes local ones, AFTER cleansing it. If that happened, it would likely be at great cost to Wisconsin and its taxpayers.
Rather than kicking the can down the road and hoping for a better day, let’s rethink the entire situation.
Wisconn Valley Science & Technology Park needs a comprehensive plan that will put the entire project on a more solid footing, a plan that fulfills the park’s potential and avoids having to turn it over to out-of-state vulture investors.
Kathleen Gallagher was a business reporter at the Milwaukee Journal Sentinel and the Milwaukee Sentinel for 23 years. She was one of two reporters on the team that won a 2011 Pulitzer Prize for the One in a Billion series. Gallagher is now executive director of 5 Lakes Institute, a nonprofit working to grow the Great Lakes region’s high technology entrepreneurial economy and culture. She can be reached at Kathleen@ 5lakesinstitute.org.