Foxconn soon worth $522 million, but local officials develop scenario if the project goes south

Local officials estimate Foxconn Technology Group’s massive development in southeastern Wisconsin will be worth more than $500 million in the next year or so, but they have quietly put together a what-if scenario in case the project doesn’t meet expectations.

A calculation by a team working with Mount Pleasant suggested Foxconn’s planned facility could be valued at many times more than the assessments of other manufacturing sites in Wisconsin.

The team, which included consultant Ehlers Inc., estimated Foxconn’s project and other developments in a Mount Pleasant tax incremental financing district would soon be worth $522 million. That’s about 37% of the $1.4 billion value the district is supposed to achieve by 2023.

The team's views on the project were included in a four-page outline released Friday by Racine County under the state’s open records law. The outline was produced for a September meeting on the project involving officials from the county, Mount Pleasant and the state Department of Administration.

The outline was focused on the state of the financing district and not the broader incentive package worth up to $3 billion the state has offered the Taiwanese tech giant. The state incentives are based on how much Foxconn spends on the project and how many jobs it creates.

The outline expressed skepticism Foxconn would hire as many people as it has repeatedly claimed it would. It has a yearly set of job goals, with an ultimate total of 13,000.

The outline said hitting the job numbers “seems unlikely at present.”

A spokeswoman for Foxconn did not immediately respond to questions about the consultant's review of the project.

FULL COVERAGE:Foxconn in Wisconsin

Assembly Minority Leader Gordon Hintz, a longtime critic of Foxconn, said local officials haven't addressed the scope of the problems they could face if the project fails.

"It sounds to me like this is another attempt to minimize how far this project has fallen short," the Oshkosh Democrat said of the outline.

The team also developed a hypothetical scenario in which Foxconn didn’t develop its full project and other developers put off work. In that scenario, the tax incremental financing district would not create any more value after it hit $522 million. 

That would create major headaches for local governments because they have borrowed hundreds of millions of dollars they need to pay back over the coming decades, and they plan to do that with property taxes and other assessments paid by Foxconn and others in the district.

In such a situation, there would not be enough money available to pay for operating costs and some debt, according to the outline. The local governments would face a shortfall even if they deferred sewer projects and abandoned plans to build a new fire station.

If the project were to hit bumps in the road, state taxpayers could have to cover up to $120 million in debt for local governments, according to an agreement with the state. 

Local officials emphasized they did not expect such a scenario to emerge. They noted if the tax incremental financing district does not achieve a value of $1.4 billion by 2023, Foxconn and its affiliates are required under a contract to make payments as if the district were valued at that amount. That would ensure the district had enough money to pay its debts.

The team ran the scenario as if Foxconn would renege on that promise so local officials would understand what would happen if much went wrong with the project. 

“Regarding the sensitivity-test scenarios, it is important to note that the materials reflect a practice commonly employed by financial advisers (also referred to as a 'what-if' or 'simulation' analysis) whereby cash flow models are subjected to analysis under different and often extreme sets of assumptions or input variables to better identify how changes in one variable affect the outcome,” said a statement from the office of Racine County Corporation Counsel Michael Lanzdorf.

“It bears mentioning, of course, that the different variables do not reflect actual predictions of developer performance and the county cautions against drawing any such conclusions."    

Most of the estimated value in the tax incremental district — $400 million — would come from a huge plant Foxconn plans to build. The remaining $122 million in value would come from a server building, data center, substation and other developments.

The plant, which is to produce flat-screen displays, would be unlike other manufacturing facilities in Wisconsin — and would be valued much higher, according to the outline.

The outline did not describe how the team reached that conclusion. The facility is expected to have a footprint of 1 million square feet, and an assessment of $400 million would give it a value of $400 per square foot.

It's possible the plant will ultimately have more than 1 million square feet because of mezzanines and office space that could be built, which would bring the value per square foot down. Still, the value appears to be far above that of other manufacturing facilities in Wisconsin, which are valued at well below $40 per square foot in most cases, according to people familiar with manufacturing assessments.

Claude Lois, the director of the project for Mount Pleasant, said the outline's estimates were "based on the best available information at the time."

"They were used for internal planning purposes and should not be considered firm or final, as noted in the document," Lois said in a statement.

Foxconn has been the subject of much political debate.

The company was lured here by former Gov. Scott Walker with a promise of up to $4 billion in state and local incentives. Gov. Tony Evers, a Democrat who beat Walker in 2018, has approached the project with skepticism and his administration has warned the company will not qualify for state subsidies if it does not update its agreement with the state. 

A spokeswoman for Evers declined to comment Friday. 

Foxconn has insisted it is committed to the project and meeting the terms of its deal with the state.

Contact Patrick Marley at patrick.marley@jrn.com. Follow him on Twitter at @patrickdmarley.