FoxConn Project Poses Unasked, Unanswered Questions for Local Officials

Much has been written about state incentives to bring high-tech manufacturer FoxConn to Wisconsin.   Little has been written about proposed local incentives.  The local commitment will likely be significant, so what follows are a few questions that local officials may want to consider.

A Foxconn TID?

The FoxConn plant would be located in a tax incremental finance district (TID) in a Racine or Kenosha county municipality. A TID allows a municipal government to borrow by issuing bonds to pay for infrastructure, such as roads, lighting, sidewalks, and sewers in the district. In some cases, the local government can also provide cash incentives to a developer.  Over the next 20 or so years, property taxes collected within a TID are mostly used to repay borrowing.  Pending legislation asks lawmakers to extend the life of a Foxconn TID to 30 years.

Questions for Locals

Typically, the process of approving a TID takes months or years. Given the desire to place the FoxConn project on a fast track for approval, these questions take on additional urgency.

Q1:  How much local investment will be needed, and do the one or two participating municipalities have the fiscal capacity to handle such a large investment?

State officials have said the FoxConn “campus” is expected to be at least 1.58 square miles, or roughly the size of Belleville in south central Wisconsin.  While the plant would occupy a major part of that area, the district would still require significant infrastructure, especially since the plant is likely to be built on undeveloped land.  The project could require a record amount of local investment—and borrowing—but how much?

Q2:  How risky would this unusual TID be?

Most TIDs are “successful”:  Property taxes collected over the life of a district are sufficient to pay off borrowing.  A FoxConn plant would likely be a boon to the region and the host municipality.  The plant and other businesses created in the TID could generate billions in tax base sufficient to repay the municipal investment.  A recent TID created in Verona for Epic Systems was repaid ahead of schedule and provided a tax windfall to local governments in the area.

That said, some TIDs are not successful. If the TID does not generate enough tax revenue, local taxpayers are responsible for remaining debt.  One concern with a high-tech TID is rapid change.  What if technology leapfrogs FoxConn, and it is left with an obsolete product and a plant it must abandon?  Is a plant the size FoxConn proposes marketable to another buyer?  If not, would its value drop significantly? Would tax revenues be insufficient to repay municipal investment in the TID?

Q3:  If a local TID fails, what happens? Does the state pick up the tab?

The governor and state legislators propose to partially protect municipal taxpayers from a failed TID.  If pending Foxconn legislation is approved and a local TID fails, the state would have a “moral obligation” to pay up to 40% of municipal investment.  Should lawmakers commit to absorbing local borrowing costs, regardless of project size?

Q4:  A final question relates to timing:  How long will it take for local government to approve a TID?

State officials say FoxConn would like to break ground as soon as possible.  According to the state Department of Revenue, the process of creating a TID takes a minimum of two months. With Foxconn needing 1,000 acres of contiguous land, would a TID require a longer period of time for a municipality to design, approve, and implement such a large and complex TID?  Given the magnitude of the project, might local officials in a small community less experienced with TIF need extra time and advice to do their due diligence?  In short, can a sound, workable TID plan be developed and a district created in the short time state officials envision?

As the project moves from concept to implementation, many of these questions may be answered. But given the stakes involved—with jobs, tax incentives, and a potentially huge impact on the communities involved—local officials would do well to keep them in mind.

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