Local government spent hundreds of millions to assemble Foxconn site. Here's how Microsoft will cover those bills
Microsoft's proposal to develop an additional 1,030 acres in Mount Pleasant's Wisconsin Innovation Park, mostly on land previously controlled by Foxconn, is expected to cover the hundreds of millions in debt local governments incurred to buy land and prepare the site for development.
The land purchase, expected to be completed by the end of the year, was announced just six months after Microsoft paid $50 million for a 315-acre parcel where it is building what is now the first phase of a massive data center development. That investment alone, in an area east of the Foxconn campus between Braun Road and County KR, is expected to be $1 billion.
Under terms of a development agreement that will be presented to the village board on Monday, Microsoft will pay $100 million for 630 acres of village-owned land and buy another 400 acres from a private property owner, the Creuziger family, who had declined to sell the land to the village. The parcels are north and west of the current Microsoft development on land known as areas 2 and 3.
In addition, Microsoft will guarantee a minimum $1.4 billion in new taxable land and development value by Jan. 1, 2028.
Foxconn has a similar $1.4 billion obligation, one that it must honor regardless of the value its development creates. Critics have questioned the company's ability to meet that commitment as Foxconn scaled back its plans for Wisconsin.
According to its agreement with the village and Racine County, taxes on $1.4 billion of valuation or payment of the equivalent amount is the minimum amount needed to cover the debt payments and other expenses expenses of the financing district that was created to develop the business park. As of last year, Foxconn's four buildings had added just more than $500 million in new taxable value according to the most recent district financial report. Foxconn has been making special payments to help cover borrowing costs, but in January the tax bill will increase dramatically, to $28 to $30 million. Payments will remain at that level until the district is retired in 2047.
Alan Marcuvitz, the attorney representing Mount Pleasant, said the Microsoft deal should put to rest concerns about the district's ability to meet its obligations. Cash will begin to flow from Microsoft beginning next year, when it will begin paying taxes on land that, under city ownership, had been tax exempt.
"When Microsoft comes in and says they're going to spend billions of dollars, a lot of that is going to be land value and building improvement value, which will hit the tax roll," he said.
"Between the purchase money and the increment that will flow from tax revenue, any remaining or lingering concern about whether this was going to be a successful development is gone. There is no question any longer that it will be a highly successful development with a very positive cash flow."
Microsoft decision reflects attractiveness of site, growth of cloud computing
Jim Paetsch, Milwaukee 7's vice president, said the new deal grew out of Microsoft's enthusiasm for the location when it was negotiating the agreement to buy the initial 315 acres.
"I think, as they learned more about the site's capabilities, as they started to think about how it might fit into some of their global strategies, it gave us an opportunity to really talk to them about the rest of the site," he said. "And I think the more that Microsoft saw of what we have there, the more they liked it."
Data centers are huge interconnected arrays of computer servers that manage cloud computing and large databases. Their uses have exploded in recent years - Microsoft alone operates more than 200 data centers in 36 countries - and the need for them is expected to accelerate with the growth of artificial intelligence applications.
They also are massive users of electricity, water, need for cooling, and wastewater systems. The state, county and village investment in the site put that infrastructure in place, giving Mount Pleasant a leg up on competing locations that could require years to develop those services, Patsch said.
"We work on any number of different size and scale of corporate attraction projects, and this is probably the largest single capital investment that we we've been a part of," Paetsch said. "When people start talking about billions in the world where I come from, those are big numbers, and it really is a testament, I think, to how Microsoft sees the region, how they see the site and how they see their potential here."
Microsoft's $50 million purchase of ready-for-development land in May allowed the company to quickly gain approvals for construction and begin preparing the site for the first of two data center buildings.
Microsoft last week said the contractor, Walsh Construction, would begin laying the first building's foundation this month. and complete construction in late 2026.
Bowen Wallace, Microsoft's corporate vice president for data centers in the Americas, toured the site last month and later echoed Paesch's take on the business park and its readiness for big projects like Microsoft's.
"I was just so impressed with how well positioned southeast Wisconsin is with massive investments in infrastructure for folks like us to come and build on," he told a gathering of business leaders at the Milwaukee Metropolitan Association of Commerce's annual meeting.
Sale, proceeds will relieve village of financial obligations to Foxconn
The land sale is expected to close by the end of the year. Mount Pleasant plans to use the proceeds for a variety of purposes, including paying off some of its obligations to Foxconn.
The planned uses for the funds are:
The village will use $16 million to pay off money it owes Foxconn from the creation of the industrial park and to reimburse the company for special assessments it paid on the land that Microsoft will buy.
$24 million will be used to pay off bonds the county issued to acquire that land.
$12 million will be used to pay the county for expenses the village owes from the development of the park.
$12 million will fund completion of infrastructure along Wisconn Valley Way on the western side of the business park.
$36 million will be held in reserve for village debt payments.
Marcuvitz said Microsoft is not seeking any incentives from the village as part of the land deal. The first development agreent included a provision for Microsoft to receive property tax reimbursements to offset the $50 million land cost.
Few details available about Microsoft's plans
Other than the purchase price and Microsoft's $1.4 billion guarantee, there aren't a lot of details available about the Microsoft's plans in Mount Pleasant.
The guarantee represents only a first wave of construction, and a timetable for future construction has not been made public. Nor has the company said what it expects its total investment in the state will be. Statements from state and local entities simply referenced "billions of dollars."
A Microsoft spokesperson was not able to share details of the company's plans for the expanded site.
"We believe there is great opportunity for Microsoft’s cloud services to support local business growth and innovation in Wisconsin," the spokesperson said.
It's also unclear how many people will work at the data center. Microsoft's data centers typically employ 300 to 400 people. After announcing its intitial land purchase Microsoft said about 200 could be employed in Mount Pleasant.
Foxconn says it remains committed to Wisconsin
By giving up its options to develop the land Microsoft will own, Foxconn has significantly scaled back its footprint in Wisconsin.
In 2017 when state and local officials were putting together a multi-billion dollar subsidy package to lure the company to Mount Pleasant, Foxconn said it would build a $10 billion LCD manufacturing center that would employ up to 13,000 peole. That plan was later scrapped and today about 1,000 people work at Foxconn making servers for datacenters and electronic devices for rooftop solar arrays.
A large share of the building space Foxconn has developed is being used for warehousing and storage.
In a statement, the company said it has spent more than $1 billion in the state, and its manufacturing operation in Mount Pleasant "remains a strategic asset for the company to respond to market demand with speed and flexibility."
"Foxconn remains committed to Wisconsin and looks forward to growing with the state, county, and village in response to market demand," the statement said.
More: Here's a short timeline of Foxconn's plans and development in Wisconsin
Microsoft’s expanding Wisconsin footprint
Microsoft''s connection to Wisconsin predates the creation of the company.
President and vice chairman Brad Smith grew up in Appleton, has been a frequent visitor to the state and has spoken fondly of northeast Wisconsin and his time living there.
Microsoft’s first moves into Wisconsin were in Appleton, where it established a Microsoft TechSpark program, one of six in the nation, that has provided job skills training and computer science education to hundreds of students in Brown and Outagamie County schools.
Tech Spark has also partnered with New North and gener8or to help more than 300 unemployed and underemployed people develop new skills, and it has worked with the NEW Manufacturing Alliance to help nearly 2,000 employees of more than 100 northeast Wisconsin businesses learn new digital skills.
Microsoft followed TechSpark with a partnership with the Green Bay Packers in 2019 to create TitleTown Tech, a venture fund and business accelerator that has raised $95 million to assist early-stage tech startups and entrepreneurs.
The data centers are a next step in that relationship, Smith said.
“Wisconsin’s strengths in workforce, infrastructure, and educational opportunities make it a great place for Microsoft to invest and grow our cloud services," Smith said in a statement.
More: How luck helped the Green Bay Packers, Microsoft launch a $95 million venture capital firm
Village, county approvals expected to move quickly
Mount Pleasant and Racine County partnered to develop the business park, and both the Mount Pleasant Village Board and the Racine County Board must approve the the land sale and development agreement.
Those approvals are expected to be in place by the end of the month.
The terms of the deal will be presented to the village and county boards on Monday and Tuesday, respectively. These are scheduled as informational meetings at which no discussion or votes will take place.
Two weeks later, the agreement will be up for votes, first at a Nov. 27 village board meeting and a day later at a meeting of the county board.
This article originally appeared on Milwaukee Journal Sentinel: Microsoft's plan expected to cover massive Foxconn development debt
