Mount Pleasant’s bond rating downgraded amid millions in Foxconn-related borrowing

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Mount Pleasant’s millions in borrowing to support the construction of Foxconn Technology Group’s $10 billion factory have led to a one-notch downgrade in the village’s credit rating over fears that the massive factory may not produce the economic benefits officials had promised.

In a rating action on Aug. 30, Moody’s Investor Service lowered the Mount Pleasant’s rating from Aa3 to Aa2, and assigned the village a negative outlook  because of its “significantly increased” debt burden related to the Foxconn project. Foxconn-related debt could strain the village’s financial position if the tax revenue generated by the company’s factory falls short of expectations.

“The downgrade to Aa3 largely reflects current and anticipated growth in the village’s direct debt burden and likely growth in its overlapping debt burden tied to borrowing in support of the Foxconn development,” Moody’s said. “The rating also incorporates additional risks associated with the project, including the uncertainty of enforceability of guarantee provisions in the event of a breach of development obligations.”

The village has put in place a rash of borrowing plans in recent months to pay for expenses related to the Foxconn project. Mount Pleasant plans this month to issue $125.1 million worth of revenue bonds backed by tax-increment financing to pay for water service to the Foxconn project and expenses related to safety and other priorities. And next year, the village will issue about $2 million worth of general-obligation bonds and $23.7 million worth of revenue bonds, also for Foxconn-related work.

Moody’s downgrade specifically affects the village’s $35.5 million worth of general-obligation borrowing. But that’s not the end of the debt local officials have taken on for the project.

Altogether, the Foxconn deal is exposing the village to about $355.3 million worth of overlapping debt liability—a figure comprising county borrowing, the village’s tax-increment debt and money borrowed for sewer projects. In July, Mount Pleasant issued a $83 million bond to finance the extension of sewer services to the Foxconn site.

Mount Pleasant officials downplayed the Moody’s downgrade on Friday, saying the village has a history of responsible budgeting and a strong credit rating.

Moody’s said Mount Pleasant could see its bond rating improve if it were to reduce its debt burden or enjoy a “material strengthening” of the village’s tax base or socioeconomic profile. The agency cautioned, however, that the village’s rating could be further downgraded if Foxconn’s tax revenue projections fall short. According to an agreement between the village and Racine County, Foxconn is guaranteeing it will pay at least $1.4 billion in taxes on its massive factory by 2023.

Meanhile, Mount Pleasant’s tax base has been rising quickly in value in the past five years, Moody’s said, averaging annual increases of 4.7 percent. The village also maintains a stable financial position despite its risks, holding $8.8 million worth of reserves—a figure equal to 38.5 percent of the village’s revenues in 2017.

“The Village of Mount Pleasant is proud of its strong credit rating, which is the result of our long track-record of effective budget management,” David DeGroot, president of the village of Mount Pleasant said in a statement on Friday. “Assignment of an Aa3 long-term rating to the Village’s general obligation debt while we are concurrently making significant investments in providing the infrastructure needed to support the Foxconn project and other related development reflects the continued confidence in the Village’s creditworthiness. The Village has seen strong interest in its past bond offerings, which we expect to continue.” Follow @natebeck9