July 10, 2019 – In a report issued today, Moody’s Investor Service expressed concerns on economic development and/or job incentive programs sponsored by many states and local governments.

While some governments – Moody’s noted Texas’ use of tax incentives to encourage wind farms as a notable success, spurring $23 billion of incremental investments – have achieved positive outcomes, Moody’s noted that the use of incentives, particularly upfront investments in land acquisition and construction, often heighten credit risks as municipal issuers issue debt to fund upfront costs.

In one notable example involving Taiwanese-based FoxConn, Moody’s said the following:

To help attract a large-scale Foxconn facility, the Village of Mount Pleasant and Racine County in Wisconsin issued debt that supported expenditures on infrastructure and land acquisition for the electronics company. Combined, the village and county have issued $350 million-plus in project-related debt, with the village issuing $203 million of that debt — an amount equal to a very high 7.0% of the village’s full value and 8.9x the village’s operating revenue.

Total debt for the municipalities involved increased 5.3x. Moody’s further noted the uncertain support from the state, even though then-Governor Scott Walker was a strong proponent of Foxconn.

Moody’s said: “although the State of Wisconsin (Aa1 stable) has supported the project — most notably with a moral obligation pledge on approximately 60% of debt currently issued by Mount Pleasant and some transportation-related construction — the state has structured its incentives to assume very little upfront risk and accordingly experienced a negligible credit impact, particularly given the size of the project relative to the state’s budget. “

While Foxconn originally promised to employ 13,000 workers, recent reporting by Bloomberg and other media outlets indicate that the plant – slated to open in 2020 – was unlikely to employ 13,000 workers. Additionally, Foxconn also said it was reconsidering some of its development plans due to “high labor costs” in the United States.

Even for municipalities with perceived success in economic development like Jersey City and Arlington County (home of Amazon’s second global headquarters), Moody’s noted “the reality that successful economic development can occur without the use of incentive programs.“

Contact Moody’s at +1 (212) 553-1653 to learn more or request a full report.

Contact Karen Bigelow at KBigelow@BuyMuni.com.