Microsoft's growth could top $10 billion. Mount Pleasant had site ready for failed Foxconn

The value of Microsoft's Mount Pleasant data center could in time top $10 billion given the amount of land it controls in the village's Wisconsin Innovation Park.

The timing of the company's announcement last week that it will spend $3.3 billion by 2026 to build a first phase of the project, a three-fold increase from the $1 billion it initially said it would spend, surprised village officials, but there were already plenty of signs that Microsoft was on pace to blow past its early spending estimate.

The $1 billion number dated to early 2023, when Microsoft bought its first 315-acre parcel in the Wisconsin Innovation Park and unveiled plans for two data center buildings. Then, in December the company bought an additional 1,030 acres, and Microsoft sought approval this year to begin grading property for two additional buildings west of where the first building is under construction.

"We're obviously thrilled," Mount Pleasant City Attorney Chris Smith said. "To hear Microsoft's continued investment, it's consistent with what they've already demonstrated ‒ that they have a long term commitment to the region, and its investments will be a transformation."

Village officials nonetheless expected the company to stick to what has been its mantra: "under promise and over deliver." They weren't expecting Microsoft President Brad Smith and President Joe Biden to announce the additional $3.3 billion investment.

More: President Biden touts Microsoft's Racine County 'comeback project,' contrasts it with Foxconn failure

Given the 2 square miles it now owns, the company could, over the next two decades, easily spend $10 billion or more, people familiar with the development said last week.

"One thing that I've just always believed is important for this site, perhaps in particular, is to under promise and over deliver rather than the opposite, recognizing a little bit of the history associated with it," Microsoft president Smith said during an interview with the Journal Sentinel.

"Plus, I just think, you know, having been born and raised in Wisconsin and the Midwest it's just a better way to go through life."

Microsoft's arrived in the shadow of disappointing Foxconn deal

The history Smith spoke of was a reference to Foxconn International Holdings, the Taiwan-based company for which the business park was created.

To bring Foxconn to the state, the village, Racine County and the state spent $1.4 billion to develop the business park and the state wheeled out nearly $3 billion in subsidies based on the company's promise that it would spend $10 billion to build a large-screen LCD manufacturing operation that would create 13,000 jobs.

Foxconn quickly scrapped that plan. The company confirmed last week it now employs about 1,000 people who make data servers. Foxconn called its Mount Pleasant plant "a key manufacturing site" in a global operation that makes about 40% of the world's data servers.

It's investment goal in Mount Pleasant was reduced to $672 million under a revised tax credit agreement negotiated with Gov. Tony Evers in 2021 that recognized that Foxconn would not come close to what it initially promised. That agreement reduced the company's maximum state subsidy from $285 million to $80 million.

More: Microsoft Racine County data center expansion, new AI training focus of Biden visit to state

Microsoft deal adds insurance on debt, with limited local subsidy

Foxconn's reduced investment also raised questions about whether the company would continue to make the property tax payments needed to pay off the $252 million in debt Mount Pleasant still owes from creation of the business park. Under its development agreement Foxconn must pay taxes equal to the minimum $1.4 billion in taxable value.

The $3.3 billion in spending may have got the headlines, but that minimum $1.4 billion in taxable value is what for now matters most to village planners. That's the value needed to fully cover the district's debt by 2047, and that's why it also appears in Microsoft's development.

As Microsoft's plans for Mount Pleasant evolved, any concerns about paying off the district's debt have been replaced by expectations that the debt will be paid off early, bringing a surge of additional tax revenue to the village, county and school district earlier that had been expected. A consultant last year said that the combined revenue from Microsoft and Foxconn, assuming Foxconn continues to honor its deal, would allow the village to retire the district as early as 2037.

That will be possible due, in part, to the limited amount of local subsidies Microsoft sought from the village.

The development agreement for the first parcel the company bought included a 42% property tax rebate, capped at $5 million a year. That would result in a tax subsidy of about $114 million over the life of the taxing district. However, Microsoft did not seek any tax concessions or other givebacks from the village in the development agreement that accompanied its second, larger land purchase.

The state, however, did step in to sweeten the deal last year when it became one of about 30 other states to approve a sales tax exemption for data center equipment . The exemption was included in the 2023-25 state budget, It is unclear how much the exemption will save Microsoft over time.

Smith and Gov. Tony Evers said last week that tax break was a key part of encouraging Microsoft to expand its plan for Mount Pleasant.

Microsoft's fast track is a result of solid company, local partnership

Less than a year ago, the Microsoft site was vacant land. Today, the contractor, Walsh Construction, is building the superstructure of the first building, a data center and connected administrative office, at County KR and 90th Street. To the north, storm water management systems are being installed and grading is being done to prepare an area that will be used to store construction materials for the building before it, too, becomes a building site. And to the west, access roads are already under way to prepare the site for two additional buildings. In all, there's activity on about 400 acres.

Village officials said Microsoft's rapid pace reflects a partnership in which Microsoft is bringing its experience from the more than 300 data centers it has built worldwide and a concerted effort by Mount Pleasant before Microsoft's arrival to update zoning codes and put systems in place to quickly review plans, Community Development Director Sam Schultz said.

"Microsoft moves fast and the village can move fast, and that makes for a very good partnership," he said.

Smith said the village's investment in the industrial park, when it was created for Foxconn attracted the company to Mount Pleasant and made it possible to move quickly after it began to buy land.

"We benefited from the work that had been done before, the ability to start to acquire large amounts of land and things like a substation that exists there already," he said.

That the park and Mount Pleasant could become a magnet for other tech companies was among the arguments used to bolster the case for developing it for Foxconn.

"Obviously, if we did not complete the infrastructure and all the things we did before, going back to Foxconn, you know, we wouldn't have Microsoft here, or the odds would have been maybe slimmer," said Claude Lois, the village's project manager for the taxing district.

This article originally appeared on Milwaukee Journal Sentinel: Microsoft's growth could top $10 billion. Mount Pleasant had site ready for failed Foxconn