LANSING — Backers of new tax incentives, including Detroit billionaire Dan Gilbert, say they’ll keep trying next year after failures in the Legislature this fall — and they’re hoping a new House speaker will give them a friendlier reception.
Unfazed by losses in lame-duck session, real estate developers and economic development leaders from across Michigan plan to resume lobbying lawmakers early next year for nearly $300 million in new incentives.
They have the support of Republicans in the Senate and say Gov. Rick Snyder is on board, too. They believe they would have had enough votes in the House for passage, but say House Speaker Kevin Cotter refused to hold a floor vote before session ended for ideological reasons.
ABOUT THE BILLS
Two packages of bills that would have created new business tax incentives failed to get out of lame-duck legislative session. They will have to be reintroduced in the new two-year term that starts in January. They include:
Senate Bills 1061-65: Would create a new “transformational” brownfield tax incentive that captures state income taxes for up to five development projects across the state per year, with minimum private investment ranging from $15 million to $500 million. The incentive would be capped at $40 million annually.
Senate Bills 1153-55: Would allow employers that plan to create hundreds of new jobs in Michigan to keep a portion of the income tax withholdings for the new hires, capped at $250 million annually.
Since Cotter, R-Mt. Pleasant, is term-limited, incentive proponents will have to hope for a more sympathetic ear in the House when the new legislative term starts in January.
Both packages of bills — one, to capture new state taxes for large development projects on contaminated property; the other, to allow employers to keep a portion of new hires’ income tax withholdings — died in a House committee in the waning days of this term. That’s after the GOP-led Senate approved both proposals in late November.
Backers of the so-called “transformational” brownfield bills place blame for inaction squarely on Cotter, who has said billionaire developers like Gilbert in Detroit shouldn’t need the state’s help to close real estate deals.
“What we’re asking for is a vote. Let the elected representatives of the people of the House decide, because we think that those representatives listening to their communities want this to happen,” said Jared Fleisher, vice president of government affairs for Detroit-based Quicken Loans Inc., whose founder and chairman Gilbert is one of the most vocal champions of the brownfield bills.
“We cannot do this scale of investment without a tool like this. It’s not economically viable, so we have to go forward,” Fleisher said. “All of this traces back to the conviction that growth and prosperity of this state hinges on having vibrant cities, that that’s how you attract young talent.”
Gilbert and economic development agencies from across the state support a plan to create a new brownfield tax incentive for projects with at least $500 million in private investment in Detroit — between $15 million and $100 million in smaller communities. The proposal as originally introduced would have allowed developers to capture sales and income taxes generated at developments that are costlier to rehab due to environmental contaminants, blight or obsolescence. The state could have approved up to five projects and $40 million in captures annually; the cap recently was lowered from $50 million.
House local government committee members this month approved changes to the bills, but didn’t send them to the floor. They kept a provision allowing developers to capture income taxes from new residents of the developments, but excluded sales taxes generated by new retail customers of the finished projects. Instead, developers would have been able to capture a portion of the income taxes from employees who work at the completed mixed-use buildings and from construction workers who help build them.
The incentive would end after the financing gap that prompted the developer to apply for the incentive has been covered, or after 20 years, whichever is sooner. The incentive would sunset after 2021.
The committee’s changes “reflected changes that the governor wanted to see,” Fleisher said. “With that construct, I think it’s fair to say that the governor really is behind this, supportive of it, wants to see it become law. And we’re very grateful to him.”
Snyder spokesman Ari Adler did not directly confirm Fleisher’s characterization, but said the governor “is feeling a little more comfortable” with where the bills were headed.
Snyder eliminated many incentive programs as part of a revamp of Michigan’s tax code early in his first term. More recently, developers and economic development professionals have started to say publicly that the tax overhaul might have taken too many tools out of Michigan’s playbook to compete with other states for jobs and development.
The brownfield incentive was geared to help projects that have a gap between the cost of construction and what the market might return in rent, Fleisher said, adding that the funding gap can range from 15-20 percent.
Gilbert told the House committee this month that he expected the market would respond once a few such “transformational” projects are completed.
“You may need some tools, but we had so many at one time that the toolbox was overflowing, and what is really helping at that point?” Adler said. “(Snyder) wants to see something that’s truly a transformational project if you’re talking on that large of a scale.”
Cotter, in a statement after the committee’s decision not to vote the bills to the floor, said the Legislature has worked to create a level playing field for business, rather than picking “winners and losers” with tax dollars.
“Dan Gilbert has done great things for Detroit, and he has shown that he is a competitor and a winner,” Cotter said in the statement. “If he can’t make a deal work without state aid, then it is not a deal worth doing, and Michigan taxpayers should not be forced to invest.”
Still, lawmakers last year approved a tax incentive specifically for data centers to lure Nevada-based Switch, which planned to open a data center campus outside of Grand Rapids. Cotter was among the supporting votes. His spokesman, Gideon D’Assandro, said the data center incentive was a unique regulatory circumstance involving a type of business that did not exist on a large scale in Michigan before Switch.
Push next year
Business Leaders for Michigan, the state’s business roundtable, and other groups plan to revisit a three-bill package that also didn’t make it out of the House local government committee.
The bills would have allowed companies to keep up to half of the income tax withholdings of new hires for no more than five years, provided they pay average wages that equal the county’s average wage and hire at least 500 employees. Companies could keep all of the new income tax withholdings for up to 10 years if they hired at least 250 new workers and paid at least 125 percent of the county’s average wage.
“The bottom line is that we’re competing against other states that have good business climates and tools like the ones provided in those legislative packages,” said Kelly Chesney, a spokeswoman for Business Leaders for Michigan, in an email. “We can’t compete with one arm tied behind our back. … If the incentive packages don’t move forward, we are going to make a push for them next year. We’re going to keep fighting for this because it’s the right thing to do. It’s too important to drop.”