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After losing out on Ford plants, Michigan fast-tracks new business incentives

Michigan lawmakers are working fast to create what boosters call a once-in-a-generation tax incentive program to lure major projects to the state, but critics say similar promises in years past have cost taxpayers big-time. (Bridge file photo)

Dec. 13: ‘This is it’: Michigan nears giant tax incentive to lure GM, manufacturers

LANSING — Michigan can’t afford to lose manufacturing jobs to other states, supporters argued Wednesday as the state House approved fast-tracked bills to create a broad new tax incentive program designed to facilitate large-scale economic development projects.

Democratic Gov. Gretchen Whitmer and other incentive proponents in the Republican-led Legislature point to the decision this fall by Ford Motor Co. to open massive electric vehicle and battery development centers in Kentucky and Tennessee instead of in Michigan.

“We are getting our lunch taken away on a regular basis by other states that are more equipped to retain and attract businesses,” John Walsh, president and CEO of the Michigan Manufacturers Association, told legislators before a series of 83-21 votes in the House. 

Related:

The legislation, introduced last week and now speeding toward the Senate for consideration next week, would create new “strategic site selection” and “critical industry” incentive programs to provide loans, grants or other assistance to help local governments and business entities prepare Michigan land for redevelopment and close large-scale deals.

Proponents call the package — which does not yet have a price tag — a rare opportunity to transform Michigan’s economy, but the state’s mixed record with tax incentive programs has prompted many detractors. 

Rep. Yousef Rabhi, D-Ann Arbor, decried what he called an escalating war between states to see who can give away the most taxpayer money to profitable corporations. 

"It seems like an arms race, with each state offering more and more in a spiral downward," Rabhi said. "Where does it end, if each state is offering more credits?"

The incentive push comes as Michigan officials debate how to spend nearly $6 billion in “fiscal recovery” funds awarded to the state by Congress and President Joe Biden through the federal American Rescue Plan Act.

The incentive legislation would require the governor and Legislature to agree on future allocations, potentially in coming weeks.

Bipartisan cooperation on the fast-tracked bills would send a strong signal to companies who are currently considering whether to do business here, and time is of the essence, Michigan Economic Development Corp. CEO Quentin Messer Jr. told lawmakers earlier Wednesday.

The state is pursuing 11 projects that could bring $74 billion in investments and more than 27,000 jobs to the state, but landing those deals will “require significant additions to (Michigan) economic development toolkit,” he said in a committee presentation. 

The MEDC, the state’s quasi-governmental development agency, is not disclosing any details about those projects, which are typically negotiated behind closed doors.  

Manufacturing employs at least 600,000 people in the state, and the industry “has been strong and robust,” said Walsh of the Michigan Manufacturers Association. 

“But it has been shrinking for decades,” he warned. “And other states know this. Other countries know this. They are competing against us on a regular basis for investment.”

The bills, if approved by the Senate as soon as next week, would represent the first major upgrade in years to the economic development incentive options available in the state. 

The legislation would create a new Strategic Outreach and Attraction Reserve fund within the Department of Labor and Economic Opportunity.

Under the proposal, Whitmer and the Legislature would need to agree on how much money to put into that fund, and then they would generally need to agree again on how to divide it up between separate site selection and critical industry incentive programs.

The legislation would create a financial assistance program to help businesses, local governments, or economic organizations prepare "strategic sites" for future development, including land acquisition, infrastructure improvements and demolition or construction.

The proposal also envisions a separate "critical industry” incentive program that would provide grants, loans, investments or other forms of economic assistance to help close development deals, including short-term financing to meet immediate needs. 

A third bill, already approved by the Republican-led Senate, would extend an existing "transformational brownfield" tax capture program through 2027 and ease some requirements to encourage smaller developments and affordable housing projects, among other things. 

Whitmer has not weighed in on the specific proposal now racing toward her desk. 

But in October, the first-term Democrat urged Michigan lawmakers to work with her on new business incentives after Ford Motor Co. announced an $11.4 billion plan for new manufacturing campuses in Tennessee and Kentucky. 

“We have a once-in-a-lifetime opportunity to expand our economic development toolkit to ensure that the state is in a strong position to compete for unprecedented jobs and investment," Whitmer spokesperson Bobby Leddy said Wednesday. 

"The next 10 months will determine the future of our state’s economy for the next 10, 20 and 30 years.”

Michigan is in competition with other states, including a southern alliance whose members have explicitly stated they hope to make Michigan "irrelevant as a mobility capital," said Messer, the MEDC executive.

He read lawmakers a series of headlines about recent manufacturing investments in other states: GM to build $2.3 billion battery plan for electric vehicles in Tennessee. Toyota to bring an $1 billion "megasite" to North Carolina. Samsung plans $17 billion chip factory in Texas.

Wendy Block, vice president of business advocacy for the Michigan Chamber of Commerce, said in a committee hearing the state appears to be chasing “three big projects that are out there on the table.” Details are scarce, she said, because of non-disclosure agreements.

“A lot of them seem to have to do with EVs (electric vehicles) and kind of next-generation auto jobs,” Block said.

The Detroit News reported that one potential target of the incentive program is one or more battery cell manufacturing plants planned by General Motors Corp. and LG Energy Solutions. 

Critics noted that Michigan has a troubled track record with incentive programs, including a controversial Michigan Economic Growth Authority tax credit program that was launched in the 1990s to stem massive job losses during the Great Recession but abandoned in 2011 amid skyrocketing costs. 

The new proposal includes transparency and accountability provisions that improve upon past programs, but the incentive bills approved by the state House Wednesday would likely end up being a bad deal for Michigan taxpayers, said Michael LaFaive of the Mackinac Center for Public Policy. 

"Incentive programs all seem to have a similar pattern in that they are ineffective, expensive and fundamentally unfair for those who don't get them," LaFaive told Bridge Michigan. 

The Mackinac Center, a free market think tank, last year released a study of incentive programs that Michigan has implemented since the 1980s. While some created jobs, they did so at a significant cost to taxpayers: All told, Michigan offered nearly $600,000 in incentives per job created, according to the Mackinac Center analysis. 

Old programs continue to pinch the state budget. As of last year, GM remained eligible for $2.27 billion in tax credits under the disbanded Michigan Economic Growth Authority program. Fiat Chrysler Automotive restructured its deal in 2015, agreeing to cap its potential tax credits at $1.7 billion through 2029. 

The Michigan Strategic Fund recently estimated outstanding MEGA tax credits will cost the state more than $5 billion through 2030.

"We have been giving our auto manufacturers half a billion dollars, on an annual basis, through the MEGA tax credit program, and yet they're still moving factories to other states," said Rabhi, the Ann Arbor Democrat. 

"Does this seem fair to you?"

The MEGA program is “a cloud that seems to loom over us,” acknowledged Bob Trezise of the Lansing Area Economic Partnership and the Economic Development Leaders of Michigan. 

But Trezise and other development officials pushing the new incentive program say it includes unique safeguards to protect taxpayer investments.

Under the proposal, the Michigan Strategic Fund would need to consider a slew of eligibility criteria for applicants, including their financial need, the projected return on the state investment and risk that products produced at the site may become obsolete in the future.

Written agreements would need to include specific dates and benchmarks for the eligible applicant, along with clawback and specific repayment provisions to ensure the state is able to recoup any awarded funds if the applicant failed to comply with terms of the deal. 

An entity that violates terms of the agreement would need to repay any state assistance within 30 days or face a financial penalty of one percent per month. And if the entity filed for bankruptcy, the state would have "first priority" over other creditors seeking recoupment.

“Gone are the days of blank checks and just kind of handing out cash to anyone who wants it,” said Block, a lobbyist for the Michigan Chamber, which supports the incentive plan.

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