Opinion | Michigan needs money: Whitmer should renegotiate business subsidy deals

James M. Hohman is the director of fiscal policy at the Mackinac Center for Public Policy. Gilda Z. Jacobs is the president and CEO of the Michigan League for Public Policy.

In order to save lives and flatten the curve in a worldwide pandemic, Gov. Whitmer’s emergency orders shut down portions of the state economy, and policymakers will have to deal with the effect this has on the budget. As part of that effort, the governor may want to ask Ford, General Motors and Fiat-Chrysler to reduce the money they get from the state as part of old economic development deals.

The state’s budget has already been approved, but it was based on revenue projections from before the COVID-19 pandemic. Because of the virus, there will be a difference between revenue and spending for the immediate year, and it will be up to the Legislature and the governor to work together to address the difference.

The governor has already signaled this need by making vetoes in a recently passed supplemental budget bill, ordering temporary layoffs of state workers, and announcing that she and her senior staff are going to take a pay cut. But as the state does its part, a bigger and better way to reduce government spending would be to turn to some of the private sector businesses that are large recipients of public taxpayer dollars.

Ford, GM and Fiat-Chrysler all received large deals from the state during the 2009 recession, where they would receive money from state taxpayers based on how many people they employed in Michigan. The deals were worth $6.8 billion to be paid over 20 years, provided that the companies employ the agreed-upon numbers of people.

That is only an estimate, however. How much they actually receive from the state treasury is currently considered confidential taxpayer information, though legislation has been introduced to change that. These three deals account for the bulk of payments which cost $600 million per year, according to state reports. That makes these business subsidies a larger expense than the Department of Natural Resources, which spends only $356 million in state money.

The payments to the companies may already decline without further action. The auto industry is hurting like many others right now, and the automakers have laid off employees and closed factories during the epidemic, which can lower the amounts they receive from the state. But the shutdowns are not expected to last forever, and company managers are trying to reopen plants with appropriate safety measures.

We all know that thousands of Michigan jobs depend on the auto industry, and we want to see auto manufacturers come out of this crisis successfully. But as lawmakers recognize revenue losses, this is an opportunity to reconsider their priorities. These business tax credits for the Big Three automakers have already been willingly renegotiated by the companies, and with the COVID-19 crisis and its impending fiscal impact still in effect, these state subsidies may need to be re-evaluated.

In general, taking money from residents to give to select businesses is unfair, ineffective at creating jobs and expensive to the state budget. And at the very least, the state should add more transparency and accountability to its business tax credits program, making more information available on how much money is being spent — and the impact it is or isn’t having on job creation.

At least 20 percent of Michiganders are now out of work and making household budget cuts. Government managers at the state, school and local levels have started to struggle with the fiscal effects of the pandemic and stay-at-home order. They’re considering ways to stretch dollars further, reprioritize, and they may try some more blunt ways to save money, like pay cuts, hiring freezes and layoffs.

Transferring hundreds of millions from the state treasury to business subsidy deals is something that lawmakers and the governor should revisit. There are better uses for the money.

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Comments

Kevin Grand
Fri, 05/15/2020 - 2:53pm

"Confidential" information???

That is something which needs to be done away with.

Barry Visel
Fri, 05/15/2020 - 3:59pm

I believe semantics is at work here. Tax credits are tax expenditures. That means a company’s tax liability is reduced. The State doesn’t write a check to the company, rather the company pays less tax based on whatever the subsidy deal calls for. Should those deals be confidential?...I don't think so. Should we, as a State, even be involved In such deals?...I don’t think so. Should companies even pay taxes?...I don’t think so...and in the near term, with fewer or even no customers, they won’t be able to pay taxes, let alone provide jobs, goods and services.
We are facing a terrible economy for probably many years. We need companies to provide jobs more than we need to ask them to pay more taxes.

THE GOP SUCKS
Sat, 05/16/2020 - 9:08am

Michigan and the Feds need to provide basic income for all put in place a 45 cent gas tax because gas is hovering around $1.70 a gallon. We could then implement a GREEN NEW DEAL and put people to work making good money doing construction, like fixing the damn roads and all the environmental problems that are outdoors and safe to do. Now is a perfect time because fewer people are using the roads. TIME IS OF THE ESSENCE

We can just spend money, giving it to rich people who want to hoard it or we can MAKE AMERICA GREAT AGAIN, for real.

PLombard
Sat, 05/16/2020 - 10:13am

Holy mackerel - James Hohman and Gilda Jacobs agreeing in a guest commentary.

CM
Sat, 05/16/2020 - 4:27pm

Expect tax increases across the board ... no other way out after shutting the tax generating businesses for months.

soodoo
Mon, 05/18/2020 - 8:45am

As the Big 3 try and find a successful path from COVID-19, a little transparency is appropriate when using State funds. They could help our economy going forward to place their tooling orders within the USA vs. going to China. They continue to be closely tied to China for their tooling needs. These are American jobs that can help get our economy back on track. Selling 9mm vehicles in 2020 is at a depression level which will spill economic horror throughout Michigan. Remember 2008/2010,,, not a good time for anyone in automotive manufacturing. Current governor has her hands full,,,,,, even more challenging when she lacks the skill sets required.