Business incentives cost Michigan millions, and it’s uncertain they work

In late 2016, billionaire Detroit businessman Dan Gilbert visited the Michigan Capitol to sell lawmakers on new tax incentives he touted as crucial to unlocking billions of dollars of real estate development in Detroit.

The resulting incentive package, valued at up to $1 billion, took effect last year. It had the backing of economic developers across the state and, eventually, Gov. Rick Snyder, who ended most incentive programs shortly after he took office in 2011.

Snyder last year also signed into law a new incentive that would allow companies to capture some or all of the income taxes for their new hires if employers create at least 250 jobs and pay average regional wages. Snyder wanted the incentive as he tried to lure Taiwanese electronics manufacturer Foxconn Technology Group and the possibility of thousands of jobs to Michigan.

Related economic coverage from our 2018 Michigan Issue Guide

Incentives generally are not the deciding factor for a company looking to move or expand. Location, availability of property, talent, quality of life, infrastructure and utilities all play into the decision. But incentives are at the center of an economic development arms race, one in which states that don’t play can find themselves losing out on high-profile projects.

Little data exists publicly to back up claims that Michigan can’t compete without business incentives. In some cases, that’s because the state might never know if it was eliminated, nor learn why it lost a particular project to another state.

Transparency also lacks because states often sign confidentiality agreements when pitching projects. And the types of deals vary from state to state, so Michigan can’t easily be compared across state lines.

Timothy Bartik, a senior economist at the W.E. Upjohn Institute for Employment Research in Kalamazoo, last year published data from 33 states suggesting Michigan had higher incentive costs than some neighboring states. Bartik’s research also makes the case that incentives are often politically motivated and adopted without enough information to determine whether they’ll be effective.

Some opponents of incentives in Michigan reject the idea of state government choosing to reward specific industries at the expense of others. Incentives advocates contend that if Michigan doesn’t offer robust incentives, it will not compete for major jobs-producing economic growth projects.

Michigan’s MEGA problem

Incentive history here is also controversial, after a tax credit program originally designed to create jobs morphed into a job-saving tool during the Great Recession — and left the state with a $9 billion price tag.

Known as MEGA, the tax credit program started in the 1990s to reward companies for creating jobs. But the program expanded to allow credits for companies that retained jobs. Detroit’s automakers were among the largest recipients.

Michigan’s obligation to companies under the MEGA program swelled to more than $9 billion by 2015, putting pressure on the state budget because state fiscal experts underestimated the scale of companies redeeming the credits.

Governor Snyder axed the MEGA program after taking office in 2011. But companies awarded credits can continue to claim them until they expire. It’s estimated Michigan will be liable for hundreds of millions of dollars in MEGA payouts to companies through 2032.

The arms race today

Michigan lost a major Foxconn project to Wisconsin, which offered $3 billion in incentives for a planned investment of $10 billion and up to 13,000 jobs making liquid-crystal-display screens near Racine. Wisconsin approved the Foxconn incentives despite legislative analysis suggesting it could take 25 years for Wisconsin to break even on the deal.

Michigan offered Foxconn incentives worth nearly $6.5 billion for three separate projects in Marshall, Romulus, and Detroit valued at a total of nearly $11 billion in economic development, including 14,000 jobs.

Last fall, e-commerce giant made international news when it announced a public search to find a host city for its second North American headquarters. The company plans to bring as many as 50,000 employees to the winning city. Detroit’s binational bid with Windsor, Ontario, promised an undisclosed amount of incentives from Detroit, Wayne County and the state, along with other investments in talent and transit.

The future of business incentives in Michigan is unpredictable and unclear. A new governor and legislature may reshape the state’s approach in 2019 and beyond – as a matter of policy and also in response to new job growth opportunities not yet foreseen.



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Kevin Grand
Tue, 01/23/2018 - 11:52am

Does anyone find it ironic that the republicans will trip over one another promoting these "incentives" to improve the economy, but when a similar gesture is proposed for Michigan Taxpayers (those of us who still live here and have stuck it out), they shoot out almost non-stop a litany of excuses on how detrimental that would be for the state budget.

Tue, 01/23/2018 - 11:53am

Having worked in Economic Development and actually involved with presenting economic incentives, I can tell you that they are nothing more than economic boondoggles. The strings attached are for the most part insurmountable unless the company lies to the state about their capability to follow thru. For the most part, the state doesn't follow up on anything anyway and simply uses the situation for political resumes during election cycles. The fact that the state makes the choice as to who gets the incentive only adds to the absurdity since most bureaucrats and/or politicians have any significant insight or experience in practical business issues. Add to that the fact that almost every business involved has failed to accomplish any of the contractual or economic goals agreed upon initially. The whole thing is tantamount to a shell game for public consumption.

Ricky from Fenton
Mon, 09/24/2018 - 12:22pm

Dear Mr Wilkenson,
You write an interesting story however, I have to ask where did you get your facts?; or in better terms statistics. I ask this because Quite often our governmental leaders wish us to believe things are not as glum as they really are. They want us to continue using their snake oil!
Your Statistics in your story Sir, are in your dated by 2 years and of the so-called 300k manufacturing job losses I can personally attest from visually witnessing closer after closer after closer of manufacturers, retailers and small business owners. The figures that you have been given (of those actually being reported are considerably jaded). Do not be shocked to find those figures to be in the millions.
Now that said, Have you tried to find a job lately Sir? Yes they are out there but, pay ranges are often minimum wage to $15hr on the high side even from notable employers like the infamous union-buster GM. Whom now pays many of their assemblyman the equivalent of 1970's wages. Many people I know who work there now earn 13-15 hourly, yet I do not see cars costing any less and I do not see GM correcting their known 75 year damage of the Flint MI watershed.
There is a great story here that most politicians do not want publicized. many americans are still on some sort of assistance including our veterans and even active military! And many make below the poverty line.
All would be fine and well if basic needs such as: heat, electric, food, education, housing and transportation were at reasonable costs; but they are not. Health care and medicine is out of control and the IRS and Big Insurance runs the joint, its almost as if they are purposely trying to eliminate the middle class and go back to fifedoms!?
And in your story Sir about the college part.... I have yet to see a majority of those who have gone to college actually still working in their major or minor! In Fact in the last 40 years I have seen about 10% working in their college career field. What they charge for college is also criminal. The one shining light that I applaud this new younger generation for is that they have recognized this game the colleges and trade schools are playing and are not buying it!