Lansing — Five years after a dramatic move to simplify the Michigan tax code, state legislators are contemplating the return of aggressive tax incentives to lure large-scale job creators and spur “transformational” redevelopment projects in cities large and small.
The Michigan Senate on Tuesday approved plans for a $250 million program that would allow the state to offer tax abatements to companies that promise to create at least 250 or 500 jobs, depending on the average wage they will pay employees.
A second package, backed by Detroit businessman Dan Gilbert and also approved Tuesday, seeks to jump start redevelopment of contaminated, blighted or obsolete “brownfield” sites by redirecting up to $50 million a year in state tax revenues back into qualifying mixed-use projects.
The two proposals, now headed to the House, would be “a game-changer for Michigan,” said Sen. Ken Horn, R-Frankenmuth, who chairs the Economic Development Committee and is a lead sponsor on the redevelopment incentive plan.
“I see this as an urban renewal package — probably the most significant urban renewal package we’ve worked on in decades,” said Horn, referencing the potential to revitalize abandoned buildings in city centers across the state.
But the packages also would represent a significant shift in economic policy under Gov. Rick Snyder, who helped eliminate most incentives in a 2011 tax code overhaul that replaced the complicated Michigan Business Tax with a flat Corporate Income Tax.
Snyder has expressed concerns with the redevelopment proposal, but his administration has signaled support for the job creation incentive plan, which would allow the Michigan Strategic Fund to authorize abatements of up to 10 years for a maximum of 15 companies annually.
“The bottom line is, these programs do not work, let alone justify their costs,” said James Hohman of the free-market Mackinac Center for Public Policy, which opposes both incentive proposals. “They are able to generate a press release, but when it comes down to it, are they able to create jobs and at what cost?”
Job incentive plan
The job incentive program could help the state retain or land large companies that have, in recent years, often chosen to locate in states such as South Carolina or Texas that offer more incentives, said Steve Arwood, director of the Michigan Economic Development Corporation.
“I think we’re in a position right now where the fundamentals of this state are very, very good obviously, and we’re doing very well,” he said. “But everybody looks at those fundamentals, and the competition doesn’t stop, both globally and across state borders.”
The program would be capped at $250 million. If that cap is reached at any time, the state could not provide additional incentives until an existing agreement expires. The state would be required to publish online the names of any qualifying companies, including the value and duration of their abatement.
Despite the restrictions, Hohman called the proposal “the new MEGA,” referring to the uncapped Michigan Economic Growth Authority tax credit program Snyder and the Republican-led Legislature scrapped as part of the 2011 tax code rewrite.
Outstanding MEGA credits, offered under a program former Gov. Jennifer Granholm expanded to keep the three automakers from leaving the state during the Great Recession, continue to drain the state budget and are projected to cost the state about $6 billion through 2032.
“I’m disappointed lawmakers are going to authorize new business tax credits when they’re still not done paying for the old ones,” Hohmann said.
But the new proposal “is nowhere near the size” of the MEGA program,” Arwood said. “I think it’s sized right. I think it’s very transparent. It’s effectively capped.”
Mixed-use redevelopment incentives
“Transformational” brownfield redevelopment projects across Michigan could qualify for lucrative tax incentives under a separate package approved Tuesday that is designed to boost large, mixed-use development at contaminated or abandoned sites.
The legislation would create a mechanism to “capture” sales and use taxes from retail sales on a qualifying property and up to 50 percent of the income taxes paid by any residents who live there. Developers, owners or authorities who meet an initial minimum investment threshold could be reimbursed for eligible costs when construction is complete.
Supporters argue the qualifying projects would only capture tax revenue they help generate — money that otherwise may never have materialized — by bringing more residents and businesses into Michigan’s cities.
Gilbert’s Rock Ventures LLC “would be prepared to move forward with $2 billion to $3 billion worth of projects” in Detroit if the package becomes law, principal Matt Cullen told legislators in September.
The legislation could pave the way for a Gilbert redevelopment on Woodward where J.L. Hudson’s department store used to be and another development proposal to relocate the Wayne County Consolidated Jail project to Mound Road.
A change adopted Tuesday would cap the proposed incentive program at $50 million a year. Horn said he anticipates further changes in the House, including a five-year sunset, meaning the program would only operate for a handful of years unless future legislators extend it.
“There’s a pent-up demand. Every corner in the state has some project” that could qualify, Horn said. “Once we’ve met that initial demand, at some point these incentives don’t need to be there. I think it’s a good kick start. That’s why the sunset doesn’t worry me at all.”
In Detroit, the state’s largest city, a minimum investment of a half billion dollars would be required to qualify for the special tax designation. A project in Grand Rapids would require at least a $100 million investment. There would be a minimum threshold of $15 million for smaller cities with populations below 25,000 residents.
The minimum investment threshold could be waived in Flint under the legislation, which includes an exemption for cities that have been subject to a state emergency declaration because of contaminated drinking water.
Bryce Moe, managing director of SkyPoint Ventures in Flint, said his firm has “a handful” of potential projects in the pre-development phase that could benefit from the new credit program, including a potential hotel and residential units.
“We’re very much focused on the revitalization and resurgence of Flint, a long and historically challenged area,” Moe said. “When we think about this brownfield program and what this legislation could do for us, it’s significant.”