FCA poised for at least 3 types of tax incentives for Michigan expansion

Jonathan Oosting
The Detroit News
Fiat Chrysler Chief Operating Officer Mark Stewart stands with Gov. Gretchen Whitmer as he announces plans for Fiat Chrysler to build a new assembly plant in Detroit last month.

Lansing — Fiat Chrysler Automobiles NV appears poised to qualify for at least three types of state tax incentives or subsidies as part of its plan to invest $4.5 billion in five Michigan plants and create 6,500 jobs in Metro Detroit.

The specific offer — and its total value — will remain a mystery until it goes before the Michigan Strategic Fund for approval.

But Michigan Economic Development Corporation documents obtained by The Detroit News through a Freedom of Information Act request suggest the package for “Project Peregrine Falcon” will include a suite of incentives designed to sweeten the deal. 

Emails show state and company officials discussing planned FCA applications and qualifications for the Michigan Business Development and Good Jobs for Michigan incentive programs, along with exemptions to the State Essential Services Assessment for manufacturers.

The Michigan Department of Transportation is also likely to help coordinate road improvements near the Mack Avenue Engine Complex on Detroit’s east side that the automaker plans to convert into a new assembly plant.

“We look forward to working with you as we move closer to making this project a reality here in Michigan,” Christine Roeder, vice president of retention and growth for the Michigan Economic Development Corp., wrote Dec. 7 as she sent FCA an updated but undisclosed incentive offer.

The Business Development Program is designed to provide grants, loans or other forms of economic assistance for “highly competitive” projects in Michigan that create jobs or include new investments, according to the MEDC.

The Good Jobs program, created by former Gov. Rick Snyder and the Republican-led Legislature in 2017, allows qualifying businesses to capture a portion of income taxes paid by new hires if they successfully create hundreds of Michigan jobs that pay average or above-average regional wages.

Exemptions to the Essential Services Assessment — which is imposed on manufacturers who no longer pay personal property taxes on equipment — are available for companies that make $25 million or more in qualified investments in “distressed” areas or for “transformational” projects, according to the state.

Emails show the MEDC and FCA were already discussing potential state incentives in November, three months before the company publicly announced plans to convert the Mack facility, upgrade its Jefferson North Assembly Plant in Detroit and Warren Truck facility while retooling existing plants in Warren, Sterling Heights and Dundee.

FCA pact time line murky

More than three months later, the state incentive package has not yet gone before the Michigan Strategic Fund for potential approval. The panel is set to meet Tuesday, but the FCA offer is not on the agenda.

Emails show the company was not able to meet submission deadlines for consideration in February, and the state had extended the deadline for FCA to agree to its latest offer sheet to March 15. 

MEDC declined to say whether FCA met that target, but “it is not uncommon for projects to be pushed forward,” MEDC spokesman Otie McKinley told The News when asked about delays.

The state is still expecting an FCA incentive plan to go before the Strategic Fund at a later date, he said. The board will meet again on April 23 and could consider a finalized incentive package then, but details will not be known until that time.

“Incentive information is made available to the public at the MSF board meeting in which it is being presented,” McKinley said.

FCA spokesman Kevin Frazier declined to comment on specifics of the incentive process but noted the automaker is in the “early stages” of a 60-day memorandum of understanding with Detroit that spells out city obligations to complete the deal.

“The state has made a commitment to complete the incentive process during that time,” Frazier said.  

The incentive discussions are occurring with Fiat Chrysler, an automaker the feds have labeled an unindicted co-conspirator in "a massive conspiracy to corrupt the labor management process."

Mayor Mike Duggan said at a Feb. 26 press conference that Detroit officials have until late April to acquire 200 acres of land and secure City Council approval to pave the way for the new FCA Mack assembly plant.

That includes completing the process for a local tax abatement agreement expected to be worth $12 million to FCA over 12 years. And the city must remove a berm west of the Mack Plant between East Warren and Mack within 15 days of the deadline. 

The memo of understanding anticipates the city will secure MEDC approvals for a state incentive package "relative to the project consistent with those provided to other major assembly plants in the United States,” including but not limited to Essential Services Assessment exemptions.

MEDC declined to disclose any draft agreements or draft incentive proposals for the project, citing a confidentiality agreement that is exempt from public records requests under state law.

Why no public disclosure?

Non-disclosure agreements “are common and crucial to all negotiations between economic development organizations like the MEDC and companies,” McKinley said. “They are in place to protect the company’s proprietary information and any additional information required as part of the negotiations.”

But those interests could be balanced with some form of public disclosure prior to approval, said Michael LaFaive, senior director of the Morey Fiscal Policy Initiative at the free-market Mackinac Center for Public Policy. 

"We would recommend (incentive offers) be made public at least a week before the strategic board is going to vote on the deal," he said. "That way they get close enough to having all the details negotiated and far enough away the people of Michigan get to see what it might cost them."

Fiat Chrysler is still recouping on Michigan Economic Growth Authority refundable tax credits that Democratic former Gov. Jennifer Granholm’s administration used to try to stem massive job losses during the Great Recession.

As of November, outstanding MEGA tax credits guaranteed by the state were worth an estimated $6.3 billion through 2032, according to a Treasury Department report to the Legislature.

Detroit automakers agreed to cap the value of their credits in 2015 as state officials wrestled with unexpected budget impacts. FCA's outstanding credits were worth up to $1.7 billion at the time, and Ford’s were worth up to $2.3 billion.

General Motors also renegotiated the value of its MEGA credits but refused to publicly disclose the total for which it could qualify. The state also agreed not to disclose the total value as part of the deal.

As part of its new plans, Fiat Chrysler intends to invest $1.6 billion in expanding its Mack Avenue facilities with a new plant and investing $900 million to modernize its Jefferson North Assembly Plant.

The investment will bring about a total of 5,000 new jobs to Detroit and gives the automaker the ability to build the next-generation Jeep Grand Cherokee, as well as new three-row and plug-in hybrid versions of the highly profitable SUV. 

'Incredibly conservative' breaks

Gov. Gretchen Whitmer said last month that the state’s offer to FCA is likely to rely on existing incentive programs and will not require action by the Republican-led Legislature, which worked with Snyder to scale back incentives in 2011 before approving two new options in 2017.

While negotiations began under her predecessor, Whitmer has praised the FCA plans and said that "in comparison to the kind of economic developments that happen in this state, this dwarfs everything else that’s been done."

She called pending tax incentives "incredibly conservative considering the return we’re going to get on the investment."

The Mackinac Center has generally criticized state incentive programs, but LaFaive said he is not surprised that FCA may be offered several forms for its planned Michigan expansion.

"The company involved is a pretty big deal, and they know how Amazon got treated," he said, noting Michigan's proposed $4 billion incentive package  that failed to encourage the online retailer to locate its second North American headquarters in Detroit.

The state last year also offered incentives to Foxconn worth up to $7.3 billion for three potential projects. The Taiwanese technology giant instead chose Wisconsin but has since revised its plans. 

"Those two previous deals, which I think we won by losing, may have informed this incentive package as well," LaFaive said of the FCA proposal. 

Delayed consideration of state incentives comes as city officials in Detroit work to meet demands for the project, including acquiring 200 acres of land, closing a street and demolishing an old power plant to make way for the Mack Avenue plant.

The city must complete several steps by April 27, which will mark the end of a 60-day period since the city first announced the proposed deal and signed a memorandum of understanding with the automaker.