Howes: Always follow the money in economic development
Team Trump was in Indiana on Thursday to tout a deal that persuaded the owner of Carrier Corp., the air-conditioner maker, to partly reverse its decision to ship 2,000 jobs to Mexico.
The president-elect and his running mate, Indiana Gov. Mike Pence, credit Trump’s deal-making prowess, as you’d expect from the New York mogul. But the real prowess belongs to the almighty dollar — the fungible asset that drives where business invests to create jobs and build communities.
Michigan’s Legislature and its critics in the cheap seats would be wise to keep that in mind as lawmakers consider a package of bills aiming to reinstate key economic development incentives. The goal: to attract large business investments, and, second, encourage “brownfield” development in the state’s urban centers, especially Detroit.
Wonder why Dan Gilbert’s Bedrock real estate unit this week announced its intention to “go vertical” with two high-rise buildings on the so-called Monroe Block? To offer a foretaste of the next step in his downtown vision, provided the Legislature delivers the economic development levers sought by Gilbert’s people and urban economic development pros around the state.
“These are projects that are so important to the community that people are prepared to take a subordinated return,” says Matthew Cullen, principal of Gilbert’s Rock Ventures LLC. “It’s not like we’re going to go to Indianapolis instead of do the Monroe Block. But if you want it to get built, you’re going to have to help bridge the cost gap.”
Yes, it’s all so unseemly and transactional. Actually, it’s how markets work, people, a reality too often misinterpreted as a threat. Capital is mobile. Capital goes where it’s invited. Capital stays where it’s welcomed. And investors have choices, lots of them, including choosing to do nothing.
State governments do, too. If rival states stand willing to dangle incentives to attract investment in plants and urban redevelopment — as neighboring Indiana and Ohio clearly do — guess what: they’ll win more battles than they’ll lose.
And urban eyesores in places like Detroit and Flint, Saginaw and Grand Rapids, will endure. Projects that cost as much to build as similar ones in Chicago still don’t fetch rents high enough in Michigan cities to make the numbers work. Would you borrow money at 5 percent if your project only promised a 2-percent return?
If you’re looking for a reason those bills are working their way through the Legislature, that’s it. That less ideological factions of the GOP majority are pushing a package its predecessors effectively repealed is confirmation that the over-correction of the early Snyder years was just that: mistaken over-correction.
Longtime economic development pros with experience over both Republican and Democratic administrations in Lansing say Michigan’s ability to hunt big economic game is largely hamstrung by a ideologically driven, case-by-case approach that makes the state less competitive than it otherwise could be.
“It’s the way it’s played in business,” says Doug Rothwell, CEO of Business Leaders for Michigan and chairman of the Michigan Economic Development Corp. “Businesses put products on sale to attract customers, and states cut taxes to attract business. The reason they do it is because it’s a marketplace.
“You can have a great business climate — most states do. But they also have huge incentives to give themselves an advantage in the marketplace. You let ideology get in the way at your own peril.”
Pence’s Indiana and Gov. John Kasich’s Ohio understand this dynamic more clearly than Michigan. The risk is that its manufacturing rebound, exemplified most by strong financial results from the Detroit automakers and aggressive investments by major auto suppliers, gives lawmakers a false sense of economic security.
Carrier will cancel part of its plan to transfer production south of the border in exchange for a reported total of $70 million in tax incentives over the next decade — and the probably implied assurance that its parent company, United Technologies Corp., will remain in the mix for federal contracts.
Trump, less than a month from his stunning win over Hillary Clinton, gets a win. Pence and his Indiana home get a win. The Midwest working stiffs who paved Trump’s way to the presidency get Exhibit No. 1 that he’s delivering on at least one of his many promises.
And Michigan gets another reminder of how competition between states, even countries, is played — and how Michigan could stay on the outside looking in if it doesn’t step up its game.
Daniel Howes’ column runs Tuesdays, Thursdays and Fridays. Follow him on Twitter @DanielHowes_TDN, listen to his Saturday podcasts, or catch him 3 and 10 p.m. Thursdays on Michigan Radio’s “Stateside,” 91.7 FM.