Michigan tax credits in cross hairs

Chad Livengood
Detroit News Lansing Bureau

Lansing — Michigan's taxpayer incentives for job creation are likely to face increased scrutiny from lawmakers in the next few months as state officials wrestle with budget deficits blamed on surging business tax credits.

The Michigan Economic Development Corp., the state agency that administers grants and tax incentives for businesses, is in the cross hairs of some lawmakers who have long viewed its programs as a form of corporate welfare.

Payouts to businesses for refundable tax credits have ballooned from $75 million in the 2013 fiscal year to $681 million this year and an estimated $807 million in fiscal year 2016 — the main culprit of a $532 million shortfall in revenue.

With the state facing a midyear budget deficit of $325 million, some legislators have expressed a desire to slash the MEDC's $130 million annual business incentives budget, while others would like to eliminate the agency.

"Given the hundreds of millions of dollars that have been directed away from roads, away from essential services, we really can't afford it," said freshman Rep. Todd Courser, R-Lapeer, who plans to introduce legislation this week that would entirely defund the MEDC.

But it's unclear what, if anything, lawmakers can do about the Michigan Business Tax credits that profitable corporations are applying against their tax bills or cashing in for huge refunds. The tax credits were awarded to businesses during the past decade to spur job creation or get companies to keep jobs in Michigan and are viewed as a contractual obligation by Gov. Rick Snyder's administration.

"It's not as easy as saying, 'Cut them off, we're not going to do it anymore,' " said Senate Majority Leader Arlan Meekhof, R-West Olive. "If you sign a contract with somebody and it's for a long-term thing and you've made your business plan and your investments based on that, we have to tread very carefully when you're talking about that."

Snyder is expected to address the impact of business tax credits on the state's roughly $10 billion general fund budget Wednesday when he pitches his 2016 fiscal year spending plan to lawmakers.

The MEDC has previously estimated Michigan's long-term business tax credit liability is $6.5 billion. But the agency is expected to give lawmakers a new estimate this week based on a recent examination of the impact of rising payrolls for tens of thousands of jobs tied to the tax credits, particularly the Detroit Three automakers.

The Detroit News reported Thursday that General Motors Co., Ford Motor Co. and the former Chrysler Group LLC are entitled to refundable tax credits worth nearly $4.5 billion if they retain more than 86,000 jobs in Michigan and invest $5.5 billion in facilities through 2032.

"We obviously have to be really sensitive with all of the companies involved; this is not a blame game type of deal," said Steve Arwood, president and CEO of the MEDC.

The nonpartisan Senate Fiscal Agency recently published a paper criticizing the MEDC for underestimating the average compensation for retained jobs that are covered by the tax credits and not accounting for increased wages — and higher tax credit values — over the 20-year life of the subsidies.

The growth in state's tax credit liability has caused the governor to personally spend time investigating the matter.

"I don't like things that I feel could use additional management attention to — and this has my attention," Snyder told The Detroit News recently.

Courser said the MEDC has been mismanaged, and it's time for Snyder to take action. "I know it's his baby, but I think it's time to throw this baby out with the bath water," he said.

Rep. Sam Singh, D-East Lansing, has advocated scaling back MEDC programs but thinks Courser's proposal is "very irresponsible."

"To me, you don't have to just throw away the entire program; you just have to right- size it for today's economy," Singh said. "I'm not joining Todd Courser to tear the whole thing down, at this point."

Courser and other lawmakers view the business tax credits process with suspicion because privacy laws governing the tax information for individual corporations limit the amount of public information available about the liability and ultimate cost of the credits. It also makes it difficult to predict when the tax credits will be cashed in, the Senate Fiscal Agency said.

"It's human nature when we don't have access to information, our minds are going to run, and we're going to come up with thoughts," said House Speaker Kevin Cotter, R-Mount Pleasant. "I'm trying to take the position of, 'Let's take the emotion out of it, let's get the facts.' I don't believe I have access to a lot of those facts right now."

Arwood acknowledged the agency had to do more to educate lawmakers on the complex issue, particularly most House members who were elected after the Legislature halted the issuance of new Michigan Economic Growth Authority tax credits after 2011.

"A lot of these folks are new, and they weren't here in that time and weren't involved in the policy discussions," Arwood said. "I think the questions about what's going on with us is absolutely fair."

clivengood@detroitnews.com

Twitter.com/ChadLivengood

Gov stays busy

Gov. Rick Snyder remained hospitalized Sunday and his condition was expected to be re-evaulated Monday, his office said.

On Sunday, staff said "all signs are still good" as the governor continued working from his room at St. Joseph Hospital near Ann Arbor. On Friday, the hospitalized governor issued an executive order merging the state's human services and community health departments.

The governor was admitted to St. Joe on Thursday for a blood clot in his right leg.