Transportation gets nearly all of $9.4B in tax credits

Chad Livengood
Detroit News Lansing Bureau

Lansing — Michigan taxpayers are on the hook for giving 96 percent of nearly $9.4 billion in tax credits to companies in the vaguely named "transportation" sector, but a state agency that doles out the job-retaining incentives refuses to disclose the revised amounts owed to individual companies.

The Michigan Economic Development Corp. recently denied a Detroit News public records request seeking the names and amounts of unclaimed tax credits owed to the 10 Michigan businesses with the most credits, citing laws that shield information about individual taxpayers from public disclosure. The credits can be claimed during the next 16 years.

The MEDC partially granted a separate Freedom of Information Act request from The News asking for a breakdown of amounts owed to industries. But the agency's industry classifications were vague and undefined.

A little more than $9 billion of the tax credits are owed to an industry called "transportation," which appears to include Detroit's Big Three automakers, followed by $143.7 million to an industry defined simply as "other."

Advanced manufacturing, alternative energy, life science, information technology and "manufacturing" rounded out the list of industries, with much smaller amounts that account for 2.5 percent of the nearly $9.4 billion owed.

The News requested the information following the MEDC's disclosure in February that a new estimated long-term liability for Michigan Economic Growth Authority tax credits showed the cost rose 44 percent from $6.5 billion to nearly $9.4 billion.

The MEDC hiked its estimate in light of surging redemption rates that triggered a deficit in the state's general fund and increased scrutiny from lawmakers.

"Michigan is swimming against the tide of history here and claiming a tax secrecy rule that many, if not most, states have long since abandoned," said Greg LeRoy, executive director of Good Jobs First, a Washington, D.C.-based government subsidy watchdog group.

The MEDC previously disclosed records showing nearly $4.5 billion in tax credits were owed to Detroit's automakers, but it was before the agency revised its estimated total liability.

MEDC officials acknowledged the new $9.38 billion figure factored in rising payrolls for 86,000 jobs covered by massive tax credits awarded to General Motors Co., Ford Motor Co. and the former Chrysler Group LLC.

LeRoy and other open government advocates say the value of tax credits awarded to individual companies should be akin to other expenditures of taxpayer money, such as salaries of elected officials, property tax abatements and the cost of building a new public school.

"It's a huge expenditure of taxpayer dollars of which no one is allowed any details," said James Hohman, assistant director of fiscal policy at the Mackinac Center for Public Policy, a conservative think tank in Midland. "A company's estimated tax credit amount has always been disclosable."

MEDC officials declined to comment on the industry classifications submitted to The News.

Instead, the economic development agency issued this statement:

"The industry totals in the FOIA response were drawn from information in our customer relationship management database in groupings of ten or more companies. The industry selection derives from coding required by the system for internal use and decision-making to assist in the pursuit of MEDC business development and marketing opportunities."

A spokeswoman for Gov. Rick Snyder described the matter as a "balancing act."

"This is a balancing act about protecting confidential taxpayer information while at the same time ensuring transparent best use and value of taxpayer dollars," spokeswoman Sara Wurfel said Tuesday. "We look forward to discussing this issue with lawmakers and stakeholders."

Credits routinely disclosed

Created in 1995, Michigan's business tax credit system for giving companies an incentive to create jobs or retain existing employees in the state has long disclosed the value of tax credits initially awarded to individual companies.

In October 2010, for example, the MEDC under then-Gov. Jennifer Granholm announced a deal with Chrysler to get the Auburn Hills automaker to retain 20,000 jobs in Michigan in exchange for "a state tax credit valued at $1.3 billion over 20 years."

In the same press release, the MEDC touted a tax credit for Ford "valued at $909 million over 15 years to encourage the company to expand in Michigan over competing sites in India, South Africa, Europe and Asia."

But almost five years later, the state agency says it can't disclose the remaining and potentially higher value of those tax credits.

"Portions of the documents you requested were in connection with the administration of the Michigan Business Tax and are exempt from disclosure," MEDC Assistant Freedom of Information Act Coordinator Aileen Cohen wrote in a March 23 letter to The News.

Mitch Bean, former director of the nonpartisan House Fiscal Agency, said the MEDC's refusal to disclose outstanding individual tax credits follows a pattern of problems he had with the agency.

"The problem with the MEDC is garbage in and garbage out. They don't track things," Bean said. "It's always been this way. ... You can't trust any number that comes out there, really."

Bean, who formerly worked at the Treasury Department where tax records are kept strictly confidential, said estimates generated at the MEDC on the long-term value of tax credits should not be shielded by taxpayer privacy laws.

"They should be able to disclose that," Bean said of the MEDC. "Somebody needs to bring that organization down. It's been the slush fund for three governors now, Democrat and Republican."

Lawmakers eyeing MEDC

Lawmakers on both sides of the aisle are scrutinizing the MEDC's operation this year.

The House Tax Policy Committee is holding a hearing Wednesday on two bills that would prevent the MEDC from tacking on additional credits for companies that create or retain jobs.

Rep. Jeff Farrington, R-Utica, said state economic development officials have shown him a list of top tax credits owed, without the company's names.

"Once they have given it to a specific company, in a contract, then it's part of the tax code and you can't disclose it," Farrington said.

Jane Briggs-Bunting, president of the Michigan Coalition for Open Government, said corporations should not be afforded the same privacy on tax breaks individuals can claim.

"If the state's handing out tax credits, which impacts the finances of the people of Michigan, I don't know why these corporations would not be identified as getting them," said Briggs-Bunting, a retired Michigan State University journalism professor.

Gov. Rick Snyder has said the state is bound by tax laws and agreements with companies that keep certain records secret.

But the Republican governor has said he wants companies to agree to "bring better visibility" and "transparency" to redeeming the tax credits, so the state can better budget for the costs.

The MEDC projects business tax credits will consume more than $500 million a year in general fund tax revenue until 2029.