Ford agrees to invest $3.1B in Michigan, cap tax breaks
Lansing — Ford Motor Co. pledged Monday to invest $3.1 billion in Michigan facilities to keep its lucrative tax breaks capped at $2.3 billion under a deal Gov. Rick Snyder's administration hopes to replicate with the state's other two automakers.
A state board approved an amendment Monday to Ford's Michigan Economic Growth Authority tax credits, marking the first major agreement the Snyder administration has reached to help stop the state's $9.38 billion long-term liability from escalating in cost to taxpayers.
"I think it's a good model or template to look at," Snyder said in a telephone interview with The Detroit News. "There's other discussions going on."
After being hit with a surprise surge in refunds last fall, Snyder has sought budgetary certainty from the remaining companies eligible for tax credits through 2031. The firms include General Motors Co. and the former Chrysler Group LLC, whose tax credits were last valued at $2.1 billion and $1.3 billion, respectively, but expected to rise.
The deal comes months before Ford intensifies talks with the United Auto Workers over a new national contract in which the union will likely prod the automaker to commit more production and vehicle lines in U.S. plants. Ford is expected to push union bargainers for restraining growth in labor costs.
Under the deal, Ford agrees to spend an additional $3.1 billion on Michigan facilities through 2025 — double the automaker's initial capital investment commitment — to remain eligible for its MEGA tax credits. The refundable tax credits cover the retention of 40,200 jobs — more than 91 percent of Ford's in-state workforce.
"It's not insignificant that they've committed to doubling their capital investment from what was originally estimated over the next 10 years," said Steve Arwood, CEO of the Michigan Economic Development Corp. "I think, for both Ford and the state ... this is a major win."
The investment would mostly be focused on manufacturing equipment and retooling plants in Michigan, said Charlie Pryde, Ford's regional director of state and local government relations.
"Currently, we don't have any plans on those investments," Pryde told reporters. "In order to earn the maximum amount (of tax credits), we have to invest. So there's no guarantees we will invest an additional $3.1 billion."
The ballooning value of Michigan's business tax credits has put the state's general fund under strain this year after the profitable Big Three automakers and other companies began cashing in credits at higher-than-expected rates. MEDC officials were forced to revised the value of the credits from $6.5 billion to $9.38 billion over the next 16 years.
Ford's 2009 and 2010 tax credits have more than doubled in value from an initial value $1.14 billion to $2.3 billion, which the automaker is eligible to claim through the end of 2025, according to an MEDC memo to Michigan Strategic Fund board members.
The agreement with Ford stipulates the company will agree to an unspecified annual limit on the value of tax credits it can claim — a demand the Snyder administration made to bring more certainty to yearly budgeting for tax credits in the state's nearly $10 billion general fund.
Pryde said the company wanted assurances on the annual refunds, given the political volatility surrounding the MEGA tax credits.
"We were concerned in terms of the timing of the payment of credits," Pryde said.
The agreement allows Ford to count improvements at any Michigan facility with workers covered by the tax credits as part of its additional $3.1 billion capital investment requirement. Ford could "re-earn" tax credits for which it didn't qualify in the previous year if it meets job retention and capital investment requirements.
"In a globally competitive environment, the modified MEGA agreement provides an additional reason for Ford to continue considering further investment in Michigan," said Joe Hinrichs, Ford's president of the Americas, in a statement.
The Michigan Strategic Fund board, which governs the tax credit program, approved Ford's amendment Monday at the urging of MEDC staff.
"This amendment does not increase the state's liability under the MEGA," MEDC attorney Christin Armstrong wrote in a memo. "In fact, the amendment would serve to limit the state's costs and provide more certainty with its long-term obligations to Ford under the amended MEGA tax credit."
Rising tax liability
The News first reported in February on how Detroit's Big Three laid claim to tax credits initially valued at $4.5 billion and tied to the retention of 86,000 jobs in Michigan.
Since revising the estimated total tax credit liability, the MEDC has refused to divulge the value of credits owed to individual companies. But in response to a Freedom of Information Act request from The News, the state agency said more than $9 billion in credits are owed to an industry loosely defined as "transportation."
Tax credits under the Michigan Business Tax are calculated by multiplying the state's 4.25 percent income tax rate by the total cost of wages and health care benefits of jobs retained by Ford, GM and FCA US LLC. Because of rising payrolls, Ford's tax credits could have increased in value without the cap, Pryde said.
Michigan began handing out large multimillion-dollar tax credits to businesses that created jobs under former Republican Gov. John Engler's administration.
In 2009, at the height of the financial crisis when GM and Chrysler were going through bankruptcy, Democratic Gov. Jennifer Granholm's administration began striking more tax credit deals with companies that kept jobs in Michigan to stem the loss of the state's automotive manufacturing base.
In June 2009, GM struck the first deal for a "global" tax credit worth more than $1 billion. It has since been amended four times by the Granholm and Snyder administrations to a value of $2.1 billion, with the most recent addition of $96.3 million last July, according to state records.
On Oct. 26, 2010, the Granholm administration announced tax credit commitments for Ford valued at $909 million and $1.3 billion for Chrysler.
Arwood said the deal with Ford "sets the framework" for negotiating changes to other tax credit deals with a half-dozen other large companies. He would not confirm whether there are ongoing negotiations with GM or FCA.
GM spokeswoman Laura Toole confirmed Monday the Detroit automaker has been in talks with the MEDC about amending its tax credit deal.
"We want Michigan to play an important part in the company's growth, and the MEGA has been a strong catalyst in helping to create jobs and to make a positive economic impact in the state and (GM) communities," Toole said in an email.
Tax credit backlash
The Snyder administration's agreement with Ford to cap the long-term value of its tax credits comes as the MEDC is under fire from lawmakers for its handling of the program and after the House voted to ban any future amendments to the tax credit deals that added to the value.
The automakers have been fighting the legislation, which would end the Michigan Business Tax after 2031. Whether the Senate will approve the legislation and send it to Snyder's desk remains uncertain, though.
"There's a long way to go in the legislative process," Snyder said Monday.
Staff Writer Mike Martinez contributed.