Firm’s tax break demands spur Michigan ‘welfare’ fight

Gary Heinlein, and Chad Livengood

Lansing — A Las Vegas company’s quest for multimillion-dollar tax breaks has set off a post-Thanksgiving legislative fight as Grand Rapids hurries to land a huge data center with what critics describe as “corporate welfare” and “cronyism.”

The Switch company’s proposed $5 billion campus full of computer technology will surround a vacant “pyramid” building near the city’s airport if — and only if — lawmakers approve bills granting it immunity from Michigan’s 6 percent sales and use levies as well as personal property taxes.

“Without the proposed legislative changes, this deal will not happen,” said Tim Mroz, spokesman for west Michigan’s The Right Place development agency.

Meeting Switch’s requirements, he said, “will open up a huge door for Michigan.” It would lead to the creation of an estimated 400 jobs at Switch and 600 from firms whose equipment is hosted there, as well as thousands of construction jobs during the 10-year build-out of the campus, he said.

The Capitol building in Lansing

Switch wants the exemptions before it invests in a 2-million-square-foot campus in Gaines Township that would house cloud computing equipment and data servers for corporate clients such as Amazon, Boeing and DreamWorks. It would be the tech firm’s eastern hub, located in Steelcase Corp.’s former development center.

Senate Majority Leader Arlan Meekhof expects his chamber’s Michigan Competitiveness Committee to start work this week on three bills calling for the tax breaks. House members have introduced the same three bills to speed the process.

“When somebody talks about investing $5 billion to $10 billion in your state, it’s a big deal,” said the West Olive Republican, whose Senate district is next door to the Grand Rapids area. He said the proposal warrants “a robust debate in the Senate” and contended its prospects for passage “are pretty good.”

But critics want to put the brakes on the tax breaks, characterizing the proposed write-offs as another case of ill-equipped government bureaucrats and elected officials picking winners and losers in the marketplace.

Since the plan was announced two weeks ago, the free-market Mackinac Center for Public Policy, the Michigan chapter of Americans for Prosperity and Republican U.S. Rep. Justin Amash of the Grand Rapids area have stepped up to oppose it.

“We want everybody to pay lower taxes,” said Mackinac Center policy analyst Jarrett Skorup. “We don’t think government should decide who pays more or less.”

In a commentary posted on the policy group’s website, Skorup reminds lawmakers of the $9 billion-plus owed to corporations in generous tax credits during the decade before Gov. Rick Snyder took office and revamped Michigan’s business recruitment policies.

$9B in refunds owed

In 2011, Snyder and the Legislature stopped awarding new business income tax credits to companies that promised to create jobs and invest in Michigan.

But the state is still saddled with $9.38 billion in tax credit refunds owed to businesses over the next 16 years. A stepped-up cashing in of credits resulted earlier this year in a $325 million midyear budget cut, causing the Snyder administration to negotiate amended tax deals with Ford Motor Co. and Fiat Chrysler Automobile NV to lessen their impact on the budget.

Proponents note the Switch legislation would cause the state to forgo future revenue, not leave it with the same kind of obligations owed the Big Three automakers.

“We have to look at that, and we have to say it’s a very interesting economic development project,” said Steve Arwood, CEO of the Michigan Economic Development Corp.

Arwood could not say how much the proposed tax breaks for Switch would be worth annually. “It just depends on what the legislative package looks like,” he said.

Amash, a free-market libertarian and former state representative, sent tweets and Facebook posts on Tuesday in which he called the plan “cronyism, corporate welfare” and urged Republicans, who hold House and Senate majorities, to reject it.

“When government intervenes to favor a particular entity, it pulls resources from other entities and individuals,” he wrote. “Corporate welfare simply shifts resources from more-efficient uses to less-efficient uses. And, in any case, it’s immoral.”

Former GOP State Rep. Pete Lund of Shelby Township emailed lawmakers calling the proposal anti-competitive.

“... Companies that are initially attracted by crony tax carve-outs end up eventually leaving for a more appealing ‘deal’ offered by policymakers in other states,” said Lund, now state director for the Charles and David Koch-founded Americans for Prosperity.

Detroit News phone calls to the company weren’t returned. Switch Executive Vice President Adam Kramer said in a statement the firm is “excited” to be working with Gov. Rick Snyder and the MEDC and argued the legislation “creates an equal playing field between Michigan and its neighboring states.”

Mroz said Switch looked at locations in other states that offered a comparable package of inducements. He envisions the project exposing international corporations to west Michigan’s attractions, creating spinoff businesses and boosting flights at busy Gerald R. Ford International Airport.

Founded in 2000

Privately held Switch was founded by high-tech entrepreneur Rob Roy in 2000 to be the platform “for all of his sustainability-focused patents and differentiated technologies,” according to company literature.

Roy is said to be transforming Las Vegas, America’s gambling mecca, into the next Silicon Valley.

The company’s services include cloud-based data storage and Internet connectivity, as well as equipment, bandwidth and space rental for companies’ data servers.

Lawmakers are just starting to assess the proposal. Sen. Curtis Hertel Jr. said he doesn’t oppose efforts to spur major Michigan developments but finds it ironic the proposal comes mostly from Republicans, some of whom want to eliminate the Michigan Economic Development Corp. that handed out the troublesome tax breaks in the past.

“Who needs the MEDC when you’ve got the Legislature, right?” said Hertel, D-East Lansing.

Rep. Andy Schor of Lansing, the lone Democrat acting as lead sponsor of one of the bills, said the opportunity for Michigan to become a major player in the digital industry is too important to pass up.

“For me, it’s not corporate welfare because if they get these tax exemptions, they come here and don’t go anywhere else,” Schor said, adding that unlike past corporate tax inducements “this isn’t a promise of jobs, it’s a guarantee of jobs.”

‘Ask a lot of questions’

Rep. Al Pscholka, chairman of the House Appropriations Committee, said he’s still studying the impact of the proposed tax breaks on the state budget.

“We’ve got to make sure we do our due diligence and ask a lot of questions about it,” said Pscholka, R-Stevensville.

Pscholka said the state needs to guard against open-ended deals like the old-style tax credits.

But Pscholka, who spent a decade in the economic development business in southwest Michigan, said the elimination of pre-2011 tax credits leaves the state with fewer incentives to lure big companies.

“We talk about diversifying our economy,” Pscholka said. “This sends a message that we’re interested in diversifying our economy.”

The data centers bills are scheduled for Tuesday and Wednesday hearings before the House Tax Policy Committee headed by Rep. Jeff Farrington of Utica, a third-term Republican who came to office in 2011 opposing special deals.

Farrington said he plans to introduce an amendment that would broaden the tax breaks to apply to all data centers.

“I don’t believe in giving just one company a deal and I don’t believe my caucus will either,” Farrington told The Detroit News.

Farrington said he hopes to hold a vote as soon as Wednesday on the legislation.

The Senate’s Michigan Competiveness Committee also has scheduled a hearing on the legislation Wednesday morning.

The GOP governor is still evaluating the plan, said Snyder press secretary Dave Murray.

“The legislation ... has only recently been submitted, and we are still very early in the process,” Murray said. “We expect there will be a lot of discussion about this project.”