Senate approves data center tax break bills

Gary Heinlein
The Detroit News

Lansing — The Michigan Senate approved Thursday tax breaks needed to bring a $5-billion data center to the Grand Rapids area, but gave local governments a say over the taxes most directly affecting them.

The three bills passed on 21-15 votes. Two Democrats voted yes, and six Republicans voted no. The Demcrats voting yes were Sens. Virgil Smith of Detroit and David Knezek of Dearborn Heights.

Before the three votes, the Senate added a Knezek amendment under which the state would hold harmless, or protect, the School Aid Fund from the impact of the tax exemptions. While unspecified, it appears that money would shift from the general fund, the state’s main checkbook.

Lawmakers are fast-tracking legislation that would exempt data centers from sales, use and personal property tax to clear the way for a proposed 2-million-square-foot campus operated by Las Vegas-based Switch corporation. It would occupy and surround a vacant pyramid-shaped building in Gaines Township that once housed a Steelcase Corp. innovation center.

Switch says it won’t locate in Michigan without the tax exemptions, which are available in 22 other states. Based on a Senate Fiscal Agency estimate, the company and its clients would get tax exemptions worth about $200 million a year.

Following the Senate vote, Majority Leader Arlan Meekhof said Michigan has to compete with other states offering similar incentives to build a vital new industry. The prospect of a landing a huge business that wasn’t originally considering Michigan is “very exciting,” said Meekhof, R-West Olive.

“It’s like a poker game,” he said. “We’ve got to put the ante in to be able to compete, so we put the ante in and now we’re ready to compete.”

Meekhof said there could be changes in the legislation after discussions between lawmakers and Gov. Rick Snyder, who wanted more time to calculate the impact of the exemptions on the annual budget. Snyder’s administration recommended narrowing the legislation to treat proposed Switch tax breaks as a test project.

The three Senate bills are comparable with three bills in the House vote that did not come up for a vote later Thursday.

A Senate committee earlier Thursday had amended the legislation to reduce the impact by lowering the proposed sales and use tax exemptions. But the full Senate adopted a change from Meekhof restoring full exemptions.

Under the legislation, local governments would have until March 21, 2016, to reject personal property tax exemptions on existing data centers and until March 21 of each year to approve or reject exemptions for new ones. Personal property taxes help fund local services such as police and public works.

Birgit Klohs, head of west Michigan’s The Right Place development agency, testified Wednesday that the tax changes would open Michigan’s doors to a crucial new industry. The data campus would become a magnet for related businesses, creating additional development and jobs, she said.

The House Fiscal Agency said the future tax revenue loss from 38 data centers already here would total $20 million to $30 million annually. The Senate Fiscal Agency added in tax revenue that would be foregone on Switch’s $5-billion center, coming up with a $225 million total.

Democratic Sen. Rebekah Warren of Ann Arbor, who voted against the bills, said none of her Democratic colleagues wanted to reject a $5-billion investment in Michigan, but “we have to be good stewards of the state and its resources.”

The proposal “makes wholesale changes to our tax policy” with no real guarantees of the amount Switch would invest or the number of jobs it would create, Warren said. “It shortchanges our School Aid Fund, General Fund and funds to local communities that they’d otherwise be getting.”

In committee testimony, Switch executives said 1,000 or more people would work at the data center, about 400 employees of its own and 600 employed by clients such as eBay and DreamWorks, whose data servers would be housed there. It also would lead to thousands of construction jobs during the 10-year build-out of the campus, they said.

The Michigan Chamber of Commerce, which opposes the tax exemptions, called the legislation a “bait-and-switch approach to tax policy.” The chamber says it represents 6,800 Michigan businesses with 1.5 million employees.

“From failed state battery credits to ineffective Hollywood film subsidies, we’ve seen this movie before, and it ends badly for Michigan taxpayers,” said Michigan Chamber President and CEO Rich Studley.