Lawmakers hit legality of AK Steel tax credit transfer

The Detroit News

Two House Democrats and two House Republicans are questioning whether it was legal for the Michigan Strategic Fund board to transfer tax credits from the former owner of a Dearborn steel factory to AK Steel.

On Friday, the four legislators asked Michigan Attorney General Bill Schuette for an opinion on the legality of the public-private economic development board’s transfer of $60 million in Severstal North America’s tax credits to AK Steel.

In the transfer, the board reduced the value of the Michigan Economic Growth Authority and brownfield tax credits to $20.4 million and shaved six years off the period when the West Chester, Ohio-based company could cash in the credits. The Michigan Economic Development Corporation, which oversees the Strategic Fund, said the deal reduced the state’s liability by about $23 million.

Other conditions on the MEGA tax credits include the company keeping at least 500 jobs at the Dearborn factory, 1,000 full-time positions in Michigan paying an average wage of $820 a week, the The company also will have to retain at least 500 jobs at its Dearborn plant, 1,000 full-time jobs in Michigan and pay an average weekly wage of $820, according to the MEDC.

Democrat Reps. Stephanie Chang of Detroit and Abdullah Hammoud of Dearborn along with Republican Reps. Peter Lucido of Shelby Township and Martin Howrylak of Troy argued in a letter to Schuette that the Legislature last session failed to approve two bills that would have let the company claim the tax credits from Severstal North America.

An AK Steel spokesman was not immediately available for comment.

The lawmakers said the company’s end run around the Legislature may violate Michigan’s Income Tax Act and may be helping AK Steel to avoid answering questions about pollution issues for surrounding neighborhoods.

Howrylak rapped the Strategic Fund board for setting “a dangerous precedent by allowing a specific company to acquire a tax loophole” without legislative approval.

“First, AK Steel wanted legislative approval, which is the proper venue for this request,” Lucido said in a statement. “However, when they couldn’t get it done through the Legislature, they go around us and get a dubious approval from the MEDC.

“With the implications in the business tax filings, and the jumping around the state government looking for what they wanted, it is proper for the attorney general to review this matter to see if the law was broken.”

Hammound, who represents the districts where the steel factory is located, said the Legislature and Dearborn residents’ concerns about the plant’s pollution have been disregarded.

“I hope Attorney General Schuette will weigh in on this and argue for greater transparency so that residents and their elected representatives can have a say in these matters,” he said in a statement.

“AK Steel has received several air quality violations from the Department of Environmental Quality since acquiring the Dearborn site — as recently as this February and last October,” Chang added.

“The fact that this corporate tax break comes without any environmental protections or accountability adds even greater insult to the rushed, non-transparent process MEDC used to push through a proposal with questionable legality.

Questions have been raised before about the old MEGA tax credits that now loom as an estimated $9.4 billion tax liability with budget-busting implications.

In early 2015, Gov. Rick Snyder and the Legislature were forced by a midyear budget shortfall to make more than $400 million in spending cuts when companies cashed in more tax credits than anticipated.

The budget crisis prompted the state to renegotiate the MEGA tax credits with its major beneficiaries -- General Motors, Ford Motor Co. and Chrysler -- to lessen the possibility of another unexpected tax credit crunch. But questions were raised about the transparency of the process when the MEDC let GM.refuse to reveal the value of its renegotiated tax credits -- last valued at $2.1 billion in July 2014 -- for proprietary reasons. Both Ford and Chrysler disclosed their renegotiated tax credit amounts.