$12M in corporate tax credits for Southfield auto supplier scrutinized

Beth LeBlanc
The Detroit News

Lansing — Billions of dollars in Michigan's recession-era corporate tax credits are drawing renewed scrutiny four years after they blew a $325 million hole in the state budget and prompted limits on when certain companies could cash them in.

Lawmakers on both sides of the aisle are worried about the impact of tax credits on the state budget, with the Senate minority leader suggesting that they could be tapped to help fix the state's deteriorating roads and bridges.

Federal Mogul

The talk is gaining momentum as the Legislature last week approved a package of bills that would secure roughly $12 million in tax credits for a single automotive supplier but wouldn’t set a precedent for others entitled to Michigan Economic Growth Authority dollars.

In fact, one of the bills’ sponsors said he would like to discuss reining in the way the multibillion-dollar program through the Michigan Strategic Fund is managed.

“It is a hit to the budget,” said Rep. Michael Webber, R-Rochester Hills, who chairs the House Regulatory Reform Committee and sits on the House Tax Policy panel. “These were already given to these companies; now, as they come forward, we need to factor them into the budget.”

In November, the Michigan Department of Treasury estimated the outstanding tax credits guaranteed by the state were worth about $6.3 billion through 2032. It is down from $9.4 billion in February 2015.

Senate Minority Leader Jim Ananich, D-Flint, two weeks ago announced a plan to end the program early by winding down the payouts over the next three years, noting the companies receiving the funds have since begun to prosper but are still receiving tax money. He also criticized the secrecy surrounding the payouts, figures the state has claimed as proprietary.

“We need to get our arms around exactly how much money the state is slated to give out because some of these MEGA deals were negotiated behind closed doors, but we know the number is in the billions — that’s billions with a B,” Ananich said.

The Michigan Economic Development Corporation did not return a request seeking comment.

But supporters have said in the past that the tax credits helped save Michigan manufacturing jobs during an unprecedented economic meltdown. Abruptly ending them before companies, including the Detroit 3 automakers, could cash them in would jeopardize current jobs and undermine the state's credibility when it negotiates future tax incentives with companies, backers contend.

The MEGA refundable tax credit program was created during Republican former Gov. John Engler as a financial incentive to lure jobs from out-of-state corporations and convince Michigan companies to expand here. Toward the end of the Engler administration, officials started using the credits to retain jobs, something Democratic former Gov. Jennifer Granholm’s administration expanded to try to stem massive job losses during the Great Recession.

A 2015 Detroit News analysis found that Chrysler, Ford Motor Co. and General Motors Co. were entitled to refundable tax credits worth nearly $4.5 billion if they retain more than 86,000 jobs in Michigan through 2032.

Republican former Gov. Rick Snyder ended new MEGA agreements in 2012, but the state is obligated to make payouts through 2032.

When one unnamed company in December 2014 cashed in two credits worth $224 million, it helped push Michigan's government into an unanticipated deficit and forced Snyder to make $325 million in spending cuts.

In 2015, Chrysler, Ford and GM agreed to lower caps on the maximum value of their MEGA credits they could cash in annually to lessen the burden on future budgets, but some lawmakers would like to go further.

Webber’s bill and two other tie-barred bills given final approval last week would allow for the transfer of some remaining MEGA credits from Federal-Mogul LLC to Tenneco Inc., which acquired the Southfield-based auto parts company for $5.4 billion in October.

The new company under Tenneco plans to split next year into two publicly traded companies, said Steve Blow, a spokesman for Tenneco. The after-market company Driv Inc. will be located in Lake Forest, Illinois; and a combination power train, clean air business will retain the Tenneco name and maintain headquarters in a new building in Northville, Blow said. 

He declined to comment on the details of the MEGA tax credits until the bill is signed by Gov. Gretchen Whitmer. 

Initially awarded in 2004, Federal-Mogul’s remaining tax credits totaled roughly $40 million at the time of its acquisition, Webber said. The legislation allows the tax credits to transfer to Tenneco, but at a lower $12 million cap.

“We tried the best we could to clarify in our bill that we passed in the House that it was really just specific to that Tenneco-Federal-Mogul merger and tried to limit it to $12 million,” Webber said.

Even so, one of the bills was clarified further in the Senate to stress the applicability to just the situation in Southfield, leading to the one-day lag for final legislative approval of the last of the tie-barred bills. The bills were supported by Tenneco, the city of Southfield, the Michigan Manufacturers Association, the Michigan Chamber of Commerce and the Oakland County Economic Development Corp.

The Michigan Environmental Council opposed the bill package.

Ananich’s legislation would roll back the MEGA program over three years, capping the total value of payouts at $200 million the first year, $100 million the second year and ending the payments completely in the third year.

Republicans control the Senate and the House, so the proposal faces an uphill battle in the business-friendly chambers. Whitmer has backed targeted incentives while publicly advocating for accountability and transparency on tax incentives.  

“While we’re debating where we’re going to have to make painful cuts in the budget, our state is sitting on a pot of money being held hostage by corporate accountants looking for a taxpayer-funded windfall,” Ananich said. “For a decade, big corporations have received break after break, and it’s time for them to start paying their fair share.”