Michigan considers more tax breaks for businesses; critics cry 'cronyism'
Lansing — A business-backed push for expanded tax breaks is driving a fight over how to continue Michigan's economic growth and whether influential job creators are paying their fair share.
One proposal would expand a 2-year-old program that's geared toward attracting large development projects by letting companies keep the income taxes of their employees. The other would let a Nevada-based business get more tax breaks for a 4-year-old West Michigan project.
The economic development incentives are creating unusual allies in the GOP-controlled Legislature, with Democrats and Republicans on both sides of the issue.
Sen. Ken Horn, R-Frankenmuth, the sponsor of one of the bills, said the expanded incentives would attract more economic development to Michigan. The incentives in his bill are available to anyone who wants to create a large number of jobs in Michigan, he said.
"If you want to come to my town and create 300 jobs with a new plant, how can I help you?” Horn asked.
But the way to stimulate the state's economy is to invest in roads, communities and public schools, not to provide targeted giveaways to powerful companies, said Rep. Yousef Rabhi of Ann Arbor, the House Democratic floor leader.
“These are corporate cronyism at its finest," Rabhi said of the new proposals.
The fate of the development incentive plans could be decided by Republican House Speaker Lee Chatfield, who opposed the original laws on both programs, and Democratic Gov. Gretchen Whitmer, who used existing incentives to win a new Chrysler factory in Detroit. Whitmer is still reviewing the legislation, a spokeswoman said.
How incentives would work
Horn's proposal would extend the Good Jobs for Michigan program, which allows businesses behind large projects to capture income taxes paid by new hires through deals reached with the state.
When the Legislature originally created the program in 2017, lawmakers capped the revenue losses at $200 million and scheduled the program to halt at the end of this year. The new bill would increase the cap on revenue losses to $500 million and extend the program's sunset to 2024.
The income tax incentive has already been "instrumental" in securing five projects and plans for 8,300 new jobs, said Jeff Mason, CEO of the Michigan Economic Development Corporation, a quasi-state agency. It helped close the deal for Fiat Chrysler Automobiles NV’s planned $4.5 billion investment in Detroit, Mason said.
Supporters have suggested the incentive could also be used to help lure Indian automaker Mahindra Automotive North America Inc. and 2,000 jobs to Flint.
Tyler Rossmaessler, director of economic development at the Flint & Genesee Chamber of Commerce, wouldn't confirm that the Good Jobs incentive had been discussed with Mahindra. But he said he's been working on the biggest development deal of his career and the incentive was "the most powerful tool in our toolbox in Michigan."
Senate Minority Leader Jim Ananich, a Democrat whose district includes Flint, is opposed to the current proposal to extend the Good Jobs program. The state has already offered an incentive package to Mahindra, and the company is reviewing it, he said.
Michigan is seeing collapsing infrastructure, "hundreds of millions of dollars in water problems" and under-funded schools, Ananich said.
“Before we talk about incentivizing jobs at the peak of the market, I think we need to make sure we’re getting the basic blocking and tackling done," Ananich argued.
Michigan's unemployment rate is 4.2%, but economists are worried about a possible national recession starting in 2020.
Michigan K-12 education spending has increased to reach a record $15.1 billion School Aid Fund budget for this year. But Michigan ranked last among all states in revenue growth for schools since voters approved property tax and finance Proposal A in 1994, according to a report by Michigan State University researchers.
Another bill advancing in the Legislature would secure additional tax breaks for a data center project in Gaines Township.
In 2015, lawmakers approved sales and use tax exemptions for Nevada-based Switch's project to revamp the former Steelcase pyramid building near Grand Rapids. The company, which planned to create 1,000 jobs by 2026, reached deals with the state for other tax benefits.
Natalie Stewart, vice president of government and public affairs for Switch, told a Senate committee that the company understood it would also be exempt from certain taxes benefiting schools. But those taxes were later levied.
The new bill would exempt the company from those taxes, amounting to an estimated $242,000 in a year, according to the most recent analysis from the House Fiscal Agency.
The project has already spurred $150 million in capital investment, Stewart has told lawmakers. Supporters argue the additional exemptions are needed to make the data center successful. They say the project is already boosting the Grand Rapids area and spurring air travel and hotel stays.
“It would have a significant negative impact if Switch were not there," Alexa Kramer, director of government affairs for the Grand Rapids Area Chamber of Commerce, told a House committee.
But Ron Koehler, assistant superintendent of the Kent Intermediate School District, said the district is concerned about companies like Switch avoiding their tax burden. Koehler cited data from the Senate Fiscal Agency showing that business tax collections amounted to $150 million, or 5%, of the total $2.8 billion state tax revenue for September 2019.
“The people of Michigan paid the other 95%," Koehler said. "I would think they would want the employers to pay their fair share.”
Interest group battle
The bills have created unusual splits among among influential interest groups on both sides.
The Business Leaders for Michigan, an organization of executives in the state, is backing the Good Jobs program. Its super political action committee reported giving $25,000 in October 2018 to a nonprofit organization called the Peninsula Fund and another called Michigan! My Michigan!
The Peninsula Fund's board featured House Republican staffers. Senate Majority Leader Mike Shirkey, R-Clarklake, has been involved in raising money for Michigan! My Michigan!, according to an online fundraiser notice.
The PAC supports candidates who back the group's strategy for making Michigan a top state for jobs, personal income and a healthy economy, said Anna Heaton, spokeswoman for the Business Leaders for Michigan. Large-scale economic development that could be spurred by the Good Jobs program is critical for the state's further growth, Heaton added.
The conservative Michigan Freedom Fund is opposing the legislation. Its PAC, the Michigan Freedom Network, spent $268,797 benefiting Republican candidates in 2018. Republicans control both the House and the Senate.
The Michigan Chamber of Commerce and the National Federation of Independent Business Michigan haven't taken official positions on the Good Jobs extension. Charles Owens, state director of NFIB Michigan, said his organization's members are divided on the matter. NFIB Michigan is opposed to the Switch legislation.
Switch reported spending $22,400 lobbying the Legislature over the first seven months of 2019. Its lobbying team includes two multi-client firms based in Lansing, one of which features former Michigan Democratic Party Chairman Brandon Dillon.
The company has also offered to have lawmakers visit its headquarters in Las Vegas. Rep. Joe Bellino, R-Monroe, said about a dozen people from Michigan visited the headquarters in 2017. Bellino said he didn't know who paid for the trips, but he said he declined the offer.
"I don’t drink... and I wasn’t sure Vegas was good for me," Bellino said. "So I didn’t go.”
Switch has a longstanding practice of welcoming and encouraging business leaders, public officials and members of the public to tour any of its data center locations in Michigan, Nevada and Georgia, Stewart said.
"These visits provide the opportunity to see first-hand the impacts of our sustainable technology ecosystems in each community," she said.
Switch is "spending a lot of money" trying to influence the Legislature and win a tax carve-out that's not available to other data centers, said Rep. Steven Johnson, R-Wayland.
"That’s not how politics is supposed to work," Johnson said.
The Good Jobs bill is awaiting a vote in the Michigan Senate. It would then have to go to the House. The Switch bill passed the Senate and is awaiting a vote in the House.
Chatfield, R-Levering, will help decide whether the bills get through the House. He opposed the original bills that created the Good Jobs program and gave tax breaks to draw Switch to Michigan. Supporters of the new bills hope to win him over.
Chatfield is deferring to his committee chairs to work on the bills and vet the final product, spokesman Gideon D'Assandro said.