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Posted on Thu, Feb 24, 2011 : 5:55 a.m.

Gov. Rick Snyder should look to recent history for direction on tax incentive cuts

By Rick Haglund

Remember Willow Run?

Either Gov. Rick Snyder doesn’t, or he’s convinced he’ll succeed where former Gov. John Engler’s plan to eliminate business tax incentives failed.

Twenty years ago, General Motors pitted the Willow Run assembly plant near Ypsilanti and another in Arlington, Texas, in an eight-week, winner-take-all death match.

GM said it didn’t want state financial incentives, and Michigan didn’t offer anything specific. But Texas, led by then-Gov. Ann Richards, tilted the playing field by tossing $30 million worth of incentives into the battle.

Not surprisingly, GM decided on Feb. 24, 1992, to keep open Arlington and close Willow Run, eliminating 4,000 high-paying jobs during a stinging recession.

Earlier, Engler eliminated most state business tax incentive programs in the belief that lower taxes and fewer business regulations would make costly incentives unnecessary.

But after the Willow Run defeat, Engler propelled Michigan to the front of the pack in the state incentives race.

He and the Legislature established some of the most lucrative tax incentive programs in the country, including Michigan Economic Growth Authority, alternative energy and brownfield tax credits.

Former Gov. Jennifer Granholm piled on more business tax credits, including those for film production and advanced battery production.

Snyder’s bold budget proposal would eliminate all those credits by replacing the complex Michigan Business tax with a simpler 6 percent corporate income tax.

The governor, as did Engler, is betting a steep business tax cut ($1.73 billion by 2013 including $500 million in tax credits already awarded) will be enough to attract new business investment.

Snyder’s budget allocates $50 million next year to the Michigan Economic Development Corp. to close deals. But that’s just 23 percent of the $220.9 million companies claimed in MEGA and brownfield credits alone last year.

“Our biggest concern is the amount of money available,” said John Avery, executive director of the Michigan Economic Developers Association. “What do you tell a company when there’s no money left?”

But Avery says his association, which includes local economic developers, supports Snyder’s effort to simplify the tax code.

MEDC President Mike Finney insists that Michigan is not unilaterally disarming again in the economic development war, as many claimed it did in the early years of the Engler administration.

“The Michigan Economic Development Corporation is not disarming,” Finney said on the MEDC’s website. “We will replace our complex incentive-based way of doing economic development with a restructured tactical toolkit, built on the foundation of a simple tax.”

One site selection specialist told me Snyder’s business tax cut likely won’t be large enough to overcome other negative factors of doing business in Michigan, including high wages and the state’s big-labor reputation.

“Without these incentives, Michigan communities will simply not be able to compete,” said Ron Pollina, president of Pollina Corporate Real Estate Inc. in Chicago.

Ron Kitchens, president of Southwest Michigan First, a local economic development agency in Kalamazoo, says all tax incentives should be re-evaluated for effectiveness.

“We’ve had gangbusters incentives and we still lost jobs,” he said.

If the Legislature approves Snyder’s tax plan, Kitchens says there likely will be a “catalytic event” in the next four years that will force a new debate on the value of incentives.

Remember Willow Run?

E-mail Rick Haglund at Haglund.rick@gmail.com.

Comments

John Q

Fri, Feb 25, 2011 : 1:21 a.m.

"All one needs to do is look at GM, Ford, and Chrylser to see if tax incentives work. All three receive huge incentives and tax abatements from the State of Michigan. None of these companies are adding jobs and any rate that is significant even after chalking up huge profits." You really think this is a good example? All three companies have made major investments in the state over the past 10 years. I'm not a fan of tax incentives but the Big Three have put big dollars back into the state.

wereintroubl

Thu, Feb 24, 2011 : 10:25 p.m.

Good article Rick, and that was a sad day for Michigan. While I do believe there is some waste with tax credits, you cannot throw the baby out with the bathwater. Unless Michigan is going to aid large manufacturers with elimination of personal property taxes, many of these manufacturers will see this as a tax shift. A good middle ground solution would be to limit the credits to $150-$200 million a year, and only offer them to employers who create/retain 500 jobs or more.

bugjuice

Thu, Feb 24, 2011 : 3:02 p.m.

Bureaucratic Buzzword Alert! "The Michigan Economic Development Corporation is not disarming," Finney said on the MEDC's website. "We will replace our complex incentive-based way of doing economic development with a restructured tactical toolkit, built on the foundation of a simple tax." For the uninitiated, what Finney is actually saying is: "The Gravy Train is on the tracks. Get on board for your free money! No results necessary!"

Dennis H

Thu, Feb 24, 2011 : 2:55 p.m.

All one needs to do is look at GM, Ford, and Chrylser to see if tax incentives work. All three receive huge incentives and tax abatements from the State of Michigan. None of these companies are adding jobs and any rate that is significant even after chalking up huge profits. In fact, GM recently called China "It's Crown Jewel". Has anyone asked these companies what incentives they are receiving from China, Mexico, South America, etc. to create jobs in their countries? By the way, these huge profits were earned using a unionized workforce. A significantly reduced workforce. So much for the "Big Labor is the problem" thoughts. Union workers are among the most productive workers in the world, with some of the "Best in Class" Quality. You only need to look at J.D. Powers report to see this. I'd put the Michigan workforce, both unionized and non-union up against any other workforce in the world.

Stephen Landes

Thu, Feb 24, 2011 : 2:41 p.m.

Creating a business friendly environment is the role of the state -- simple, low business taxes and efficient permitting processes are essential. If other non-government factors like our "big labor" reputation and high wage cost are deterrents why expect government to fix those? "Big Labor" and employees unrealistic expectations are going to have to change and there is nothing that the government can do to make that happen.

DonBee

Thu, Feb 24, 2011 : 1:21 p.m.

And we threw (literally) billions of dollars in tax incentives from the state and local level at companies. Most NEVER did what they promised they would do. Don't believe me? How about Google's "We will have 1000 jobs in Ann Arbor" - Google has broken 250 but not the 300 level in jobs. Most are low wage telemarketing jobs, not high technology high paying jobs. How about Pfizer? The list of broken promises is long. The more important thing is to reform the laws around work rules, so that we can compete with the likes of Tennessee, Texas and other states. Fix the regulations, so they make sense to an outside company. Simplify rules so they can be understood by a businessman, and don't requires a room full of lawyers. If you really want incentives, fine - here is an idea. Take the non-executive payroll in the state of Michigan, subtract last year's payroll. If the non-executive payroll in the state went up and the full time head count went up, offer a percentage of the difference year to year back to the business, any business in the state. Now the incentives have a direct link back to jobs. Then remember what that new high level was, so if layoffs happen in a couple years and then re-hiring, we don't pay twice for the same jobs. But fixing regulation, and work rule laws in this state will go farther to building businesses in the state than incentives.

murph

Thu, Feb 24, 2011 : 3:43 p.m.

Of course, the incentives are performance-based: Google's incentives were conditional on their hitting employment targets. You present this as if they were written a big check on nothing but a handshake promise, and made off with the money, which is dishonest--in reality, State incentives were committed to Google *if and only if* they hit job targets, on a sliding scale, with the full incentive package kicking it at the 1,000 mark.

Townie

Thu, Feb 24, 2011 : 12:37 p.m.

I couldn't agree with Ron Kitchens' remark -- there needs to be an ongoing, public audit of jobs created. We've been down this ridiculous 'tax cuts automatically produce jobs' meme path too many times already. If it works then there should be clear evidence of it. If not, then we need to stop handing over our tax dollars to big corporations so they can move jobs overseas. Remember who $1 trillion in tax cuts from the Bush administration was supposed to produce jobs, prosperity? It didn't and all we have now is a huge deficit (that the Republicans now blame on Obama).

local

Thu, Feb 24, 2011 : 1:57 p.m.

Agree 100%. Giving cuts does NOT guarantee job creation. In fact, I am friends with a small business owner who loves this idea of cutting taxes and is blatantly honest when he says that he won't hire more people. His idea is to stockpile money from years of losses on the back of Snyder's plan. His plan should include tax cuts to companies that show growth and hiring. If you show that you are helping to grow Michigan, you get the cut. Otherwise, no cut offered. If Snyder could guarantee jobs from tax cuts to business, I would be on board. But he can't guarantee that, so it is hard for me to support his plan.

A2Since74

Thu, Feb 24, 2011 : 12:21 p.m.

Snyder is taking the opposite tack to Engler with regards to taxing pensions. As s I recall, Engler exempted pensions - at least the private ones - from state income taxes up to a certain level.