MEDC's high-tech business tax credits, film incentives would be phased out under Rick Snyder plan
Film industry incentives and high-tech business tax credits distributed by the Michigan Economic Development Corp. would be eliminated as part of Gov. Rick Snyder's proposal to restructure the state's business tax structure, according to a Detroit News report.
Snyder wants to replace the controversial Michigan Business Tax and replace it with a flat 6 percent corporate income tax that would apply mostly to the state's bigger companies. He's said that would make the business tax structure more efficient and would be the equivalent of a $1.5 billion tax cut.
At the same time, Snyder reportedly wants to phase out MEDC's Michigan Economic Growth Authority (MEGA) tax credits and the state's film industry incentives. Critics have said the MEGA incentives are too costly and that the companies that receive them often don't add the number of jobs they promised.
For example, Google got MEGA tax credits in 2006 after promising to create 1,000 jobs in Ann Arbor by 2011. Today, the company has only 250, though the company said earlier this week that it plans to continue adding employees this year.
Eliminating the MEGA credits would help the state reduce a $1.8 billion budget deficit for 2011-12, though it's unclear how quickly the tax credits would be phased out. It's also likely that some business tax credits would survive -- including the state's battery tax incentives, for example, which Snyder has said he supports.
Companies that have already received MEGA tax credits would not lose them under the Snyder proposal, the Detroit News reported. Companies with locations in the Ann Arbor area that have received MEGA credits in recent years include firms like Barracuda Networks, Arbor Networks, Sakti3, Aernnova, MyBuys, NetEnrich, Cayman Chemical, Quantum Signal, Grand River Interactive, AVL Powertrain, Atwell-Hicks, ForeSee Results and GDI Infotech.
During his State of the State address last week, Snyder outlined a reconfiguration of the MEDC and said he wants the agency to focus on assisting local economic development groups in providing various business services.
During former Gov. Jennifer Granholm's eight-year administration, the MEGA board distributed more than $3.5 billion in tax incentives to more than 500 companies, according to a list of tax credits MEDC provided to AnnArbor.com in September.
Studies by the Anderson Economic Group and the Mackinac Center for Public Policy concluded that the MEGA program has been a waste of government resources, while a competing study by the Upjohn Institute said the tax incentives are worthwhile.
Proponents of the MEGA tax incentives pointed out that companies that received the credits only got tax relief if they actually hired the workers they promised to hire. The state does not cut a check for companies when they make their original hiring promise.
The MEGA tax incentives favored companies in specific industries, including advanced manufacturing, alternative energy and life sciences.
But Snyder has said he believes the state needs to stop "picking winners and losers" and instead make the state's overall business tax lower and simpler. During the campaign, he singled out the MEGA tax credits as an example of a place where cuts could be made.
"If you’re a business person, you like to have certainty. The fairer, simpler, more efficient system you have, the better for business in general," Snyder said in an interview earlier this month. "Now, the people who might be losing those things may not share that same opinion. But if you talk about it in a general sense, clearly that’s the direction I believe most businesses would want to go. And as a former business person with business in my DNA, I can tell you that’s sure what I would want."
Meanwhile, the state spent about $100 million in 2009-10 on its film industry incentive, which provides a cash rebate of up to 42 percent of a production company's spending in Michigan. As a result of film productions, the state got an influx of $10.3 million in additional taxes, according to a Senate Fiscal Agency study in September. Film companies directly hired 355.5 full-time workers in 2009, activity that resulted in a total of 1,542.2 overall full-time jobs in Michigan, the agency estimated.
Although the film incentives result in a net loss in tax revenue, advocates argue that the job creation and the film industry's attractiveness to young people made the incentives worthwhile.
In an interview earlier this month, Snyder indicated that he wasn't looking to remove the incentives from film companies that have already made investments in Michigan.
"I want to give them an opportunity to succeed given the capital investments they’ve made," Snyder said. "But I believe there should be opportunities to be more efficient than we are today on how we manage that program."