Michigan could provide up to $250 million in annual tax incentives to attract larger-scale business expansion under fast-tracked legislation backed by Gov. Rick Snyder, who generally has been skeptical of such breaks.
Steve Arwood, CEO of the Michigan Economic Development Corp., told lawmakers Tuesday that the state's economic "fundamentals" are strong, but "this is a competitive game" and Michigan cannot afford to miss deals that other states are aggressively seeking.
The bipartisan bills , which were approved unanimously by a Senate committee and were expected to win Senate approval later in the day, would authorize the Michigan Strategic Fund to allow qualified companies to keep a portion of income tax withholdings for 10 years. The businesses would have to create at least 500 new jobs or, if they pay a wage that is at least 125 percent of the national average wage, at least 250 jobs.
The move comes more than a year after the Republican governor and legislators ended cash incentives for the movie industry and were forced to unexpectedly cut spending because companies began redeeming larger-than-expected refundable tax credits awarded under the state's previous economic development program. Michigan stopped issuing new business tax credits beginning in 2012 under a tax overhaul — instead favoring direct cash grants and loans — but is still liable for old ones worth billions of dollars.
Arwood said the legislation is a "very responsible approach" with a $250 million annual cap on foregone tax revenue, and is intended to be a "limited-use" program when the state needs "something extra" for large projects.
"The jobs would not be here without the incentives," said Sen. Jim Stamas, R-Midland, a sponsor of one bill. "I truly believe the package of bills will put Michigan at a more competitive advantage in attracting new jobs while being very transparent."
He said nearby states such as Ohio and Indiana offer incentives worth up to seven times more, and Michigan is among just two states with a corporate income tax that provides for no tax credit or abatement program.
James Hohman, assistant director of fiscal policy at the Mackinac Center for Public Policy, a conservative think tank in Midland, criticized the new bills and noted that lawmakers have become more suspicious of such incentives.
"The justification for business subsidy programs have always been on thin ice and Michigan's spending has a dubious record," he said in an email. "It gives lawmakers the ability to spend taxpayer dollars supporting the businesses of their choosing, with little accountability for the results. We should rescind the programs we already have, not add more of them."
Another bill passed by the Senate Economic Development and International Investment Committee would change Michigan's current incentives to let businesses in border counties count jobs filled by out-of-state residents.
The GOP-controlled Senate on Tuesday also planned to pass bills pushed by Detroit businessman Dan Gilbert and local economic development agencies that would allow developers to keep new sales and income tax money generated from developing future "transformational" projects on contaminated brownfield sites. The tax capture would be capped at $50 million annually.
Sen. Ken Horn, R-Frankenmuth, said the "urban renewal" package — which does not yet have Snyder's endorsement — will be changed in the House, but he wanted to move it forward because the two-year legislative session is almost over.
"The developer puts the key in the door and we just help turn that key," said Horn, a bill sponsor. "The developer still has to open the door and every penny is still the risk of the developer. ... I can't think of any better way to get people and jobs back into downtown areas."
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