The Michigan Legislature is considering a trio of bills that would provide more tax incentives for the state's largest and wealthiest corporations.
Collectively, the bills would cost taxpayers at least $300 million, though that figure will likely end up much higher. They would also shift money that could be used to fund road repairs and schools at a time when the state is struggling to find money for each.
The per-job cost to Michiganders is also high — between $33,000 and $500,000 for each position created, and critics say it's unlikely that the state will recoup the costs.
The controversial tax break proposals come at a time when there's growing opposition to corporate welfare. Democratic House Minority Floor Leader Yousef Rabhi questions whether incentives make financial sense, and noted that many of the businesses that previously received credits have left the state, folded, or haven't followed through on job promises.
"If you can't make your business model work unless you get public assistance, then maybe you shouldn't be in business," Rabhi says. "Giving money to corporate bottom lines and shareholders in other states and countries is an unacceptable use of tax dollars."
The proposals include:
• Extending the "Good Jobs for Michigan" incentives through 2024. The $200 million program allows businesses to collect workers' income tax instead of the state. The program allowance would increase to $500 million.
• An expansion of a special incentive for Nevada-based data center Switch, which operates a West Michigan facility. It's worth $373,000 in the first year, though the value could increase by tens of millions of dollars if Switch follows through with its investment plans.
• A similar new incentive for tech companies, like Google and Facebook. The 6-percent sales tax exemption could cost Michigan tens of millions of dollars annually.
Supporters of the Good Jobs program argue that it would create an estimated 15,000 jobs, but critics note it would cost taxpayers over $33,000 per job. However, that figure doesn't include other tax breaks that the companies would seek, so the actual cost to Michiganders is much higher.
For example, Fiat Chrysler is planning to use a Good Jobs incentive worth about $105 million for its proposed plant on Detroit's east side. But it's also seeking a tax-incentive package worth about $340 million. The company claims it will create 4,950 new jobs, which means Michiganders will pay about $68,000 per job.
At that rate, the incentives are a bad deal for taxpayers, says Greg LeRoy, director of Good Jobs First, a nonprofit that tracks corporate welfare. He previously told Metro Times that residents "have to start to worry when the subsidies get so high — five, six figures per job. At that point it's a very fair question to ask if taxpayers will ever break even."
The incentives Switch is using and proposing would come at an even higher cost to Michiganders. Switch has claimed it will invest $5 billion and create 1,000 jobs over its first 10 years near Kalamazoo.
The company in 2015 landed an incentive worth $20 million and created 62 jobs. If the Legislature approves a new incentive worth another $20 million and Switch reaches its investment and job creation goals, then Michiganders will give the company $40 million to create 1,000 jobs — or $40,000 per job. That figure is higher when other tax breaks the company secured are factored in.
Finally, a bipartisan bill authored by Ann Arbor Democrat Rep. Rebekah Warren would create a similar incentive for large data center companies like Google and Facebook. The House Fiscal Agency notes that it's impossible to know how much the Warren incentives will cost taxpayers without knowing the investment level.
However, the law would give a 6% sales tax break for a company that invests at least $250 million and creates 30 jobs. A 6% break on $250 million is $15 million, which means Michiganders would pay $500,000 per job.
Warren didn't respond to a request for comment.
The Warren incentive would pull from the School Aid Fund because 73 percent of sales tax is earmarked for schools. Warren is including a "hold harmless" clause that would require the school fund to be reimbursed with money from the state's general fund, but critics say the legislature doesn't typically follow through on reimbursements. Moreover, diverting money from the general fund takes away dollars from other programs or road repairs.
Rep. Rabhi stresses that point. He says paying for business tax breaks takes money away from improving Michiganders' "quality of life." The state must be an attractive place for talented people to live and invest if it's going to keep businesses here, he argues.
"That means good schools, good roads, good park systems, and — when you turn on your tap, you get clean water coming out," Rabhi says. "We've invested so much money in tax credits that we haven't been able to invest in public infrastructure."
The fate of the bills is uncertain. The Switch bill passed through committee, but there isn't enough support for it in the House, so far. Rep. Warren's bills haven't had a vote in the Commerce and Tourism Committee, and it's unclear if they have the support to pass, while the Good Jobs credit passed Senate committee and is headed for a vote in the full Senate.
The Detroit News reports that Switch spent $22,400 lobbying the Legislature over the first seven months of 2019, and its lobbying team includes former Michigan Democratic Party Chairman Brandon Dillon. Meanwhile, the company is offering lawmakers trips to visit its headquarters in Las Vegas.
The bills' supporters claim businesses won't create jobs in Michigan without the tax incentives. But Bridge magazine highlighted several studies that show that's not true. That includes one survey conducted by the W.E. Upjohn Institute for Employment Research that found incentives were a deciding factor for only between 2% and 25% of firms that receive them.
"In other words, without the incentive, at least 75 percent of the jobs would have occurred in the state anyway," the study's author told Bridge.
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