Historically, Michigan was a big spender on economic development subsidies. During former Gov. Jennifer Granholm’s eight-year term, the state awarded more than $3.5 billion in subsidies to 508 companies. Her successor, Gov. Rick Snyder, ran on a campaign platform of tax reform, including cutting back on subsidies and reducing corporate tax rates. After taking office in 2011, his administration pushed through massive changes to subsidy programs. Some programs, like MEGA Tax Credits and Advanced Battery Credits, were eliminated, while others were reduced drastically, including film and brownfield programs.
Despite Snyder’s position that cutting subsidies promotes fiscal responsibility, the savings from his subsidy reforms will be greatly surpassed by the revenue losses from the corporate tax rate reductions, which have been estimated at $1.7 billion a year. Moreover, the savings from subsidy cuts are severely limited by the fact that current recipients of programs such as MEGA credits will continue to receive benefits.
Subsidies and fiddling with the tax code have been one of the main ways the state has responded to decades of manufacturing decline, particularly in the auto industry. For several decades, Michigan governors of both parties have failed to mount an effective challenge to the practice of Southern states lavishly subsidizing foreign auto plants.
Instead, Michigan has offered similar subsidies to the Big Three. For example, in 2000 General Motors was offered a $284 million state-local package for a new assembly plant near Lansing, and in 2006 Ford Motor got $151 million in state tax credits in connection with its plans to invest $1 billion in various facilities around the state. In 2009 GM got up to $50 million in tax credits to retain 2,000 employees at its Detroit headquarters.
The state also made an aggressive play to dominate the emerging automotive battery business for electric cars. In 2009 and 2010, Michigan committed some $800 million in tax credits for battery producers, including $100 million each to six companies or joint ventures, including both established players and start-ups (see below). Despite these battery credits being eliminated during Gov. Snyder’s administration, they will still cost the state much revenue for years to come.
Even when the state provides large subsidies, the recipients may hedge their bets about investing in a rustbelt state such as Michigan. Hemlock Semiconductor, a joint venture of Michigan-based Dow Corning and two Japanese companies, was given some $350 million in tax credits to expand in the state. Yet soon after that deal was signed, Hemlock announced a separate new facility in Tennessee (see below).
Of the five major programs we examined in our Show Us the Subsidies report, four have online recipient disclosure; the Renaissance Zone program is still not transparent. Subsidized project locations for three of the four disclosure programs – Brownfields, Advanced Battery and MEGA – are shown on an interactive map. Users can click on the locations to display details such as job numbers and investment totals.
Key Subsidy Programs
|Subsidy Program||Recent Annual Cost||Online Recipient Disclosure||Recipient Disclosure Score*||Job-Creation/Job-Quality Score**||Monitoring/Enforcement Score***|
Brownfield Redevelopment TIF & MBT
a large corporate income tax credit program based on up to 20 percent of the value of investments in blighted contaminated or obsolete properties; revamped in 2011, its annual appropriation was reduced drastically and merged with a replacement for MEGA tax credits
|$45.4 million (FY 2012)||33/100||10/100||45/100|
Film Tax Credits
an expensive program providing corporate income tax credits for up to 42% of film production expenses; criticized as wasteful and for subsidizing some fraudulent activities; revamped in 2011 because of controversy, it is now a capped cash grant program
|$93 million (FY 2012)||68/100||13/100||52/100|
Michigan Economic Growth Authority (MEGA) Tax Credits
an expensive and controversial corporate income tax credit program for companies expanding or relocating in the state; although the program was discontinued in 2011, it will continue to be a fiscal drain on Michigan until 2031
|$116 million (FY 2013)||58/100||63/100||74/100|
Michigan Business Tax Battery Credit
large tax-credit subsidies awarded to businesses seeking to commercialize advanced battery technology for electric cars; although the program was discontinued in 2011, it will continue to be a fiscal drain on the state
|$285 million (FY 2013)||58/100||35/100||48/100|
Renaissance Zone Program
the state’s version of enterprise zones provides a variety of tax breaks for companies located in designated areas
|$97.4 million (FY 2013)||73/100||35/100||43/100|
* The score is derived from the Good Jobs First report Show Us the Subsidized Jobs (January 2014).
** The score is derived from the Good Jobs First report Money for Something (December 2011).
*** The score is derived from the Good Jobs First report Money-Back Guarantees for Taxpayers (January 2012).
Major Subsidy Deals
Advanced battery producers (2009 and 2010)
Seeking to hold onto its traditional strength in automotive manufacturing, Michigan has been using tax credits to encourage the growth of the advanced battery industry for hybird and electric vehicles. In December 2008 Gov. Jennifer Granholm signed legislation providing up to $335 million in refundable tax credits for companies producing next-generation batteries. A few months later, the legislature increased the tax credit pool to $555 million, including a maximum of $300 million for manufacturing facilities.
In April 2009 the state announced the first major manufacturing awards under the program. Tax credits of $100 million each went to: Johnson Controls-Saft Advanced Power Solutions, which planned to partner with Ford Motor; A123 Systems, which was chosen as a supplier by Chrysler; and KD Advanced Battery Group, a partnership of Dow Chemical, Kokam America and Townsend Ventures. The Michigan Economic Growth Authority (MEGA) awarded separate tax credits worth $48.5 million to Johnson Controls, $25.2 million to A123, and $44.6 million to KD Advanced Battery. MEGA also proposed to give another $100 million credit (beyond what the legislature had authorized) to Compact Power, a partnership between LG Chem and General Motors that was also offered a separate tax credit of $25.2 million.
The legislature later approved the additional $100 million credit for Compact Power, and in October 2009 it approved another $100 million credit for Xtreme Power, which plans to produce large power storage batteries. MEGA also awarded Xtreme Power a separate tax credit of $31.2 million. In December 2009 the state legislature approved a sixth $100 million advanced battery manufacturing tax credit for the German company Fortu Powercell. In January 2010 the state gave Ford Motor a $78 million tax credit for agreeing to assemble lithium-ion battery packs in Michigan (it also considered Mexico). In May 2010 the state legislature approved a bill making the advanced battery facilities eligible for Renewable Energy Renaissance Zone status, which would provide additional state and local tax breaks. However, in 2011 the state legislature, at the request of the new Republican governor Rick Snyder, ended the battery tax credit program (though companies that had already been awarded credits would be allowed to make use of them). (Key sources)
Hemlock Semiconductor (2008)
Hemlock Semiconductor was formed in the 1960s as a subsidiary of Dow Corning and later became a joint venture of Dow Corning and two Japanese companies. In recent years its polycrystalline silicon has been in greater demand because of that product’s role in solar energy cells. The company has received a series of state tax credits, infrastructure improvements and local property tax abatements for its growing operation in central Michigan, near Saginaw. When Hemlock announced a $1 billion expansion plan in 2007, the state initially offered an $8.1 million tax credit. The following year, however, the state went all out for Hemlock. To help the energy-intensive company pay its electricity costs, the legislature voted to provide a tax credit worth up to $357 million.
The credit was made fully refundable, meaning that if Hemlock’s tax liability is not big enough to make use of the entire amount, it would receive the difference as a cash payment. State officials hoped that this would help make Michigan a high-tech nirvana, but Hemlock hedged its bet: later in 2008, it announced a new $1.2 billion plant in Tennessee. (Key sources)
Wal-Mart in Michigan
- At least 1 Wal-Mart location has received subsidies worth about $2.4 million in Michigan.
- At least 3 Wal-Mart locations in Michigan have challenged their property tax assessment, recouping about $466,000.
- Many Wal-Mart workers are ineligible for health coverage from their employer or choose not to purchase what is available, because it is too expensive or too limited in scope. These workers often turn to taxpayer-funded health programs such as Medicaid. Michigan is among those states that have not disclosed data on the employers with the most workers or their dependents enrolled in such programs.
For more information, see the Michigan page of Wal-Mart Subsidy Watch.