Michigan Senate Passes $1B Brownfield Tax Incentive Package

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By Alex Ebert

The Michigan Senate voted overwhelmingly in favor of a statewide tax incentive program that seeks to revitalize blighted areas through large private investment.

The Senate sent the set of bills to Gov. Rick Snyder’s (R) desk for signature after a 32-6 bipartisan vote May 9. If signed into law as expected, they would authorize up to $1 billion in income, sales and use tax incentives to large-scale mixed-use redevelopments over the next five years.

“Developers were in a holding pattern—they couldn’t afford to fix someone else’s brownfield,” Sen. Ken Horn (R), the legislation’s sponsor, told Bloomberg BNA. “Now we’re giving them the opportunity to provide this important community service and cleanup.”

Horn said at least three developers told him they would compete for the incentives, which would include income tax breaks on wages paid to in-state workers, income tax for new residents domiciled in the revamped projects and income tax of the individuals employed in the newly renovated facilities. In addition, purchase of some tangible property used in the program’s redevelopment sites would be exempt from the state’s sales or use taxes.

“This legislative package opens the door to new economic development projects that will be truly transformational for communities across Michigan and offers the potential for thousands of new jobs,” Snyder told Bloomberg BNA. “In order to keep on our current path of strong economic and job growth, this measure gives us an advantage over other states who want to compete with Michigan.”

Competition for Incentives

In order to qualify for incentives, projects would have to reach a minimum capital investment adjusted for the size of the community. For example, in Detroit, the qualifying investment minimum would be $500 million. In a community of 25,000, the minimum would be $15 million, according to the Michigan House’s summary of the legislation.

The competition stems from the limited number of projects authorized by the law, and caps put on projects in large urban centers. Only one large city will qualify for the program each year, which means that out of 25 total investments in the law’s lifetime, at least 20 projects would go to communities other than Detroit.

Each project would also need to be mixed-use. This could be a combination of retail, office, residential or hotel uses in a single property or a combination of these uses in a multi-building project.

Together, these aspects of the bill attracted supporters from across the state. More than 50 development groups and chambers of commerce have lent support to the legislation, according to the Michigan Economic Growth Coalition, a sponsor of the campaign to pass the initiative.

“In order for Michigan to compete with our neighbors to attract investment, our state needs the tools to do so and this package of bills is another one of those tools,” Senate Majority Leader Arlan Meekhof (R) told Bloomberg BNA in a statement.

Controversy in Selection, History

Similar Michigan tax incentives withered in 2011. However, with the resurgence of brownfield investment also came a group of vociferous conservatives speaking out against the legislation as both unproductive and legal favoritism.

“SB 111 is a transfer of wealth from hard-working taxpayers to selected special interests,” Rep. Martin Howrylak (R) stated on Twitter. Howrylak called the legislation “crony capitalism.”

“These are political development programs, not economic development ones,” Mike LaFaive, a finance expert for the conservative Mackinac Center for Public Policy, told Bloomberg BNA. “These programs are demonstrably ineffective and unfair too.”

LaFaive has been a vocal critic of the program’s structural potential for favoring wealthy developers to the disadvantage of hundreds of others. The law would require that projects get approval from both local government and the Michigan Strategic Fund, a division of the Michigan Economic Development Corporation.

“It is perfectly unfair giving these incentives to select developers chosen by Lansing politicians,” he said.

Controversy has also surrounded the project due to the names of developers connected with potential redevelopments, and the bad taste left in politicians’ mouths after the Michigan Strategic Fund granted more than $20 million in MEGA tax credits to AK Steel Corp. last month.

“This controversy is really ideological in nature,” Horn said. “Every penny spent is a private person’s money. [The credits are] not a refundable credit like MEGA. None of my constituents will pay anything for this development.”

Favoritism will be diminished because local communities have to first select a project like any brownfield site, he said.

To contact the reporter on this story: Alex Ebert in Columbus, Ohio at aebert@bna.com

To contact the editor responsible for this story: Cheryl Saenz at csa enz@bna.com

For More Information

Text of the incentives package is at http://src.bna.com/oGu

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