House and Senate Democrats unveiled a jobs plan today that would give steep preferences to Michigan-based businesses seeking state contracts.
One bill would give Michigan companies an 8% price advantage when bidding on state contracts, meaning that if an out-of-state firm bid $1 million for a job, the in-state firm could win after submitting a price that was $80,000 higher.
Another bill would give a "second chance" to Michigan companies that bid on state contracts but are underbid by out-of-state firms. After the first round of bidding is over and the prices are disclosed, the Michigan firms would have 30 days to match or undercut the prices submitted by out-of-state firms.
Democrats supported Republican-sponsored legislation passed this month to provide significant tax incentives to businesses that create a significant number of jobs that pay average or above-average wages.
But it is "even more important for us ... to make sure we are supporting the businesses that are currently here," said House Minority Leader Sam Singh, D-East Lansing.
Close to 25% of about $32 billion in state contracts went to out-of-state firms, according to a 2013 study.
The Virginia-based Institute for Public Procurement, an association of government procurement officials, does not support preference-based purchasing. It outlined the pros and cons of such a program in a 2015 report.
Advantages can include assisting, protecting and improving the local economy and businesses, and keeping tax dollars spent on government contracts in the local area, the report said.
Disadvantages include increased costs for local taxpayers, limited competition, reduced incentive for local businesses to provide the best value for the dollar, complicated purchasing processes and potential problems with local businesses competing on an equal footing in other states, the report said.
Sen. Curtis Hertel, D-East Lansing, said states such as Ohio and Oklahoma already offer similar incentives, and it's time for Michigan to make sure "our hard-earned tax dollars are not going to create jobs in other states."
For example, the Pure Michigan magazine is printed in Iowa, he said.
Charles Owens, state director of the National Federation of Independent Business, said most of the small businesses in his organization don't bid on state contracts, but they are taxpayers. He didn't want to comment on the specifics of the bills without studying them, but said: "I doubt our members, and for that matter, the taxpaying public, would be enthusiastic about a bill that would make sure they always pay 8% more than they otherwise would for state services."
House Speaker Tom Leonard, R-DeWitt, has not yet studied the bills and had no comment, spokesman Gideon D'Assandro said.
About half the states, including Michigan, give some form of preferences to local firms in state contracting, according to a 2012 survey by the National Association of State Procurement Officials.
But Hertel said Michigan's major program — which awards the contract to an in-state firm if its bid is essentially equal to one from an out-of-state firm — is almost never used because that situation almost never arises.
Another bill in the package would require the state to publish online how many jobs are created by each state contract and what wages those jobs pay.
Michigan's unemployment rate was 4.2% in May. That's the lowest rate recorded in the state since December 2000. However, today's labor force and employment levels are significantly below 2000 levels.
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