Study: Michigan outpaces neighboring states on business incentives

new study released today finds Michigan’s array of tax breaks and other incentives offered to businesses and developers in the state are generally well above the average in the country.

The findings could add fuel to the current legislative debate over proposed economic sweeteners offered in a bid to boost urban renewal and job growth in Michigan.

The study by the W.E. Upjohn Institute for Employment Research found that Michigan's total incentives in 2015 were generally higher than its immediate neighboring states.

In Ohio, during the same time period, the value of economic incentives were 49% lower. Similar outlays in Illinois and Wisconsin were also substantially lower compared with Michigan, according to the study.

Indiana, however, offered economic incentives worth 29%  more than those provided in Michigan. The Upjohn Institute is a nonprofit, nonpartisan research organization based in Kalamazoo.

Upjohn's national study of government spending and tax breaks over 25 years comes as the Michigan Legislature debates a package that could provide hundreds of million of dollars overall in new tax incentives for certain major projects and brownfield redevelopments.

Last year, the packages died in the Republican-led House when members became wary of tax incentives used as a means of economic development. This year, when the issue was revived, it has continued to struggle for political support in Lansing.

The Michigan Senate quickly passed the brownfield redevelopment bills with bipartisan majorities late last month, calling them the right solution for struggling cities.

“What we’re trying to solve is the problem of blighted properties in communities all over the state,” said state Sen. Ken Horn, R-Frankenmuth, who is a sponsor of the package. “And this does the trick.”

He said the only objections to the bills in the House have been purely ideological from representatives who believe the incentives are a kind of corporate welfare program. It’s an argument that has also been expressed by Gov. Rick Snyder, who has been trying to do away with these kind of economic incentives in favor of a more level playing field when it comes to taxes.

The top priority for the House Republican leadership this year was to give a tax break to individuals through a cut in the state’s 4.25% income tax, after the business community got a big tax break early in Snyder’s administration.

When that tax cut proposal fell short last month, dying on a 52-55 vote, a tax break for business is unlikely to come up anytime soon, said Gideon D’Assandro, spokesman for House Speaker  Tom Leonard, R-DeWitt.

And that’s a shame, said Senate Majority Leader Arlan Meekhof, R-West Olive.

“We need to put tools in our tool box that give us the best ability to be competitive to draw jobs or expand jobs here,” he said.

The new database and accompanying report compiled by Upjohn Institute senior economist Timothy Bartik is billed as providing the most comprehensive look to date at state and local incentives to attract  business locations or expansions.

“These findings suggest that incentives should be better evaluated to rein in costs and improve targeting,” Bartik said. “For example, greater targeting on high-wage businesses will not only offer higher wages to state residents, but the greater purchasing power of workers will result in a greater multiplier boost to state employment."

According to Upjohn, Michigan’s incentives were already high in 1990, and have increased by 16% from 1990 to 2015. Michigan’s incentives, however, were also significantly cut in 2012 and 2013 to the current levels, the study found.

Michigan’s incentives have no relationship to an industry’s wages, according to the study. The state's incentives are also statistically significantly lower for industries with higher research and development spending.

A spokesman for the state's economic development arm, the Michigan Economic Development Corp., said he did not have an immediate comment about the study's conclusions pending a review of the full report.

In addition to Michigan, the Upjohn study looked nationally at government spending and tax breaks between 1990 and 2015. Researchers found state and local governments more than tripled the incentives — mostly tax credits — they offered businesses in hopes of spurring economic growth.

By 2015, those incentives totaled $45 billion. But a database on incentives suggests these policies are not as effective as they could be. The database tracks job creation tax credits, property tax abatements, investment tax credits, research and development tax credits, and customized job training.

“For too long, researchers and policymakers have lacked reliable information on how much incentives cost and how their usage varies from place to place. This important database helps fill that information gap,” said Josh Goodman, an expert on tax incentives at the Pew Charitable Trusts, which helped fund this work.

Contact Matthew Dolan: 313-223-4743 or msdolan@freepress.com. Follow him on Twitter @matthewsdolan.

© 2017 Detroit Free Press


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