A state Senate committee opens hearings tomorrow on Governor Rick Snyder's tax reform proposals. Altogether, two dozen tax breaks could disappear if the governor's plan is adopted. Ending the tax exemption for pensions has gotten a lot of attention. But, the plan would also largely eliminate the use of tax breaks that encourage the re-use of old factories and historic buildings.
In downtown Lansing, construction workers put finishing touches to a brand-new parking garage that will serve people working in a new office complex. Many of the people who use the garage will be workers employed by an insurance company that's moved into a former power plant. It has been redeveloped into a brick-and-glass office complex overlooking the Grand River.
The people who work in the complex can walk along the river to go eat and shop at a nearby farmers market. It has a small restaurant with a patio. It's all helped spark more retail and residential development nearby.
Bob Trezise of the Lansing Economic Development Corporation says the project has helped change the downtown area.
"If we stood here five years ago, four years, there wasn't much to look at," he says. "We had a dilapidated City Market. We had a power station 14 stories tall that has been vacant for decades. Nobody knew what to do about it. The properties around here were horribly contaminated. There was contaminants leaking into the river, our water supply. The riverwalk was deteriorating and, most importantly, Rick, we wouldn't have seen any people."
Trezise says fixing all that would not have been possible without a large and complex package of incentives, including long-term tax breaks for redeveloping abandoned industrial sites and historic properties.
Those tax breaks are among the ones headed for the scrap pile under Governor Snyder's tax reform plans.
Paying Down The Road
The governor says the problem with aggressively using tax breaks as an economic development tool is it's a buy now-pay later approach to job creation. And he says taxpayers are paying today for the ramped up use of credits since the 1980s.
"Literally, if you look at our tax credit model, literally we have $2 billion dollars over the next few years that we have to pay for from the past," he says.
At the same time, the state has a deficit of about $1.5 billion dollars and has been underfunding pensions and other long-term commitments. Snyder says that's not sustainable for Michigan.
"If you have states continuing to use the incentive model and playing that game, at some point, people should be asking the question, are they going ultimately have to change their tax system, raise their tax rates to pay for these things? And, if you're a business, that could come out of your hide later," he says.
Cash Up Front
But the governor does not want to take Michigan entirely out of the incentive business. Snyder's alternative is to largely replace redevelopment tax breaks with a pay-as-you-go system. Soon, it's expected Snyder will ask the Legislature to appropriate money to a fund that will be controlled by the Michigan Economic Development Corporation. Instead of tax credits, the state would offer grants, cash up front, for projects deemed worthy. Governor Snyder says the Legislature should compare its priorities, decide how much it values redevelopment, and then put that money right into the state budget.
"But, that amount will be a lot less than what the state can promise in tax breaks," says Nancy Fineman, with the Michigan Historic Preservation Network. "The tax credits have worked. They've worked in Michigan. We see them working in 31 other states. Why fix something that isn't broken."
Fineman says less money, whether its grants or tax breaks, earmarked for redevelopment means fewer projects. So, she says, environmental, preservation and conservation organizations are pushing for more money, or some kind of hybrid approach if the state is going to edge away from using tax policy as an economic development tool.