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Original article URL: http://bridgemi.com/2017/01/snyder-im-warming-up-to-business-incentives/

Business Bridge

Snyder: I’m warming up to business incentives

LANSING — Gov. Rick Snyder said he is warming to proposals that would create state tax credits for business attraction and redevelopment, despite the fact that he generally doesn’t agree with the idea of incentives.

Snyder, in a year-end interview this week with Bridge, said he became more supportive of bills that died at the end of the legislative session in December after he met with incentive proponents, including Detroit developer Dan Gilbert, and encouraged them to cap the amount of state resources that could be used in a single year.

Two packages of bills would capture new state income taxes for large development projects on contaminated property and allow employers to keep a portion of new hires’ income tax withholding for companies that add hundreds of new jobs. So-called “transformational” brownfield tax captures would be limited to $40 million per year, with a sunset after 2021. The income tax withholding incentive would be capped at $250 million annually. Neither made it out of a House committee at the end of the two-year term that ended in December, but lawmakers and business leaders say they intend to revisit the proposals this year.

Snyder told Bridge that business incentives, helping local governments address huge unfunded retiree health care obligations and promoting skilled trades careers will be near the top of his priority list in 2017. That follows a year in which his administration and the Legislature updated the state’s 2008 energy law, passed bills opening up more testing opportunities for intelligent vehicles and restructured Detroit Public Schools to help the district pay down staggering debt.

And he said his administration will continue to help Flint recover from a lead-poisoning crisis in its drinking water, the result of switching water sources to cut costs while the city was under state oversight. The state approved $234.1 million in funding for Flint’s recovery effort through Sept. 30, and lawmakers sent another $10 million to Snyder’s desk before the legislative session ended in December.

“That was a terrible tragedy,” Snyder told Bridge. “We’re seeing lots of improvement, though, in terms of the healing process. But more work to be done.”

Snyder said drinking water experts will convene this month to evaluate Flint’s lead test results, a meeting that he said he hopes will offer guidance on how much longer city residents will need to filter their drinking water. The Michigan Department of Environmental Quality said recently that testing of Flint’s drinking water showed more than 96 percent of samples had lead levels at or below 15 parts per billion, which is the federal action standard.

Snyder said he plans to present a draft of a proposed state lead and copper rule to legislators that would be more stringent than what the federal government requires.

Below is a condensed version of Snyder’s interview, which took place in December.

Where do you stand on the business incentive legislation?

I actually support some version of both bills. I think there’s some work that needs to be done on them still. …

Normally, I don’t like tax incentives or tax credits. I’m not a fan. … These two bills in particular, though, deal with specific situations in a limited context. … The one on job creation, which is more the Business Leaders (for) Michigan kind of context that deals with manufacturers, it’s for situations that involve 500-plus jobs. And, again, that’s not your normal situation. Those are very big projects, and it’d be great if we had an opportunity to win some more of those. The part I emphasize on that … was they require above-average pay.

The brownfield transformational one — again, look at the comeback in Detroit. But the issue that you can see … is there really is a situation still where market rates in Detroit aren’t high enough to probably justify building higher-rise developments or larger developments. And if you had some of those (buildings), you could quite often create the market so that it would be self-sustaining. And so if you look at both of these, they talk about caps on how long they last and/or how much they would draw (in) resources.

You encouraged caps on the bills?

Yeah. … I wouldn’t support them without a cap. And I don’t mean to be too negative, but this is one of the reasons I didn’t like some of these from (a) historical basis. … They can be very good when they first start, because they are addressing a problem, but then they hang around so long they start getting used and the definitions start getting broadened and how they get interpreted (changes).

Adding a sunset on the brownfield incentive was your idea?

Yeah. Well, that was my point: If it’s transformational, it transforms and then it’s over with, right? Transformational does not last for 10 years or 20 years. Hopefully, the outcome of it does, but not the actual event.

The idea being that when the sunset hits, market rates should be higher?

They should be triggering the market to happen.

I know you met with Detroit developer Dan Gilbert and others on the brownfield incentive. What did you talk about?

What’s the marketplace, what’s really needed, a number of these things we just discussed were part of that. The other one I did ask them to really consider and work on is how they could work better together in the broader community.

Do you mean getting developers to work together on projects?

Not just on a project. But how you could have all the developers or the major ones in Detroit come and speak with one voice and to say, “This is a common program.” … One community that works really well together is Grand Rapids. So Grand Rapids, sort of the broad-based community, sort of defines: “Here’s our priorities, here’s our projects and here’s what we’re going to get done,” and it typically gets done. And I said I think Detroit could learn from that and try to take on some of that same kind of culture and atmosphere.

Is that happening in Detroit?

I had a healthy dialogue that I think they were interested in doing more of that. I would give credit to the Detroit Regional Chamber … They’ve done some nice things about getting people to work together as a broader team.

If the bills are reintroduced in the new legislative term with those provisions, are you inclined to support them?

In terms of some of the key principles, they’re moving in the right direction. With respect to specific bills, you know how that works: Until we get it finalized, I’m not going to comment that I’m OK.

Let’s talk about retirement benefits. I understand you weren’t comfortable with tackling the issue in lame duck.

I thought the time was short given the complexity of the topics and the scope and scale, and the fact you’re talking real people. And I think it was good to tee it up, though. I mean, that was a priority to the legislators, and I respect that. What I have told people is I’d like to form a task force, a broad-based task force, with representation from both (legislative) chambers, from broad interest groups, from some of the employees themselves, their union groups. … Let’s look at two to four months — probably closer to four months or so, the first half of the year — to say: Can they do some work that they can bring back some recommendations before the first half of the year’s over?

Should a solution to the underfunding problem be left to local bargaining tables or does it require state intervention?

It is a big problem, but what I’d say is … can the state help establish a framework that local government should be working within? …

Too often, when people talk about this issue, they sort of broad-brush the whole thing, saying this is either it’s all this way or all that way. And my view is … we should be (looking) at jurisdictions. Who are the well-funded jurisdictions, and we might not say we have to do anything, or we shouldn’t require them to do anything (other than maybe) some reporting. Then you’re going to have a group of jurisdictions that are in serious trouble, that the question is how are they ever going to be able to pay for what they’ve given? That could require some real work in figuring out answers there. And most are going to be in the middle. And so the way I view a lot of those in the middle is … not us necessarily telling them everything to do, but to say: What are the frameworks and how do you set up trigger points?

As opposed to it being one-size-fits-all or overly prescriptive.

I think the one-size-fits-all doesn’t work well in something like this.

What is the bigger issue, teacher pensions or municipal benefits?

It’s mainly in the local government side and the biggest piece is probably on health care.

Are there new programs in the works related to skilled-trades employment?

One thing that I actually went and visited that got me excited was a career expo for middle-school kids. I went to this in Kalamazoo County, and so I’m fired up about (it). We’re tracking down who else does these and may want to look into ways to expand this.

What else does the state need to do to encourage participation in skilled-trades fields?

There’s a lot on the career counseling side. And, again, the state’s not going to do that work and we should never tell people what to do, but (what about) providing basic information about where are the jobs, what’s required to be successful, what do they pay? That’s the question I’ve asked across town halls across the state when I do audiences, is: Remember back when you were making your career decisions and remember that great career counseling you got in high school or college? And nobody can keep a straight face because we didn’t get it. And it worked back then, because you could be a generalist and go off and find a job. That’s not true today. I mean, you need more specialized training. And that doesn’t mean you have to do that the rest of your life, but it means to be successful in that first entry point, you need more specialized skills. And we should be helping people understand that.

Do you see the state’s role as an information broker, then?

Convener, catalyst, clearinghouse. I view it as a clearinghouse kind of role.

 

10 comments from Bridge readers.Add mine!

  1. John Q. Public

    You encouraged caps on the bills?

    Yeah. … I wouldn’t support them without a cap. And I don’t mean to be too negative, but this is one of the reasons I didn’t like some of these from (a) historical basis. … They can be very good when they first start, because they are addressing a problem, but then they hang around so long they start getting used and the definitions start getting broadened and how they get interpreted (changes).

    Adding a sunset on the brownfield incentive was your idea?

    Yeah. Well, that was my point: If it’s transformational, it transforms and then it’s over with, right? Transformational does not last for 10 years or 20 years. Hopefully, the outcome of it does, but not the actual event.

    The limits placed on incentives last right up to the point that some legislator doesn’t want the limit. As the sunset date approaches, it will be either extended or eliminated. The dollar threshholds will last until somebody with a smaller project tells his legislator that he needs the incentive, too. The number (e.g., five per year, or one per city, limits) of incentives? Same thing. Jobs and pay rates? Why not? The brownfield act is a prime example. Brownfields used to be environmentally contaminated properties. Now they’re just buildings that have not been leased for a few months because they’re “functionally obsolete.” Or worse, anything owned by a land bank authority. All a developer has to do is have the county land bank buy a property before he does–even a pristine greenfield property–and it is immediately eligible for all sorts of brownfield incentives. Oh, the act places “limits” on them, but nobody enforces them.

    A recent example is commercial rehabilitaion exemptions. They were originally supposed to sunset in 2015. Do you think they did? See PA 218 of 2015 to find out. Or just ask Sen. Horn.

    Any limits Snyder encourages on are merely illusory. The legislature will put any caps he wants in the bills, because they know they’re going to be eliminated or ignored anyway.

  2. Kevin Grand

    I’d be far more interested in seeing what happens with Sen. Jack Brandenburg’s proposal to scrap the Michigan Income Tax than the rest of these ill-conceived schemes.

    I’m far more qualified to determine where I can best spend the money that I have earned, rather than to see it funneled away via crony capitalism!

    1. David Waymire

      Kevin: Hope you can afford to fix the potholes in the freeways you drive, provide college education to your children and all of your co-workers who may not be millionaires (tuition at Hope College is $30,000 this year), and hold your own courts that your own police will enforce. Because those are all public goods that successful states (i.e., those with high per capita incomes) have much of, and which poor states (i.e., those with few public goods, low per capita incomes and very low taxes) have few of. Just look up how South Carolina (a poor state, with income below the national average, high poverty rates and relative low taxes) does vs. Minnesota (highest per capita income in the Midwest, lowest unemployment rate in the Midwest, relatively high taxes and good public goods).

      1. Michigan Observer

        I hope that Mr. Waymire is not suggesting that high taxes and a portfolio of first class public goods will provide high per capita personal incomes. It flows the other way. The high per capita incomes of Minnesota flow from the personal qualities of the citizens and the culture they have created. Someone pointed out to Milton Friedman that there weren’t any poor people in Scandinavia; he replied that there weren’t any poor Scandinavians in the United States either. They had brought their culture with them to this country. A culture they had developed over decades of hard work under difficult circumstances.

        There are no government programs or policies that are going to make Michigan, or South Carolina, into replicas of Minnesota. .Michigan was, at one time, a prosperous, well to do state. That was due to having a semi-monopoly on auto manufacturing; that ended when the Japanese built plants in this country. But we can do much better if our citizens acquire the skills and education required to make a more valuable contribution to the economy.

      2. Michigan Observer

        And yes, Kevin Grand is right in believing that money he spends will make a bigger contribution to the general welfare than an equivalent amount of money spent by the government. Yes, we need public goods, and the government must provide them because of their nature, but they are going to be provided less efficiently than they would be by the private sector. In any case, Mr. Grand did not suggest that we didn’t have to levy enough taxes to provide what we need.

      3. Kevin Grand

        Mr. Waymire, I don’t know if you have gone and filled up at your local gas station lately, but in case you might have missed it, Lansing had gone and ignored the crystal clear message that Michigan Taxpayers had sent back in 2015 when Proposal 1 got nuked at the ballot, and subsequently rammed through all of the tax and fee hikes contained within it.

        OABTW, when you go to renew your plates at the SoS office, you will experience some sticker shock from the previous year.

        So if Michigan still has an issue with paying for roads, instead of using the funds that it collected previously (which I can write a full-blown piece here on The Bridge on how Lansing has essentially thrown that money in the trash by diverting it towards other non-road items), shame on Rick Snyder and the republican party controlled Michigan Legislature for that.

        Regarding the rest of your big government wish list; this is obviously an alien concept to you, but I take care of my own family, so thank you for your concern on college costs.

        And the last time I checked, I already pay taxes locally for not only a local police dept, but sheriff’s department as well. Those local taxes also cover the courts along with a local school system.

        Next…

  3. jrd

    “allow employers to keep a portion of new hires’ income tax withholding for companies that add hundreds of new jobs. ”

    I view this as corporate welfare. Far too often the NEW jobs promised don’t occur… Where are the guarantees of NEW JOBS written in to the taxpayer side of this subsidy? Is there accountability to ensure these are actually NEW JOBS?

  4. Scott Brodie

    Kevin,
    If you want that kind of state government, I’d suggest you look at moving to Kansas. Sam Brownback has done everything you would think of to create jobs. He cut taxes on the wealthy, cut corporate taxes, starved schools, roads, colleges. Take a look at what the ALEC/Koch Brothers driven agenda has done to Kansas. NO job growth.
    By the way, has Brandenburg attended any ALEC meetings or conferences, or received money from a Koch Brothers PAC?

    1. Kevin Grand

      Mr. Brodie, who said anything about the “wealthy” or corporations?

      Gov. Snyder has already taken care of the them when he revamped Michigan Business taxes several years ago.

      I’m talking about everyone else.

      Those people who go to work everyday whom politicians, be they republican or democrat, always want to reach into our wallets to pay for the things that they think I want.

      If this repeal goes through and you don’t want it, I’m certain that the Michigan Treasury will be more than happy to accept a check from you for that amount.

      Speaking for myself (and I’ll venture more than a few others), I can find plenty of uses around my household for the 4.25% bump in take home.

      And just so that we’re clear, I don’t personally know Sen. Brandenburg (he’s not my state senator).

      So, if you want to know with whom he has been meeting with, why not just go and ask him yourself?

      Donations are no big secret.

      They are public record.

      So go and do some digging.

  5. Barry Visel

    Tax incentives for”… specific situations in a limited context…”. This is the proverbial slippery slope that has generated a tax expenditure budget exceeding $30 Billion each year (the value of all tax credits, incentives and deductions as estimated in the official State Budget).

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