Michigan lawmakers eye retooling corporate subsidies to target high-wage jobs

• Michigan incomes are falling compared to nationally
• In Lansing, lawmakers are debating the state’s strategy of using taxpayer subsidies to lure companies
• Legislators seeking R&D tax credits, funds to aid high-growth startups and tying subsidies to wages

About $8,500 separates Michigan residents from the average American.

That’s about the equivalent of a year of new-car payments or a semester of tuition at a state university.

It also represents the difference in per-capita income for Michiganders compared to the national average. The state is now 39th by that metric and may be headed even lower.

The state’s income losses when compared to the nation — about equal until 2000 — is prompting Michigan’s Legislature to scrutinize job-creation incentives and eye changes that could boost wages.

Multiple incentive-reform packages are in consideration in Lansing, where negotiations continue about details, even among proposals with bipartisan support.

Related:

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• Corporate subsidies cost Michigan $335M; 40% of deals create low-paying jobs
• In Michigan, 60% of jobs don’t pay middle-class wages. Can state stop slide?

“We need to define economic success in income terms,” Lou Glazer, president of Ann Arbor-based think tank Michigan Future Inc., urged recently during testimony before the state Senate.

Success from incentives and economic development policy, he said, “means whether working people in Michigan earn enough money to support … a family and save.”

Bridge Michigan’s investigation into average pay rates for jobs at companies receiving corporate subsidies in 2023 showed that the median wage was just over $50,000. Further, 40% of the companies expected to pay average wages under Michigan’s median base wage of $45,510.

At the same time, the majority of awards — nearly 90% — subsidized manufacturing jobs whose average wages are expected to be about $54,000 per year.

Such wages may be aspirational for many in Michigan, such as in the northern Lower Peninsula where the lowest wages in the state are found. The regional median wage near Alpena, for instance, is $37,731 per year.

However, the question remains about whether state subsidies should be invested for a greater return that would support still more jobs, said state Sen. Mallory McMorrow, D-Royal Oak. 

For that reason, some states aim for headquarters jobs or focus on high-wage jobs for incentive programs, she said. 

“That has to be built into the conversation (in Michigan),” McMorrow said. “Or are we focusing our incentives and our attraction efforts on … barely minimum wage jobs?”

Revived strategies

Sen. Sam Singh, D-East Lansing, is spearheading the return of the Good Jobs for Michigan incentive program, this time known as High-wage Incentive for Regional Employment (HIRE.) The legislation would allow qualifying businesses to keep up to $100 million per year in payroll taxes.

Instead of using an area’s median pay as a barometer, businesses qualifying for the HIRE plan would have to create jobs that pay up to 175% better than what area workers earn, according to initial drafts of the Senate’s plan. A similar plan in the House aims for 150% of median wages.

The bills would “ensure that these (jobs benefiting from HIRE) were geared towards higher-income positions,” Singh told Bridge recently. “We want to ensure that the right types of jobs are being incentivized.”

High-paying work increasingly is not auto factory-based, Glazer said. Highest wages are in chemical, computer and aerospace manufacturing; financial services and other professional or management jobs.

Michigan is behind in attracting those jobs, said Lindsay Case Palsrok, vice president of government affairs for Business Leaders for Michigan, a group of top CEOs advocating for the state’s prosperity.

Those fields are “where the job growth is going to come from,” she told Bridge. “And that's what's ultimately going to trigger the higher wages.”

The HIRE law still could target manufacturers that reach high pay levels, Singh said, “but we are in competition for these knowledge-economy jobs, and we want to have a tool that's also geared towards them.”

Other proposals include:

• Remaking incentives to shift their focus from direct corporate awards to community-enhancing efforts such as infrastructure, education, brownfield development and encouraging projects in areas with higher unemployment rates. McMorrow introduced a series of bills last fall that remain in committee. 
• Research and development tax credits, which would allow employers of over 250 people to claim up to $2 million per year, with smaller employers eligible for up to $250,000 per year. Another $200,000 credit is allowed if an employer collaborates with a research university.  The proposals — to be capped at $100 million per year — have bipartisan support, but await full votes. 
• A $60 million self-sustaining Innovation Fund proposed by Gov. Gretchen Whitmer that she says would aid high-growth startups, assist high-growth scalable startups and encourage an entrepreneurial ecosystem. The fund would also aid universities and nonprofits to fund tech startups. The proposal is in Whitmer’s 2024 budget, which will be finalized in coming months.

Whitmer, through her aides, did not comment for this article. However, she recently said HIRE and R&D tax credits are among her key economic goals and would  “create thousands of good-paying jobs in industries of the future.” 

Increasing incentive scrutiny

The Strategic Outreach and Attraction Reserve fund, created in late 2021, started as a way to attract jobs by the thousands as Michigan tried to compete with other states, mostly in the South, offering steep incentives for large-scale factories.

While SOAR initially received bipartisan approval, support waned as the cost to taxpayers reached $2 billion. 

SOAR, now rebranded as the Made In Michigan fund, gave Michigan a tool for “big transformational investments” that tended toward manufacturing, said Palsrok of Business Leaders for Michigan. Investments from the program included awards to Ford Motor Co., Gotion Inc. and General Motors, even as state economic developers target nine industries for growth, including tech and biotechnology companies.

“Michiganders want their dollars spent smartly, but the government wastes resources on corporate projects that have a higher cost per job than more competitive states with better economies,” Rep. Andrew Beeler, R-Port Huron, told Bridge.

Legislators asked about wages tied to incentives during a recent budget hearing for the Michigan Economic Development Corp., the quasi-governmental agency that administers Michigan’s subsidy programs. 

Sen. Mary Cavanagh, D-Redford Township, questioned MEDC vice president Josh Hundt about median household income growth from existing programs.

Hundt said the agency is “focused on those jobs that will increase the median income of a community,” he also said more programs — like the proposed innovation fund — would target knowledge industry jobs. 

However, household income is not tracked on MEDC monthly performance reports and details on income metrics were not provided during the hearing. 

University of Michigan economist Donald Grimes told Bridge that spending state incentive money on lower-wage factory jobs is about “protecting the auto industry from the transition to electric … because we’re worried we’re going to lose it.”

Targeting higher-paying jobs for the investment could stem overall wage losses, said Grimes, who detailed Michigan’s downward income trajectory for Michigan Future.

Mathematically, Grimes added, the state cannot increase its per-capita income by focusing on production jobs.

Palsrok said SOAR serves a purpose but also left a void for attracting higher-income knowledge-economy jobs. She described HIRE as an incentive with a quality-control measure and important next step.

Growth in high-paying industries — even 30 or 40 jobs at a time — would pay big dividends if they create a cluster of growing businesses, she said.

“(They may show) incremental growth, but they are going to create the ecosystems that we need,” Palsrok said.

Another piece of the higher-wage growth arc, Glazer said, is investing in vibrant central cities to attract recent college graduates. That educated labor pool, in turn, invites corporate investment. Another related strategy is to make sure Michigan’s education system is generating more bachelor’s degrees among non-affluent students. 

“That,” Glazer said, “is the asset that matters most to high-wage employers.”