Heartwell Advances Tax Proposal

February 24, 2006
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GRAND RAPIDS — Mayor George Heartwell wants the city to have the authority to grant tax abatements to "new economy" businesses that invest in innovation, and he is preparing to craft a bill that could make it to Lansing as early as this summer.

Heartwell first proposed the concept of a tax abatement for knowledge-based companies in his state of the city address in January. Last week he began mentally putting together the team needed to draft the legislation. He has selected city attorney Dick Wendt, from Dickinson Wright, to draft the bill, and Deputy City Manager Eric DeLong will lead the team internally, he said. Heartwell expects representatives of The Right Place Inc. and the Michigan Economic Development Corp. will be involved, as well.

His tax abatement proposal would provide state and local tax relief to companies that invest in research and development, to encourage the development of new technologies. It would be similar to a Public Act 198 tax abatement, which allows the city to offer tax incentives to manufacturers and high tech firms for research and development centers. The abatements can reduce property taxes, both real and personal, for up to 12 years.

Heartwell floated the idea to mayors of 13 of the state's largest cities at a recent gathering of the Urban Core Mayors group, and they greeted the concept with a lot of enthusiasm, he said.

"On one hand it means less property tax revenue for the city, so those cities that don't have an income tax were saying it sounds pretty good but would impact their revenues directly," he explained. "In a city like ours with an income tax, the expectation is that the gain in income tax more than offsets the loss of property tax." He said that has proven true locally of companies that have received Public Act 198 tax abatements and companies located in tax-free Renaissance Zones.

Generally, the Urban Core Mayors group as well as city commissioners have responded positively, Heartwell noted. He said he hasn't yet heard Gov. Jennifer Granholm's reaction to the idea, but that all in all "there's a pretty positive wait-and-see attitude right now."

Heartwell believes a knowledge-based tax abatement proposal would dovetail nicely with and enhance the state's $2 billion investment in the 21st Century Jobs Fund. He acknowledges the potential for the bill to become political. People in the Legislature who want to beat up on business could look at it as a corporate welfare piece or say that companies have always invested in research and development and in the knowledge sector, so why change it now?

As Heartwell sees it, people can set up a knowledge-based business or laboratory in their garage, but as soon at they reach the point where their invention needs to be commercialized, they might move outside the city. The tax abatement could be a useful tool to keep such businesses in the city, he said.    

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