New law would expand tool-and-die Recovery Zones

January 3, 2009
| By Pete Daly |
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Legislation that would expand the Michigan tool-and-die Recovery Zones law to include more and larger companies has been approved by the Michigan Legislature and was awaiting the signature of Gov. Jennifer Granholm.

The bill amending the Michigan Renaissance Zone Act will increase from 25 to 35 the maximum number of tool and die Recovery Zones that the board of the Michigan Strategic Fund may designate. Michigan now has the maximum number of 25 zones or collaboratives, according to Mike Johnston, vice president of government affairs at the Michigan Manufacturers Association.

The existing law limits the size of participating tool-and-die businesses to those with fewer than 75 employees. The new law will eliminate that cap on size so that any qualified company with 75 or more employees may apply for membership in a collaborative.

A company seeking membership in a tool-and-die Recovery Zone may also be required to agree to a payment in lieu of taxes for public safety and fire protection services or for school funding. If the services were provided by the county or another public entity instead of the city, village, or township, the payment in lieu of taxes would have to be paid directly to the county or other public entity. Under the existing law, a local government may not require a company in a tool-and-die recovery zone to make a payment in lieu of taxes to that local government.

Under the new law, a Recovery Zone with a duration of less than 15 years would be exempted from a provision that requires a taxpayer's tax break to be phased out during the final three years of renaissance zone designation.

Johnston said the Michigan Manufacturers Association was "quite pleased" with passage of the bill, which the association had pushed for. He said the MMA created six of the 25 collaborations across the state, which includes more than 70 companies, and wants to coordinate more.

"We were advocating for it because the number of collaboratives had capped out at 25," said Johnson. "We wanted to raise it from 25 to 35 to make sure every shop that wants to be in one can be in one."

Recovery Zones were set up by the state government in 2004 to help the struggling tool-and-die industry in Michigan, which has lost much business to foreign competition in the last several years. Don Snow, operations manager of C.S. Tool Engineering in Cedar Springs and a 41-year veteran of the industry, estimated recently that at least 20 percent of the tool-and-die companies in Michigan have closed. He added that he was making a conservative estimate.

Companies accepted in a tool-and-die collaborative can have virtually all of their state and local taxes waived for up to 15 years. In return, they agree to help other members in their collaborative be more competitive by pooling resources and technologies and sharing large orders, when feasible.

There is no requirement that the member companies make new investments in their businesses or create or retain jobs, nor is there any requirement that an existing collaborative must accept more members, even if the applying company is qualified and the local municipality gives its consent.

The original law limited participation in Recovery Zones to companies with no more than 50 employees. That cap was increased to 75 in 2006, when larger shops complained that the smaller shops had an unfair advantage. Now, with no cap on size of the companies applying for membership in a collaborative, Johnston said it is "up to the MEDC to make judgments" as to which companies are qualified.

According to Johnston, there are 1,700 tool-and-die shops remaining in Michigan.

The Michigan Economic Development Corp. administers the zones, none of which are strictly defined by geographic boundaries. Member companies can be in the same collaborative but located in different parts of the state.

Kevin Bonds, manager of Business and Community Services at the MEDC, said the Michigan Strategic Fund board designated the 25th collaborative in November, and there are now 238 companies in the Recovery Zones. Member companies are located in 33 counties across the state.

According to a Senate fiscal impact study, the new bill, if signed into law by Granholm, will reduce state and local revenues and increase expenditures from the School Aid Fund, because the state must offset any reduction in local school district revenues. Reductions in revenue to community colleges and libraries are also reimbursed with General Fund revenue.

In fiscal year 2008-09, appropriations for all Renaissance Zone reimbursements in Michigan included $3.8 million for libraries, $3.5 million for community colleges, and $57.5 million for K-12 education, according to the analysis.

Tool-and-die companies included in Recovery Zones are exempt from state and local property taxes, state and local income taxes, local utility taxes, and the Michigan Business Tax.

The legislative analysis also states that "if every tool-and-die firm in Michigan were included within a zone under the changes proposed in this bill, it is estimated that MBT revenue would be reduced by approximately $1.2 million in tax year 2009, and all of this loss in revenue would affect the General Fund. In addition, School Aid Fund revenue from the State education property tax would be reduced an estimated $1.3 million and School Aid Fund expenditures would increase an estimated $4 million due to a reduction in the local school 18-mill property tax. Local government property taxes also would be reduced an estimated $9 million. There is no way to know at this time how many tool-and-die firms would be included in a zone. These estimates reflect the estimated fiscal impact of this bill if all tool-and-die businesses were included in a zone and none participated in a payment-in-lieu-of-taxes agreement."

Some local units of government are leery of participating in the Recovery Zones. The cities of Kentwood and Holland have opted not to grant the zones for the maximum 15-year period, opting instead for 10- and six-year zones, respectively.

The city of Wyoming and many municipalities in the Detroit area have refused to participate in the program.

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