Klohs defends tax incentives

October 12, 2009
| By Pete Daly |
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Among the literature left at each seat last week at the West Michigan Regional Policy Conference progress report was a reprint of a Sept. 4 Wall Street Journal editorial entitled "The Michigan Example: How government investment in business failed to create jobs."

Citing a study by the Mackinac Center for Public Policy, the editorial states that over the last 14 years, the government of Michigan offered $3.3 billion in tax credits plus another $1.6 billion in outlays to create and retain jobs. However, for every 100 jobs that were supposed to result, allegedly only 29 materialized.

"I totally disagree with the Wall Street Journal's take on incentives in Michigan," said Birgit Klohs, president of The Right Place economic development organization in Grand Rapids.

According to Klohs, The Right Place worked on bringing 10 companies to West Michigan in 2009 (through September), representing $187 million in investments.

"Out of the 10, eight got our incentive packages both from the state and local governments, and without those, those eight projects would have landed in another state," she said.

The competition from some states is "very, very strong," she said, noting that Kansas and Oklahoma were competing against Michigan for sites for the expansion of the Los Angeles-based Farmers Insurance Group. Michigan won the deal, which will bring up to 1,600 new jobs to the Foremost Insurance Group complex in Caledonia Township.

Klohs said every state offers incentives, "including the really cheap states like Mississippi. Without incentives, we don’t compete at all."

Last week Klohs was at a national economic development conference in Nevada.

"The only way this is going to change — and that was one of the discussions yesterday (at the conference) — is if we have a national industrial policy that says nobody gets incentives. Until that happens, people like me and my colleagues in Michigan are not going to lay down our weapons to let other states take our companies and our deals," said Klohs.

She said one day last week she met with five site location consultants who represent both U.S. and foreign companies looking for locations for new investments in their businesses.

"And they told me point blank: ‘Without incentive, we don’t even look at your state,’" said Klohs.

Area Development Magazine surveyed top national location consultants this year and 96.1 percent said state and local incentives were primary issues, ahead of "highway accessibility" at 95.8 percent, availability of skilled labor (94.9 percent), energy availability and costs (90.7 percent) and tax exemptions (89.9 percent).

"We are competing with states that have richer incentives than we do, including free land," said Klohs. Right now, a West Michigan company that employs 140 people here is looking to make a major investment. Tennessee is offering that company tax credits for 10 years and free land; Alabama is offering tax free status for eight years. In the case of North Carolina, she said, "They often offer cash — cash! I mean, they write you a check."

In fact, 25 states have "deal closing funds." Texas offers up to a total of $295 million in deal-closing sweeteners each year, but Michigan does not offer any, according to information from The Right Place.

Michigan is "not the poster child for failed state incentives," said Klohs.

"No matter what the Wall Street Journal says or what dream world they live in, the reality that we deal with is that incentives are part of the deal and part of the game, and in the foreseeable future, I don’t see that changing."

"Anything that is offered behind the scenes by the Mackinac Center, I automatically discount," said Klohs.

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