Pay-off of tax breaks widely debated

December 14, 2009
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LANSING — North American Bancard Inc., a Troy-based credit card processing business, chose to expand in Michigan, creating 1,899 jobs because of a $21.5 million tax incentive it will receive over the next 12 years.

So far, the company has added 50 jobs, primarily in sales and support services, and it’s on track to meet goals set by the Michigan Economic Development Corp., said Danielle Drane, director of human resources at North American Bancard.

MEDC grants tax incentives under the Michigan Economic Growth Authority, which has awarded $420 million in credits to more than 500 companies since its initiation in 1995. Eligible industries include: manufacturing, mining, research and development, wholesale and trade, film and digital media, office operations and tourism, according to Bridget Beckman, MEDC public information officer.

But critics of the program, such as the Mackinac Center for Public Policy, complain it’s not cost-effective and is a political tool that manipulates voters into believing something is being done to bring jobs back to the state.

Michael LaFaive, director of fiscal policy at the Midland-based, free market-oriented think tank, said, “Jobs are the new children, what everyone is worried about. The program works for politicians to use as a PR tool to create the illusion that they are doing something to create jobs.”

In fact, a Mackinac Center analysis of MEGA projects suggests there could be a link between tax credits and a decrease in manufacturing jobs in certain counties, said LaFaive.

Not so, counters Mike Johnston, vice president of the Michigan Manufacturers Association, who disputes the Mackinac Center conclusion.

“Michigan has lost jobs just as many other states have, and to blame an economic development growth is inane,” he said.

The promise of jobs may not be completely fulfilled, Johnston said, but the claim that MEGA hasn’t successfully brought and maintained industry doesn’t tell the whole story.

Other states are aggressively pursuing industrial investment, and Michigan needs strong incentives to prevent companies from leaving, he said.

“Since the program’s creation, competition has grown extremely fierce. Every other state has a performance-based incentive, so it’s critical for Michigan to have a program like this,” MEDC’s Beckman said.

High-tech firms, alternative energy, defense and auto-related businesses make up significant number of businesses receiving incentives, said Beckman. She said many companies in the auto industry can make products for other industries like alternative energy, life sciences, advanced automotive materials, and advanced manufacturing.

Johnston said, “The evolution of automobiles is critical, and if Michigan doesn’t attract these companies, they will go to another state and bring the automobile industry with them, and Michigan will lose the future of the auto industry.”

Beckmen said many companies in the auto industry can make products for other industries like alternative energy, life sciences, advanced automotive materials, and advanced manufacturing.

One of MEGA’s goals is to help diversify the state economy. Alex Rosaen, a consultant with the Anderson Economic Group, a research and consulting firm in East Lansing, said keeping complementary clusters like the auto industry and bringing new clusters into the state is another goal of the incentives.

However, it’s difficult to gauge the effectiveness of tax incentive programs because there’s no way to prove if a company really would leave the state if it didn’t receive the incentives, he said. He added that some companies like North American Bancard that expand in Michigan rather than Florida may be considering locating or expanding in another state, but not all companies actually have another designated choice.

Giving out tax incentives on an experimental basis could help measure MEGA’s ability to keep businesses in the state, but it’s not politically feasible to do so, said Rosaen.

Other critics also worry about the openness of MEGA. Kerry Birmingham, the Michigan Education Association’s media relations specialist, said the union doesn’t oppose tax incentives but wants greater transparency and better follow-up on MEGA recipients.

“Each project needs to be looked at to make sure it is creating jobs, and if they aren’t, it needs to stop now,” she said.

Kara Wood, director of the Grand Rapids Economic Development Department, said it would be helpful to have local municipalities play more of a role in checking the productivity of projects in their area.

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