State unveils MEGA replacement program

November 6, 2011
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After years of disappointing economic performance, massive job losses and the continued erosion of the state’s tax base, Michigan may be on a path to recovery.

Recently, the CEO-supercharged group Business Leaders for Michigan reported that while some of the largest Michigan employers have a positive outlook on the state’s future, they remain concerned that a slowdown in the national economy may harm Michigan’s recovery. Unless the state does something differently, this may become a reality.

The state’s primary economic development catalyst, the Michigan Economic Development Corp., is willing to approach things differently. To encourage targeted job creation and business expansion — and to allay fears— it will be investing in job creation through the Michigan Business Development Program, or BDP.

With the elimination of the Michigan Business Tax, many of the tax credits that investors seek to help defray the cost of their job-creating projects were eliminated. A major business attraction incentive long used to drive high-value job creation, the MEGA credit, was also eliminated as part of this fundamental tax restructuring. The state, via Senate Bill 556, proposes to fill the void created by the elimination of the MEGA credit program by more targeted and versatile BDP.

As proposed, approximately 4 percent of the 21st Century Jobs Trust Fund would be used annually for the BDP. Approved businesses that invest in Michigan and create qualifying new jobs could be eligible for up to $10 million in grants, loans or other investment vehicles through the Michigan Strategic Fund.

The state intends to invest in “impact” projects that are designed to create a lot of well-paying jobs in targeted areas. Those with greater impact will receive stronger consideration for funding. The minimum job creation will be 50 new jobs, though in rural areas and for high-tech companies, the minimum drops to 25. The state’s investment would be tied to greater accountability on the part of BDP beneficiaries, with both grant and loan programs focusing on the performance of the business receiving the benefit.

In late August, the Michigan Strategic Fund Board — which will review and fund these new projects — approved guidelines for the BDP. Some of the criteria include:

  • Level and type of investment proposed

  • Re-use of existing facilities

  • Location in distressed communities

  • Higher wages and benefit levels

  • Diversification of the state’s economy

  • Use of Michigan suppliers

  • Out-of-state competition

The BDP may not be available for retail projects, or to simply retain workers at existing jobs in the state.

Contrary to the persistent cries that Michigan has unilaterally disarmed in the economic development race, Michigan still has a robust portfolio of economic development tools. They include, just to name a few: a more attractive tax structure as a result of the elimination of the MBT; a reduction in (and perhaps the elimination of) personal property taxes for commercial and industrial property; a world-class brownfield redevelopment program; low-cost bonds; job training funds; and access to capital programs.

While the BDP is not intended to be a wholesale replacement of the MEGA program, it will provide a much-needed boost to those investors that truly need an incentive to focus their job growth in Michigan.

Update:

Two months ago, my partner John Byl wrote about the new Community Revitalization Program, which is expected to replace the existing brownfield MBT program. Here is a quick update. After concerns were raised about the potential use of greenfield sites for the CRP program, new criteria have been proposed. To be eligible, a project would either be on a site contaminated above residential levels, have a functionally obsolete building, be blighted or have a federal historic building. The amended legislation is expected to move through the House and Senate by mid-November and then will be signed into law by Gov. Rick Snyder.

Kurt M. Brauer is a partner with the law firm Warner Norcross & Judd LLP and serves as co-chair of the firm’s Economic Incentives Group.

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