More changes ahead for economic development programs

January 29, 2012
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The election of Gov. Snyder and strong Republican majorities in both houses of the Legislature brought significant changes to many economic development programs in 2011. The governor’s opposition to tax credits — which he has called “hidden appropriations” — is a driving force behind many of these changes.

For example, in early 2011, Gov. Snyder eliminated the Michigan Business Tax — and with it all of the tax credit programs. Throughout the year, the legislature replaced some of these tax credit programs with newer and smaller incentive programs to support brownfield redevelopment, job creation and other successful programs that had been cut. Unlike their predecessors, these new programs are funded through state appropriations and delivered in the form of grants and loans.

The fine-tuning continued as we closed 2011 and is likely to continue this year.

Film credits and Ren Zones

The last quarter of 2011 saw the Legislature wrapping up two lingering issues: replacement of the film tax-credit program and the reinstatement of the personal income tax deduction for existing Renaissance Zones.

We heard a loud public outcry when Michigan’s generous film tax credit program was eliminated. On the other hand, some legislators and business groups were lukewarm on the program.

After much discussion, the Legislature appropriated $25 million for a replacement program that provided the framework for the Michigan Film Office to award grants to fund certain qualified productions. Although the film tax credits have brought productions to Michigan, it is far from clear whether continued film incentives will create a lasting industry in the state. There is some concern that $25 million is not adequate to fund a viable program. No matter what side you may be on, the debate will continue in 2012 when the question of funding arises again.

In addition, as part of the budget process the governor and Legislature eliminated the income-tax deduction for individuals residing in a Ren Zone. These are regions of the state designated as virtually tax free for any business or resident within the zone.

The elimination of the deduction went largely unnoticed until later in the year when developers across that state mobilized and pushed for a legislative fix. Ultimately, the Snyder administration relented and agreed to legislation that honored the deduction for all current and future residents within Ren Zones in existence before 2012. This was the right thing to do: It was fair and consistent with the governor’s desire to honor existing incentives.

Looking ahead

The Legislature is likely to tackle a number of key economic development issues in the months ahead, including:

Brownfield programs: We are likely to see an effort to make changes to the brownfield grant and loan program, as well as Act 381, the brownfield tax increment financing statute, which sunsets at the end of 2012 unless extended. The Department of Environmental Quality plans to organize a stakeholder process in the first quarter of this year that will, in part, discuss potential improvements to the brownfield redevelopment programs.

Appropriations-based programs: By replacing some of the MBT credit programs with appropriations-based programs, the governor and Legislature created the need to appropriate money for the new programs annually. Continued funding of these programs is not guaranteed, which should encourage proponents to make their voices heard during the upcoming policy discussions.

Office of Regulatory Reinvention: Last year, the governor created the Office of Regulatory Reinvention and tasked it with examining and then eliminating, updating and streamlining the state’s laws and regulations. The governor has received reports from numerous advisory committees and should begin issuing his recommendations in the coming months. Some of these will require legislative changes associated with promoting economic development in the state.

Tax-increment financing programs: Finally, we will likely see a push to revise some of the tax-increment financing, or TIF, programs, such as the Local Development Financing Act and the Corridor Improvement Act. These revisions will involve cleaning up mistakes, making programs more efficient and possibly expanding some programs. The changes will be welcomed, as many of the TIF programs are in great need of review.

Troy Cumings is a senior counsel and lobbyist at Warner Norcross & Judd LLP. He can be reached at tcumings@wnj.com

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