Development incentives: the next chapter
If you lived in Michigan last spring, you know that one of Gov. Snyder's first acts was to eliminate the dreaded Michigan Business Tax and replace it with a 6 percent corporate income tax on “C” corporations. Accordingly, all MBT credits utilized as development incentives (Brownfield, State Historic and MEGA Jobs Credits.) were eliminated as of Dec. 31, 2011.
Snyder insisted that Lansing ought not be in the business of picking winners and losers by awarding tax credits and that each project should stand on its own merit and not be governed by politics as usual.
On Dec. 13, 2011, Snyder signed a five-bill package into law creating new economic development and community revitalization programs that empower the Michigan Strategic Fund to provide $100 million in incentives for highly competitive projects. It's important to note that this is an annual Appropriations Committee-based allocation, and continued funding is not guaranteed.
It's perhaps more important to note that $100 million represents 20 percent of the credits previously approved by the state per year and one-third of the funds that are needed. Come again?
In recent years the amount approved for Brownfield, Historic and MEGA credits totaled about $500 million per year, according to the Michigan chapter of the National Brownfield Association. The Michigan Economic Development Corp. has also determined that it will take $291.5 million in incentives to produce the 136,703 jobs needed to bring Michigan's unemployment rate at or below the U.S. average, according to Crain's Detroit Business.
Basically, the Brownfield and Historic tax credits have morphed into the Community Revitalization Program.
Through PAs 251-253, the CRP will utilize grants up to $1 million per project or 25 percent of eligible investment and loans capped at $10 million per project that will revitalize urban areas, act as a catalyst for additional investment in a community, be in a downtown or traditional commercial center, reuse vacant or historic buildings in underserved markets and promote mixed-use (including retail) sustainable development, according to www.michigan.gov.
Eligible investment includes construction, rehab, site improvements, equipment, demolition, environmental, architecture and engineering-related expenses. Projects can receive both grants and loans, but the total cannot exceed $10 million per project.
So where did the MEGA Jobs Credits go? They are now part of the Business Development Program.
Through PA 250, approved businesses that create 50 jobs or 25 jobs in a rural area (i.e., no more than 90,000 residents in a county) or high-tech jobs can use grants, loans or other economic assistance as defined in the BDP. Preference is given to businesses that need additional assistance for deal-closing and for second-stage gap financing.
Factors influencing these awards include out-of-state competition, private investment in the project, business diversification opportunities, near-term job creation, wage and benefit levels of the new jobs and net-positive return to the state, according to the state.
Note, however, that business retention and retail projects are not eligible for consideration of these incentives.
Here are some of the other items in the state’s economic development toolbox:
- Brownfield Tax Increment Financing from Public Act 381
- DEQ grants and loans
- EPA brownfield assessment/cleanup grants and revolving loan funds
- Neighborhood Enterprise Zones
- New market tax credits
- Federal historic tax credits
- USDA rural development grants
- Renaissance Zones
Snyder also is proposing a $10 million increase for environmental cleanups related to a refined petroleum fund as a line item in the 2012-2013 budget, according to the Detroit News.
Time will tell how all this will work out. But this much we know: Snyder is determined to change how the state of Michigan does business, and the CRP and BDP are on a collision course with market realities. Enhancements and compromise are inevitable. In fact, MEDC just engaged Austin, Texas-based Angelou Economics to conduct an economic impact study to determine whether our business incentives are still competitive with other states. Stay tuned.
Doug Brown is director of development for ASTI Environmental, which has offices in Brighton and Grand Rapids.