News Story

State of Michigan Granted $3 Billion in Special Tax Credits to Big 3 Automakers

Analysis puts Michigan among the highest in corporate welfare

The state of Michigan granted more than $3 billion in combined tax breaks and cash subsidy deals to General Motors, Ford and Chrysler in the final years of former Gov. Jennifer Granholm’s tenure, which helped make this state among the biggest corporate welfare providers in the country, according to a recent study.

Chrysler ($1.30 billion), General Motors ($1.07 billion) and Ford ($909 million) were awarded the benefits in 2009 and 2010 under the Michigan Economic Growth Authority program. The deals required the firms to “create or retain” a specified number of jobs in order to actually collect the benefits.

Michigan has been the fourth most generous state in dispensing business subsidies, according to a report by Good Jobs First, a government accountability advocacy group. Only New York, Washington (home of Boeing) and Louisiana (home of large energy producers) offered more.

The report attempts to quantify subsidy deals going back to 1976. Veronique de Rugy, senior research fellow at the Mercatus Center, said tracking these is not easy because the information is scattered among many government reports and websites.

Michigan had 15,205 deals authorizing $10.4 billion in combined tax breaks and cash subsidies according to the analysis. New York led the country with 71,759 deals worth $21.7 billion.

De Rugy said the deals lowered the incentive for auto companies in Michigan to operate efficiently, because they offered the firms an advantage over competitors

James Hohman, assistant director of fiscal policy at the Mackinac Center for Public Policy, said taxpayers can’t even determine how much money the auto companies claimed from the billions they were approved to receive. That’s because the state of Michigan considers the tax deals to be private information, the equivalent of an individual tax return.

“This is a huge expenditure of taxpayer dollars,” Hohman said. “A company should expect confidentiality about the taxes they pay. But that confidentiality should cease when it’s taxpayers who are giving money away to businesses. More than $3 billion in state tax credits — which often result in cash payments — have been offered to these three companies and taxpayers deserve to know how much they are paying.”

In 2013, legislation was introduced that would remove current restrictions on revealing such information. Senate Bill 316 was sponsored by state Sen. Jack Brandenburg, R-Harrison Township. It would prohibit the Department of Treasury from using taxpayer confidentiality as a reason to deny requests by legislators or others for “statistical and economic information or data” if this does not directly identify a taxpayer.

For example, the Department would still be required to withhold how much of the “refundable” tax credits awarded to GM were collected in the form of checks rather than reduced tax payments. But it could not use confidentiality as a reason to not disclose the aggregate amount of cash distributed to all MEGA beneficiaries.

The bill was referred to the Senate Finance Committee, which is chaired by Sen. Brandenburg himself, but has never received a hearing.

The state has released the number of jobs the companies reported they had “created or retained,” which is required for them to actually collect the authorized credits. For example, the Michigan Economic Development Corp. reported that in 2012, Chrysler “retained” 18,034 jobs in Sterling Heights. But the report doesn’t give any indication how much cash the car company received for not eliminating those jobs, or alternatively, how much tax liability was erased by the credits.

The MEGA program was started under Republican Gov. John Engler in 1995. Gov. Granholm greatly expanded the program during her administration. A 2009 Mackinac Center study found that only 29 percent of the jobs promised in MEGA agreements were actually created. A 2010 Auditor General report found that most of the jobs and wages that companies did report did not meet the criteria to qualify for collecting a credit.

A recent CapCon investigation revealed that only 2.3 percent of projects met or exceeded expectations.

Gov. Rick Snyder eliminated MEGA in 2011, replacing it with a less open-ended program in which the Legislature appropriates a fixed annual amount to be disbursed as cash subsidies to firms selected by a state agency called the Michigan Strategic Fund. The state is still bound by the terms of past MEGA agreements, however, many of which extend for decades into the future.

Michigan Capitol Confidential is the news source produced by the Mackinac Center for Public Policy. Michigan Capitol Confidential reports with a free-market news perspective.