Special Tax Breaks For Privileged Firms Means Money Comes From Someone Else

Who do you think pays instead?

Every year across the state of Michigan, local governments approve property tax breaks that benefit businesses in a politically driven economic development system. These discounts save the owners of those firms hundreds of millions of dollars a year and shift more of local communities’ tax burden onto homeowners and other property owners.

Currently, local officials in Michigan have granted multiyear property tax abatements that last year totaled $352.7 million in foregone local tax revenues.

The special treatment is authorized by a number of laws that are based on different rationales. For example, officials in the city of Warren approved an abatement in 2014 for a company called Jackson Land Holding Company, LLC. The site is home to a car dealership that opened in 2016, and its owners were given what is called a “commercial facilities property tax exemption.”

The handful of companies that get such tax breaks are generally headed by well-connected or politically savvy CEOs.

According to Crain’s Detroit Business, the Jackson Land Holding Company is the real estate division of Jackson Asset Management. Both companies are run by Gregory Jackson, who has owned a total of 18 auto dealerships, six of which are held by a company called Prestige Automotive Group.

Warren is carrying abatements on its books that represented $4.1 million in foregone property tax revenue in 2017. The abatements were authorized under several state laws including ones granting tax breaks for brownfield redevelopment, industrial and commercial facility redevelopment, business tools and equipment (called personal property tax) and more.

Warren Mayor James Fouts and Warren City Council President Cecil St. Pierre didn’t respond to emails seeking comment.

The state and local politicians who authorize and grant these privileges claim that if they don’t offer special treatment, business owners will shop around for communities that will. This same argument is made whether the targeted use is an industrial plant that could be located anywhere in the nation or world, or an amenity like a movie theater or car dealership that can’t go anywhere because it relies entirely on local customers.

Laura Reese is a professor at the Michigan State School of Planning, Design and Construction who has studied and published studies on the issue of local tax abatements. She doesn’t think they do what their boosters and beneficiaries say.

“I've spent a lot of years looking at tax abatements and am not a fan,” Reese said in an email. “Generally the large body of research on abatements indicates that they are not effective over the long term. They may stimulate jobs in the short run but economic gains are short-lived. Research has also shown that any economic growth falls short of the costs to the community in terms of forgone revenue.”

“So, the bottom line is that my research and that of many others suggests that abatements are both ineffective and inefficient,” Reese said.

Reese said that giving tax abatements to a particular firm may increase the amount of taxes that other businesses and residents must pay, to make up for letting the owners of one company pay less.

“So, that is not equitable under most definitions. If taxes were lowered for all businesses and residents in an area would that be fair? It would be better but might place a larger burden on other areas of a city. If the abatement causes forgone revenues that could have been used to provide services to the rest of a city is that fair to current residents and businesses? No.”

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.