Michigan Senate Revives Corporate Welfare Scheme Governor Vowed to End

Just two weeks after one of the firms benefiting from a $100 million state electric car battery subsidy deal announced layoffs of 125 Michigan workers (A123 Corporation), the state Senate has authorized a $50 million deal for another electric car project (Who Voted "Yes" and Who Voted "No"). The latest combination of cash grants and tax breaks would go to a firm called Townsend Ventures, which wants to use the former Ford Motors Wixom plant to make systems related to electric cars and batteries, including the “development and installation of a cost effective, national, electric vehicle recharging system.”

This would be the second time the Legislature has authorized huge subsidies for an alternative energy scheme using this particular plant. In 2009, $100 million was approved for a deal that fell through earlier this year, a joint venture involving firms calling themselves "Xtreme Power" and "Clairvoyant Energy."  

Under the latest deal, Townsend Ventures would have to create 750 jobs in the re-used plant to get the full $50 million in capital improvement subsidy/tax breaks. The credits would be awarded over a four-year period and assuming these targets are met, Michigan taxpayers would be responsible for providing Townsend with special favors that cost $66,667 for each job created.

The firm is also involved in another battery car project that was awarded a state tax break/subsidy deal worth more than $80 million, plus $161 million in federal "stimulus" money.

In addition to risking yet more state taxpayer dollars on an industry that despite billions in state and federal subsidies shows few signs of catching on (GM just announced that production of its “Volt” electric car will fall 38 percent short of this year’s planned output of 10,000 units), the Senate’s vote also undermines a commitment made by Gov. Rick Snyder to scale back the level of state corporate welfare and to stop using the tax code to distribute this taxpayer largesse.

Rather than a transparent cash handout using funds from Gov. Snyder’s new “economic gardening” program, the $50 million for Townsend would be delivered as a “refundable” tax credit, with the firm collecting a secret combination of tax breaks and cash handouts by filing under the soon-to-be extinct Michigan Business Tax. (Some firms that previously had been granted similar deals will continue filing under the old tax until those agreements expire.)

Under the previous state corporate welfare regime, government secrecy prevented residents from learning how much from such credits was granted in the form of cash handouts and how much through reductions in a firm's tax liability. Given that few if any of the recipient battery and alternative energy firms had much profit or even much sales revenue (also taxable under the old MBT), it’s likely that investors in these deals benefited from large checks handed out by the state.

Over the past five years the Michigan Legislature has authorized more than half a billion dollars worth of such deals for electric car battery makers, solar cell plants and similar projects. In addition to the A123 operation a second electric car battery assembly plant owned by the Korean firm LG Chem is now operating in Holland.

This state money is in addition to federal subsidies. The Washington Post reports that A123 has received $380 million in government support, and currently employs just 690 Michigan workers rather than the 3,000 predicted by President Obama and the company. LG Chem was given $151 million in federal "stimulus" money.