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.

News Story

Bill Proposes Adding Wind Industry to 'Right to Farm' Act

House Bill 5886 would let wind turbines avoid zoning and building permits

Wind turbines could be erected without regard for some local laws under recently introduced legislation. House Bill 5886 would amend Michigan’s Right to Farm Act to include wind production. If enacted, it would allow wind turbines to be constructed on agricultural land with no zoning or building permits of any kind.

Enacted in 1981, the Right to Farm Act was meant to protect farmers from nuisance lawsuits. Under the Act, farmers who follow the Generally Accepted Agricultural and Management Practices (GAAMP) are protected from lawsuits over noise, dust, odors and so on that result from normal farm operations. House Bill 5886 would add wind energy production in with farming activities, such as harvesting and storage of farm products.

The measure was introduced on Oct. 2 by Rep. Jeff Irwin, D-Ann Arbor, and Rep. Jon Switalski, D-Warren, and assigned to the House Energy and Technology Committee. It is not expected to be given a hearing or move, but could foreshadow the various types of legislation that might be introduced again in 2015, as the Legislature reviews the Energy Bill of 2008.

That law – among other things – created Michigan’s 10 percent renewable energy mandate. Under the mandate, 10 percent of Michigan’s electricity is supposed to be generated by in-state renewable sources by 2015. For all practical purposes, this has become a 10 percent wind power mandate.

“Michigan Farm Bureau opposes HB 5886, and does not believe protections for wind energy should be included in the Right to Farm Act,” Andrew Vermeesch, spokesman for the Michigan Farm Bureau, told Capitol Confidential. “The Michigan Right to Farm Act is recognized nationally as model policy for resolving disputes that can arise between farms and neighboring residents over standard agricultural practices. Our members specifically advocate that the Right to Farm law should not be weakened or jeopardized by including practices that are not directly related to farming.

“With the important protections that this law provides our farmers around the state, we have to be careful about how we load up Right to Farm,” Vermeesch continued. “Simply put, if Michigan is to keep a strong right to farm law, we must keep the focus on its original purpose of nuisance protection for agricultural activities. While Michigan Farm Bureau does not support HB 5886, our organization does support all forms of renewable energy which include wind.”

According to Michigan Townships Association spokesperson Judy Allen, the MTA will not support House Bill 5886.

“MTA would not be supportive of legislation that would pre-empt townships on local zoning,” Allen said.

Kevon Martis, director of the Interstate Informed Citizens Coalition, a nonprofit organization that is concerned about the construction of wind turbines in the region, called the legislation “reckless.”

“This is the most reckless wind energy proposal I have ever seen,” Martis said. “The IICC is one of the leading wind industry citizen watchdog groups in the Midwest. Roughly 40 percent of our supporters are rank-and-file Democrats, many self-proclaimed 'liberal environmentalists.' Rep. Irwin's bill would grant carte blanche siting freedom to utility scale wind developers. Township and county governments would be totally neutered with respect to enacting any regulations to protect their local environment, endangered species or their rural citizens.”

According to Rep. Irwin, House Bill 5886 is an effort to apply free market principles to wind energy production.

“As a member of the minority party in the House I am trying to find ways to reduce bureaucratic obstacles to advancing clean energy. I know that we need to work with the Republicans, so I said ‘let’s find free-market based ways to facilitate it.’” Rep Irwin told Capitol Confidential. “I would also like to say that, if there was a hearing on this legislation, I would recommend that it be amended to add some minimum standards, so that it wasn’t completely unregulated. I see those as being sort of along the lines of GAAMPs.”

Capitol Confidential asked Rep. Irwin if he was aware of the health problems involving noise levels and other factors that are allegedly linked to wind turbines being erected too close to residences, and the court case over Mason County’s finding that Consumers Power’s Lake Winds Wind Plant has been in violation of the county noise ordinance.

“I’m not necessarily aware of the turbines generating health problems, but I am aware of them generating health complaints,” Rep. Irwin said. “I have tended to connect the complaints to those who were anti-wind. I haven’t been sold on the idea that they (wind turbines) actually generate health problems – I don’t know that that is demonstrable. But, I’m not in the medical field and I reserve judgment. I will add this, however, I certainly wouldn’t say that those people are lying.

“I also know there is an inverse relationship between situations where more of the people share in the proceeds of the wind projects and the number of complaints,” Rep. Irwin added. “It seems that the more that there are people (nearby residents) who get a financial benefit, the less the number of complaints.”

Capitol Confidential suggested the dynamic to which Rep. Irwin had referred might be attributed to situations arising when residents accepted money and signed hold harmless agreements before a project got under way, thereby creating self-inflicted gag orders preventing them from being in a position to publicly complain.

Capitol Confidential also asked Rep. Irwin if he was aware that Germany, which had become the nation “renewable energy” proponents held up as the model to be followed regarding “green” energy, was now reexamining its energy policies in light of increased costs, coupled with data showing that, in spite of its $140 billion investment in renewables, emissions had actually increased.

“I think that will be an interesting case to watch,” Rep. Irwin said. “I am aware that in Germany there has been a lot of heavy investment in solar energy. But as far as wind is concerned, Germany does not have the Great Lakes next to it.”

Capitol Confidential asked Rep. Irwin about coal and natural gas being used in place of wind energy a high percentage of the time in Michigan because the wind in not dependable; and – as a result – more often than not, the energy produced is not wind-generated at all but actually by fossil fuels used inefficiently due to repeated stops and starts.

“I’ve heard a lot of different claims,” Rep. Irwin said. “Back in 2008, when they passed the energy bill (which included to renewable energy mandate), some who opposed it argued that wind power would be too expensive, but the actual cost has actually gone down significantly since then.”

While in Germany emissions were measured to test the impact of renewables, Michigan’s 2008 Energy Bill did not include an emission-measuring requirement. Capitol Confidential asked Rep. Irwin if he would consider offering an amendment in 2015 to require the monitoring of emissions to track the actual impact – if any – that wind power in Michigan was having on the environment.

He said that was something he would consider.

Meanwhile, according to Martis, House Bill 5886 would make an already problematic wind energy situation even worse.

“The wind industry's current business model involves convincing local planning authorities to create zoning that – by measuring turbines setbacks and noise limits at people's homes rather than property lines – essentially grants free nuisance and safety easements to corporate wind developers," Martis said.

“Rep. Irwin's bill goes much farther,” he continued. “If adopted, his bill would donate nearly the entire state of Michigan to massive corporate wind developers at the expense of the human beings compelled to endure the ill effects of wind development including noise pollution, visual blight, health impacts and property value devastation.”

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.