Analysis: Michigan Taxpayers to Write $100 Million Check to Korean Battery Maker

Last week the the Michigan Economic Development Corp. upped the ante on a $100 million "refundable" business tax credit approved by the state House and Senate for a subsidiary of the South Korean battery maker LG Chem. The MEDC in effect converted the credit into an outright cash subsidy from Michigan taxpayers by granting the firm's 120-acre plant site in Holland "renaissance zone" status for 15 years.

The legislation authorizing the credit, Senate Bill 466 sponsored by Sen. Wayne Kuipers, R-Holland, was passed last year. This spring, the firm was also approved for a federal "stimulus" grant of $151 million for the plant, the cost of which is pegged by various sources at between $244 million and $303 million. Essentially, taxpayers are all but giving the Korean manufacturer a brand new factory.

The $100 million in checks from Michigan taxpayers will be written over four years beginning in 2012, in amounts equal to the company's capital expenses, up to a maximum of $25 million each year.

The renaissance zone status converting the "credits" to cash subsidies was authorized by House Bill 5555, sponsored by Rep. Ed Clemente, D-Lincoln Park, signed by Gov. Jennifer Granholm in May. It absolves LG Chem's American subsidiary, Compact Power, Inc., of virtually all site-specific state and local taxes for 15 years, including most property taxes. The combination of state business tax credit "refundability" plus renaissance zone status is what ensures that the entire credit will be in the form of cash disbursements.

LG Chem's facility is one of four such plants granted $100 million "refundable" tax credits since 2008 under the "advanced battery credit" section of the Michigan Economic Growth Authority statute; the owners of three facilities will divide a fifth credit of up to $120 million authorized last December. (The bills authorizing each are described here; click on "vote details and comments" after each roll call vote to see the yeas and nays.)

In addition to this combination of $520 million in cash subsidies and foregone business taxes, these firms will divide up to $135 million in additional refundable credits based the amount of electric car battery packs each produces. More tax breaks and subsidies will be provided for engineering expenses and production jobs.

Renaissance zone status also guarantees that the Korean firm's share of these other benefits will be in the form of checks written by the Michigan Department of Treasury, including as much as $25 million depending on how many workers it hires, up to a maximum of 440 jobs.

At least some lawmakers sense that all this check writing may be getting out of hand: On June 15 House Bill 6264 was introduced with 28 co-sponsors to prohibit giving cash subsidies in the form of refundable tax credits to firms located in a renaissance zone.

Unfortunately for those who agree, the bill is almost certainly "dead on arrival" in both the House and Senate. That conclusion is supported by the fact that all but eight of House Bill 6264's sponsors were among the 99 representatives and 38 Senators who voted just six weeks earlier for the legislation converting some or all of the battery plant "tax credit" recipients into cash subsidy recipients by allowing their facilities to become renaissance zones. LG Chem was just the first such conversion under the new law.

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Legislators who voted to authorize renaissance zone status for electric car battery plants (House Bill 5555) six weeks before they co-sponsored a bill to prohibit the companies from collecting cash subsidy checks as a result (House Bill 6264):

Republicans:  Pete Lund, Arlan Meekhof, James Marleau, John Walsh, Chuck Moss, Brian Calley, Phillip Pavlov, John Proos, Tonya Schuitmaker, Kim Meltzer, James Bolger, Larry DeShazor, Kenneth Kurtz, Joe Haveman, Eileen Kowall, Tom Pearce, Matt Lori, Hugh Crawford, Bill Rogers, Kevin Green.

Democrats: Alma Wheeler Smith, Roy Schmidt.