Analysis: GM move from Ren Cen a ‘loser’ for Detroit coffers after subsidies

General Motors Co’s anticipated crosstown move from the Renaissance Center to the nearly complete Hudson’s Detroit building puts a high profile anchor tenant in the skyscraper, owned by Dan Gilbert’s Bedrock. But it also puts Bedrock on pace to miss the job and tax revenue creation promises it made in exchange for a controversial $60 million tax incentive in 2022, a new BridgeDetroit analysis finds.

The potential shortfall casts doubt on the basis for taxpayer support for what will be Detroit’s second tallest skyscraper.  

Supporters of the tax break insisted at the time that the Hudson’s site would create 2,000 new jobs and net $71 million in new city tax revenue from the additional workers. 

But Detroit will not see a net gain in new jobs or local tax revenue for the estimated 850 GM RenCen employees – it simply moves existing jobs from one building to another, which will not generate new tax revenue for the city.

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This reduces Bedrock’s projected new job creation total to 1,150 and its new income tax impact by 43%, which means the Hudson’s Detroit site could now, at best, generate about $52 million in new tax revenue. Three economists who reviewed the analysis called it fair but “conservative,” and said the project will likely create very little, if any, net positive tax revenue. 

A city spokesperson said the analysis is “premature.”  

Hudson’s Detroit is on pace to be a “net loser,” said Greg LeRoy, an economist with subsidy tracker Good Jobs First. He reviewed the tax incentive proposal in 2022, and, at the time, labeled Bedrock’s job creation claims “laughable” because office buildings create very few new jobs. Instead, they largely house jobs that already exist. 

City officials “rejected” LeRoy’s comments at the time, and insisted jobs would move from outside the city to the Hudson. 

“We never like to say ‘I told you so,’ but office space doesn’t create jobs, especially when it’s office space in a market with high vacancy rates, and tenants that move from three blocks away,” he said. “That’s not economic development.” 

The GM move also reduces the city and Bedrock’s new state shared revenue projections, and other new revenues that are difficult to estimate because they are kept secret by companies and officials, or currently unknown because they do not yet exist. 

If the site is to generate the remaining $52 million in potential new tax revenue, the remaining 1,150 projected jobs would have to be new to Detroit. That is unlikely, according to the three economists BridgeDetroit spoke to. 

Mayor Mike Duggan spokesperson John Roach said the findings “rest on premature and unverified assumptions,” and deferred to Bedrock. The company’s spokespeople did not respond to multiple requests for comment, nor did the Detroit Economic Growth Corporation (DEGC), a quasi-public agency that negotiates and develops incentive deals for the city. 

While BridgeDetroit’s analysis is an estimate, it is “a very conservative way to look at what [the GM announcement] is going to do,” said Jacob Whiton, a former DEGC employee now with Good Jobs First.

The BridgeDetroit analysis also only includes the 2022 incentive. But in 2017 Bedrock also received about $200 million in Transformational Brownfield incentives, which impacts taxpayers statewide, and the GM move will result in lost revenue for those taxpayers as well

The development adds fuel to the broader debate about the high level of tax incentives the city approves for wealthy developers instead of directly investing in low-income residents. 

“It was sold as a transformational project, but we were never told the transformation would include moving jobs a few blocks down the street,” said Michael LaFaive, director of the Mackinac Center For Policy, which analyzes and opposes corporate tax incentives.

The tax incentive’s supporters included Gilbert’s Bedrock, five Detroit City Council members, Mayor Mike Duggan and the DEGC. City council members who voted for the incentives either declined to comment or did not respond to requests for comment from BridgeDetroit.

Roach praised Bedrock and GM in a statement. 

“What is beyond question … is that GM keeping its headquarters in Detroit will greatly benefit the Motor City and its residents, including through income tax revenues,” Roach said. 

The state law allowing the tax abatement the council approved for Hudson’s Detroit allows for the city to rescind the abatement if promises are not met. City officials did not respond to questions about clawbacks. 

A controversial Hudson’s deal 

In early June 2022, the Detroit City Council twice delayed a vote on the $60 million tax incentive as an acrimonious debate played out. 

Development on the 2.3-acre site started in 2017, but setbacks pushed it two years behind schedule. The tower shrunk from 800 feet tall to 684 feet, and the overall price tag grew from $908 million to $1.4 billion, largely because of inflation. 

Opponents, largely city residents, argued that taxpayer giveaway for a company owned by Gilbert, a multi-billionaire and richest man in Michigan, was unnecessary, and pointed to campaign contributions Gilbert made to council members who supported the project. 

But supporters insisted the city would come out ahead. Bedrock lobbyist Jared Fleischer hammered home the company and city’s math in a June 2022 public meeting.  

“You have to take a step back and say ‘what actually is in the best interests of the city and its citizens?’ Is it having a public policy where the Hudson’s site sits empty for another decade or more because financially nothing can be executed and sustained there? Or is it better for the citizens of Detroit to have $71 million generated in the first 10 years and $450 million generated over 30 years?”

City and DEGC officials also insisted the jobs would be new to the city when pressed by a reporter in June 2022. 

“Our projections are based upon new jobs coming into the city, and new business coming into the city, not just a reshuffling of jobs in the city,” said Kenyetta Hairston-Bridges, an executive at the DEGC, said at the time. 

Duggan chastised reporters, asserting that they were misreporting on concerns about the incentive. 

“That is money we can put into police and parks and community programs,” Duggan said in 2022. “It will be there for the General Fund, and that’s why we are pushing so hard. This is going to be a great project for the city’s future.”

Anatomy of a ‘bad deal’ for taxpayers

Documents from 2022 that break down the Hudson’s projected tax revenue streams show the city estimated nearly 2,000 new jobs would generate $43 million in new municipal income taxes among direct employees, indirect employees and corporate income. 

Because the 850 GM jobs, or 43% of the anticipated 2,000, will not be new to the city, the $43 million estimate is reduced by about $19 million, BridgeDetroit’s analysis finds. 

Whiton noted the city’s return on investment will likely be much lower. BridgeDetroit’s analysis assumes the remaining 1,150 jobs will all be new to Detroit. The economists interviewed said that is highly unlikely, pointing to the GM move as evidence. 

Whiton also noted that Bedrock wrote in its 2017 Hudon’s incentive plan that it anticipated the building would hold 1,007 office jobs paying an average wage of $85,000 annually, and 626 retail and events jobs, which would be lower paying positions. 

If GM fills Hudson’s Detroit with 850 employees, then most of the high-paying jobs, which would create more income tax revenue for the city, would be accounted for by positions that already exist in the city. The BridgeDetroit analysis does not factor that in, so it is likely that the amount of tax revenue Bedrock could still generate is much lower than $52 million, Whiton said. 

Whiton said Bedrock and the city are “shuffling the deck chairs.”

The city also projected around $8 million in new state shared revenue that new employees working at the building would generate. But the GM workers are already spending money in downtown Detroit and creating sales tax. Because Bedrock and DEGC have not disclosed how they arrived at the $8 million estimate, it is impossible to estimate the benefit reduction. 

“This speaks to how there is a total black box and we need to open [Bedrock’s calculations] up to be able to properly scrutinize it,” Whiton said.  

Moreover, if the RenCen loses its employees, then GM would likely pay less in property taxes on the building, which is not factored into the city’s projections, LeRoy noted. 

Ultimately, Gilbert and Bedrock will benefit while taxpayers lose, the Mackinac Center’s LaFaive added, highlighting that there is “no free lunch.” 

“Whether it comes from fewer tax dollars, or fewer and worse public services, we have to pay, and it’s not only an ineffective way of encouraging development, it’s fundamentally unfair, “ LaFavie said.