McMorrow: Democrats plan changes to Michigan’s business incentives

• Michigan’s lawmakers are poised to change the state’s tax incentive structure
• They say their goal is to maximize the benefits to the state for the investment
• Existing incentive offers are not likely to be affected, a senate leader says

Michigan’s Democratic legislature is making some high-profile policy changes in their first term as a majority party in 40 years, such as repealing Right-to-Work legislation— which soon heads to Gov. Gretchen Whitmer for approval — and exploring tighter gun laws.

Business incentives also are up for changes, state Sen. Mallory McMorrow told Bridge Michigan, though no specific details have been determined.

“Hopefully we've made it very clear that this is an area where there is going to be reform,” McMorrow, chair of the Economic and Community Development Committee, told Bridge.

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Opening discussion about retooling the incentive plans now offered to businesses that move to or expand in the state comes as Michigan is aggressively pursuing industries like electric vehicle and semiconductor manufacturing, both of which are spending billions to increase their U.S. capacity. 

Competing for the projects — like the recent Ford Motor Co. deal to open a new battery assembly plant in Marshall — requires incentives to meet expectations set by other states that also are vying for the deals and offering incentives for land, utilities, taxes and other costs, state officials have said.

But Michigan’s legislators want to explore what changes could add value to the incentive program for residents and communities, McMorrow said, in part to mitigate the risk of businesses not delivering on job-creation promises.

Here are excerpts from McMorrow’s recent conversation with Paula Gardner, Bridge’ business editor.

You set up a hearing on March 2 with Tim Bartik, an economist at the Upjohn Institute for Employment Research in Kalamazoo, about his research into incentives and how to boost their value to the state. What was your goal for his testimony? 

Tim is somebody with a wealth of knowledge and research that backs up the idea that we shouldn't get rid of economic incentive-based developments, but there are ways to do it better to make them more successful … and increase the return on the investment. 

What catches your ear most from what he says?

Research on front- loading an award, versus maybe spreading it out over 10 or 20 years. While (a longer term) may be more palatable for legislators in the moment, it is not effective. …  I do think there is enough research, and horror stories out there, frankly, that we should learn from.

If we're going to do (incentives), let's make sure that we're … improving the success of these tools. (That means) making sure that we have strong clawback provisions (to recover grants if job projections aren’t met), but also that we're building tools in a way that are attached to workforce development or community development. Then, even if a company fails to live up to their promises, the state and the residents are still better off.

Where do you think your colleagues are, since that hearing followed a March 1 vote on using $630 million to develop property for Ford in Marshall? The approval generated more pushback than the initial vote in late 2021 for the $1B Strategic Outreach and Attraction Reserve (SOAR) fund, which grew to $1.6 billion a year later to fund large-scale projects.

I think there is a lot of agreement (to support reform). … In some of the conversations with the (Ford budget vote), there was a lot of heartburn.  But we recognize that this tool as it stands was created by the previous legislature. 

Have you outlined any must-have items that you want in new incentive legislation?

Not in specifics yet. 

What are you considering? 

I'm starting to dig into some of the requirements in the ($52 billion federal) CHIPS Act. For example, if a company is awarded a certain amount of funding under the CHIPS Act, they must provide childcare, or that those companies do not perform stock buybacks or something like that.

(There may be) some parameters that we can attach to awarded companies to lower barriers to enter the workforce to support the community (like in the childcare example). 

Like transit?

Something that I think about often …. is Amazon HQ2. The state of Michigan was willing to offer – between the city of Detroit and the state – $4 billion in incentives. And they came back to us and said, ‘You're not even in the top 20 because you don't have the talent and you don't have transit.’

Meanwhile, Virginia won the business with an $800 million incentive, coupled with an expansion of Virginia Tech, and expanded public transit. 

(This) is a perfect example of why that's a good approach. Because Amazon recently announced they are pausing the development, but some of those investments have already been made for the community. 

A lot of what we're looking at is how can we make sure that we build this (incentive) tool in such a way, both via the appropriations process and in statute so that every time we're going after a project, there is an investment back into the community that leaves residents better off than if we hadn't gone after the project.

Do you have a Republican ally on this yet?

I think we have a lot of Republican allies. I have taken one on one meetings with everybody on my committee, which I think was right off the bat sort of surprising to some of the members just to get to know them. And I brought this up in the Economic Development Association convention meeting a couple of days ago. 

(By) finding ways to look at going after these projects as an impetus to invest in some things that maybe we wouldn't do otherwise, I think we're going to find that there are a lot of allies on both sides of the aisle.

Gov. Gretchen Whitmer seemed proud during her 2022 campaign of what she accomplished with the SOAR legislation last year in attracting business. Where is she on making changes to this plan? 

We haven't had those conversations directly yet, so I don't want to speak for the governor. One of the things that I acknowledged in my first committee hearing is this is really about building on successes of the last (legislative) term.

But Michigan also has population forecasts that suggest filling more jobs could be difficult in coming years as the state ages. 

We have a talent issue like many states do; we are not alone in this. … Yes, let's land these businesses. And that's worth celebrating. Let’s also make sure they have the workforce that they're going to need to succeed 10, 20, 30 years from now.

What about the role of brownfields, or former contaminated industrial sites, in incentives? Bartik’s presentation suggested Michigan could benefit greatly from targeting them in areas that already lost jobs.

I think that's a huge piece of it, and it hits on a lot of points when it relates to economic development, our climate goals, (and) workforce development. We've got brownfield sites that are not only manufacturing, but my previous district included Troy and the Kmart headquarters there has been sitting empty for years now. The number of empty malls that we now have — there's a lot of sites that are going to need to be redeveloped. So I think brownfield redevelopment is going to be a huge part of what this committee continues to discuss. 

What's your appetite for giving more money to the SOAR fund right now?

The reason that I supported the budget, and I think what is clear on the committee, is I will 100 percent support funding the SOAR fund so long as it's funding things that we believe in. That is the work the committee is going to do — work on the statutory side of things to make sure that, again, these are projects that benefit both the company and the community.

And if we can build in that tool…. where it effectively recreates the formula (Virginia used for) Amazon HQ2, I think that is absolutely something that we should continue to fund because that, to me, is a vision of targeted investments in regions and communities. We (would be) leveraging economic development opportunities for things that we wouldn't have otherwise.

What's your timeline?

That is what we're still trying to figure out. .. There are projects in the pipeline. I don't want to … have too strong of a whiplash (with abrupt changes while MEDC continues business attraction work). I don't think that's good for anybody. 

We're trying to figure out right now our short-, mid- and long-term goals. On something like reforming a state's approach to economic development, I could see that being something that we work on over the course of this entire term. 

But I do want to make sure that as projects are still in the pipeline, there are things that we can start to reform in the near future that are going to start to nudge us in the right direction.