Jeep plants a big win for Detroit. But expect debate about tax incentives

Update: Jeep deal promises Detroit 5,000 jobs. But will they go to Detroiters?

Michigan officials today are celebrating their good fortune: For the first time in over 25 years, a huge manufacturing plant may be built in Detroit, bringing as many as 5,000 jobs, and another 1,200 just north of Eight Mile.

How good of news is the announcement from Fiat Chrysler?

In a city that’s lost over 1 million people since 1950 and hundreds of thousands of jobs, it’s spectacular news.

With the average annual wage of a manufacturing employee in Wayne County just over $72,000, it would mean a $360 million shot in added payroll for the local economy and push FCA to No. 2 among the city’s employers, behind Dan Gilbert’s Rock Ventures empire, which has 16,600 workers.

Related: Fiat Chrysler promises 5,000 jobs. But not all Detroiters love the plan.​
Jan. 2018: Business incentives cost Michigan millions, and it’s uncertain they work

Depending on where those workers live, the new boost in payroll could also add $4 million to $5 million in city income taxes.

But some of those taxes could be offered back to FCA in the form of incentives, as they were for Gilbert’s Hudson Block development, which includes a $1 billion planned skyscraper downtown.

A memorandum of understanding between Detroit and FCA gives the city  60 days to acquire 200 acres of land for FCA and approve an incentives package that would include property tax relief, allowing FCA to use it’s property tax payments to pay down debt from the project.

“This opportunity is unlike anything we have seen in decades, and it’s going to be crucial that we come together in the interest of our city and our residents over the next 60 days to bring nearly 5,000 new good-paying jobs to this neighborhood,” Detroit Mayor Mike Duggan said in a statement.

Between the new plant, with anticipated hiring of 3,850 people, and 1,100 new jobs at the neighboring Jefferson Road plant, total hiring in Detroit for FCA would climb to over 11,000 people, up from just under 6,000 now.

FCA intends to invest $1.6 billion in renovating the former Mack Avenue plant into a new assembly facility for upcoming Jeep products. It would spend another $900 million to upgrade the Jefferson Avenue plant for a total of $2.5 billion.

Throughout Michigan, FCA is investing $4.5 billion at five plants and adding roughly 1,400 workers at its Warren facility and 80 in Sterling Heights, both in nearby Macomb County.

The project was announced in Detroit on Tuesday by FCA officials, Detroit Mayor Mike Duggan, Michigan Gov. Gretchen Whitmer and Wayne County Executive Warren Evans.

If the plans come to fruition, Detroit would add nearly 14 percent more manufacturing jobs than are already in the city.

It would be a remarkable turnaround from 2012, when manufacturing jobs fell to 25,700 in the city, down from 32,000 just two years earlier as the Great Recession cuts shook out.

As of 2017, there were over 34,000 manufacturing jobs in Detroit.

Each of those jobs could support a family, a mortgage and more. All things that Detroit, one of the poorest big cities in the United States, needs.

But like many big economic development projects, this one will require incentives.

FCA wants to city to buy and provide land, which could mean buying out some local property owners. Duggan stressed Tuesday the project would not displace residents.

FCA is also hoping to get property tax relief, in essence allowing the company to use what would have been their property tax bill to pay some of the project’s debt.

In fact, a  Bridge Magazine analysis of city and state records showed that one-third of the city’s $1 billion in increased commercial value from 2014 to 2017 was located in tax-increment financing zones whose taxes are used to repay development bonds.

Knows as TIFs, the zones allow developers to divert property tax increases to pay off projects. The zone around Little Caesars Arena, for instance, will divert $726 million in taxes by 2051.

In 2017, $30.6 million in taxes was collected by the downtown TIF, meaning that means nearly a fifth of city property tax revenues never made it into the city’s coffers.

FCA anticipates getting similar relief and a “community benefits” agreement with the city.

That could include a host of conditions, about both what FCA could do for the neighborhood, but also what Detroit could do for the company. Among other things, such agreements have allowed companies to divert income taxes by workers to pay for the costs of construction projects, while others in Detroit have set aside jobs for residents.

Last May, Gilbert’s Rock Venture got a $618 million incentives package from the state and city, which included $1.7 million in city income taxes from Detroit and major state income tax relief as well.