• Michigan Senate approves sweeping changes to the state’s business incentive programs; House must sign on
• The legislation aims to spur community development, high-wage jobs and research
• The vote comes days after a Bridge Michigan investigation into the state's use of $335 million in subsidies last year

LANSING — The Michigan Senate on Tuesday approved sweeping plans to overhaul the state’s signature business incentive program and create tax breaks to encourage innovation and higher-wage job creation.

Each of the major bills backed by the Democratic majority now head to the House for additional consideration, including previously approved research and development tax credit legislation revised by the Senate. 

This means further action can’t happen until next month, when lawmakers return from a legislative spring break.

The flagship package approved Tuesday would revise Gov. Gretchen Whitmer’s Strategic Outreach and Attraction Reserve (SOAR) program, which was created to lure big businesses but has frustrated some fellow Democrats who campaigned against what they called corporate handouts. 

Related: 

• Michigan lawmakers eye retooling corporate subsidies to target high-wage jobs 
• Michigan lawmakers weigh $100M tax subsidy plan to create high-paying jobs
• Bipartisan vibes as Michigan lawmakers seek to reform SOAR incentive fund 
• Michigan Democrats offer plan to remake economic development

Among other things, the legislation would amend the program to require half of all incentives go toward “transformative community investments,” said sponsoring Sen. Mallory McMorrow, D-Royal Oak.

That could include local housing, childcare, education, transit “and the things that many of our economic development leaders, our stakeholders and our communities are telling us that they need to be successful,” McMorrow said. 

“I hope that this is just the start of an ongoing conversation as we remake what holistic economic development looks like in the state of Michigan.”

Republicans helped create the SOAR program in late 2021 but have opposed some of the incentive awards that followed, including funding for Chinese-owned Gotion Inc. to build an electric vehicle battery facility in Mecosta County.

Government programs that “pick winners and losers” don’t work, Senate Minority Leader Aric Nesbitt argued in a floor speech, citing a recent Bridge Michigan investigation showing that 4 of 10 jobs created last year are expected to pay less than the state’s median wage.

“Whatever you call it, it’s the same failed concept: giving tax dollars to massive corporations — some of the most profitable corporations in the world, often foreign companies — in the hopes they’ll create more jobs in Michigan,” said Nesbitt, R-Lawton.  “This is like trying to paint over the name ‘Titanic’ on the bow before the ship goes under.”

A plan to revive and expand an income tax capture plan for businesses that create good-paying jobs also passed in a series of party-line votes, while some Republicans joined Democrats to support creation of a tax credit for Michigan companies that invest in research and development. 

Dire warnings

The Senate worked late in the evening amid growing scrutiny over the stability of the Michigan economy: The state’s population remains stagnant, prompting dire warnings about its future workforce. At the same time, its per capita income threatens to tumble even further and leave Michigan as one of the least prosperous states. 

The votes also come days after Bridge’s investigation that showed Michigan spent $335 million in job-growth subsidies in 2023, with 40% of the promised jobs paying less than $22 per hour. About 60% of Michigan jobs don’t pay middle class wages.

The bills passed Tuesday were initiated in 2023 as legislators turned to a wave of proposals to overhaul Michigan’s economic development incentives.

The efforts grew out of growing dissatisfaction with the SOAR fund, which since it was created in 2021 grew into a $2 billion dollar subsidy for the largest deals promising a combined thousands of jobs.

That spending was necessary, bipartisan legislators said in 2021, after Ford Motor Co. chose Tennessee and Kentucky for an $11.4 billion investment in electric vehicle battery production. SOAR allowed Michigan to compete for comparable “transformational” deals, preserving the state’s stake in auto manufacturing but raising questions about how other businesses could also grow. 

Many of Michigan’s business leaders supported SOAR and say that a large-scale funding option is important to the state’s hopes to increase EV business. 

However, many also point to what is missing from the SOAR approach: existing high-growth non-automotive businesses, entrepreneurs with a slower pace of job growth, and highly educated, highly paid positions that tend to come with research and development type jobs that Michigan also battles to attract.

“Michigan is one of only eight states without a payroll incentive for new job creation and one of only 13 states – and the only one in the Midwest – without a tool to support research and development activities,” Jeff Donofrio, president and CEO of Business Leaders for Michigan, said in February.

“This puts Michigan at a clear disadvantage for attracting and retaining businesses, especially those in the knowledge economy. “

R&D tax credit

Rewarding job growth from businesses of all sizes — and not solely the megadeals seen with Ford in Marshall, General Motors in the Lansing area and Gotion Inc. near Big Rapids — is a focus of both the R&D tax credit and income tax capture legislation approved Tuesday. 

The R&D tax credit will “support projects that are on the cutting edge of innovation,” said Rep. Jasper Martus, D-Flushing, in a commentary published in Bridge last November. 

“Businesses ranging from automakers looking to develop electric vehicles to medical research facilities working on life-saving treatments have pointed to Michigan’s lack of an R&D tax credit as a major inhibitor to growth,” he said.

The income tax capture legislation would create the High-wage Incentive for Regional Employment program, or HIRE, modeled after a similar “Good Jobs for Michigan plan” created in 2017 under then-Gov. Rick Snyder. 

Snyder’s program, which expired in 2019, limited the state to 15 agreements per year, with a cap of $200 million over the program’s life. The new plan would allow up to $125 million annually over eight years, with no limit on participants.

To qualify, employers creating at least 250 new jobs would have to pay at least 150% of the regional median wage. An employer creating 25 jobs would have to pay at least 175% of the median wage, unless the county population was less than 50,000. In that case, a wage of 135% of the median would suffice.

The HIRE package would align Michigan with most other states, legislators and business leaders told the state House Economic Development and Small Business Committee during a hearing in February.

Sponsors said they envisioned businesses in sectors like agriculture, technology, energy and tourism seeking to use the tax credits, with sponsoring Sen. Sam Singh, D-East Lansing, calling the effort “more comprehensive” than other recent economic development moves.

The MEDC last month estimated that seven projects in the state’s economic development pipeline could take advantage of the tax capture if the bills pass. Combined, those projects would spend $1.8 billion and hire 6,100 people.

While the legislation would essentially expand the program created under Snyder, a Republican, the Senate GOP caucus uniformly opposed the legislation Tuesday. 

Nesbitt, the minority leader, accused majority Democrats of trying to allow millions of dollars in “secret back-room crony business deals.”

“These tax dollars should be going back into the pockets of the hardworking Michigan taxpayers who actually need economic relief,” Nesbitt said in a statement.