September 2017

September 1, 2017

The old adage that 'those who ignore history are doomed to repeat it' is now playing out in grand fashion as the Michigan legislature and the administration of Gov. Snyder celebrate the possible arrival of the Taiwan-based Foxconn Technology Group that will supposedly create jobs dedicated to assembling liquid-crystal display screens now used for Apple iPhone and computer products, along with the defense, automotive and aviation industries.

Michigan is among a handful of states that have been chasing what Foxconn officials suggested a year ago would be $7 billion in investments creating anywhere from 30,000 to 50,000 jobs in the U.S. Officials here were crestfallen when in July it was announced that the state of Wisconsin would get a plant to serve the Apple phone supplier (more on that later), but were buoyed by the suggestion that Michigan could still get a major investment with a second plant specifically focused on serving the auto industry demand for liquid-crystal display screens.

So Snyder went about pushing through a set of bills (dubbed 'Good Jobs for Michigan' legislation) – which had died in the state house last year – that supposedly would provide incentives for Foxconn to locate a plant here while Snyder and Detroit Mayor Mike Duggan flew off for a weekend in Taiwan to reportedly hammer out details of bringing the investment to Michigan.

Lost in all the celebration was a report being issued by the respected non-partisan policy study group Citizens Research Council, which lays out a pretty dark short-term and long-term future for the state's budget thanks to the same poor public policy being followed to grab the shiny object dangled by the Foxconn Technology Group. 

Let's start by looking at what Foxconn is offering to Michigan officials.

The Taiwan-based company, which has a messy history when it comes to treatment of workers, has reportedly told Michigan officials they would invest $4 billion in a plant in southeast Michigan that would employ 5,000 workers. But in return they expect consideration of tax incentives. Some reports say that Foxconn is looking for 300-500-acre parcels in metro Detroit, including in Oakland County's Lyon Township 

To avoid having readers eyes glaze over, here's some pretty general terms of what companies like Foxconn could receive under the 'Good Jobs for Michigan' proposal that has now been signed into law. Michigan would offer to allow the company to capture a portion of income taxes for the new jobs that reached a specific pay level. Foxconn and other companies – a limit of 15 agreements at any point in time – would be capped at $250 million in annual paybacks for placing a plant here. Any company with such an agreement with the state could lose the incentive for any year in which they failed to provide or retain the agreed upon number of jobs. The new economic incentive law provides for a variety of abatement percentages tied to providing jobs: 100 percent abatement for up to 10 years if 3,000 jobs are created at a pay level equal to the average in the region; 50 percent abatement for up to five years if 500 jobs with only average wages are created; or up to a 10-year abatement of 100 percent if 250 jobs are created that pay over 125 percent of the average prevailing wage in the region.

I am not certain what the Snyder Administration is projecting in terms of a return on investment, but here's a lesson from the state of Wisconsin, where tax incentives will cost $3 billion in exchange for a $10 billion manufacturing plant providing 13,000 jobs. The legislative service bureau in that state projects that it will be at least 2043 before Wisconsin recoups its investment. In more simple terms, the state's incentives equate to $15,000 – $19,000 annually for each job provided in the plant. 

To add to the questionable nature of the Wisconsin proposal, Foxconn is going to be allowed to skirt or ignore a number of state environmental regulations to bring the plant to realization quicker.

Color me unimpressed, both by what is happening in the neighboring state and in Michigan's chase of the Foxconn investment. We have seen unfulfilled promises based on tax incentives exchanged for job creation in the past and it has seldom proved to be the blessing that backers would have us believe. 

And then there's the Citizens Research Council (CRC) recent report on the looming budget disaster in Michigan.

Here's the Cliff's Notes version of what CRC is projecting for Michigan in a report entitled "Challenges Ahead in Balancing the State Budget."

The state general fund will likely see minimal growth of current revenues and they project "no future significant general fund revenue" increases. Add to that, possible federal cuts in state revenues are just around the corner. And then there's the much-expected possible state recession in which personal income tax revenue for the general fund could fall anywhere from 5 to 25 percent.

Against a general fund that will likely show no real growth, tax credits and promises by previous legislatures and the current House/Senate/ Governor are now coming due, including $600 million that is going to be siphoned off the general fund each year for roads; school funding that is expected to be tapped to fulfill other promises; and the loss of personal property tax on office and manufacturing equipment and the cost of making good to local communities the lost funding from this tax break, just to highlight a few of the realities we are facing. 

The list of tax cuts for business could go on and will amount to about $2 billion annually for the state of Michigan. Overall, according to the analysis, the diversions from the general fund to pay for past promises could reach $5 billion by fiscal year 2022 – as the CRC puts it, "equal to 20 to 45 percent of the current general fund budget."

Bottom line – residents should expect to pay more taxes in the years ahead to make up for poor policy decisions, with no end in sight.

So by all means, let's cast history to the winds and celebrate the possible gain of a Foxconn plant coming to southeast Michigan. But color me very nervous.


David Hohendorf
Publisher
DavidHohendorf@downtownpublications.com

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