The $76 billion state budget the Legislature passed while you were sleeping Thursday night contained more transparency about a $300,000 grant to a Downriver Little League baseball team than the hundreds of millions of dollars taxpayers fork over annually to the Detroit Three automakers in tax subsidies.
Each year, the roughly $13 billion in state tax revenue that pays for everything but education in state government is depleted by nearly $600 million for business tax refunds to General Motors Co., Ford Motor Co., the automaker formerly known as Fiat Chrysler and a handful of other big companies.
For nearly two decades, the tax credit entitlement agreements these companies have inked with the quasi-governmental Michigan Economic Development Corp. have been, in effect, a closely held state secret.
You can find out what lawmakers spend your money on building roads, contributing to teacher pensions or giving a six-figure grant to the Little League World Series champs in Taylor, but not how much was paid out annually to GM in Michigan Economic Growth Authority (MEGA) tax credits.
The secrecy veil behind these deals is about to be lifted, at least partially.
The Michigan Supreme Court ruled last week the MEDC can no longer conceal the MEGA tax agreements through the Michigan Strategic Fund, a state agency that lawmakers use to dole out taxpayer subsidies for economic development.
The high court ruled that the MEDC’s 2016 tax credit agreement with GM is a financial record of the state and thus a public record no different than the budget for what Michigan spends annually on roads.
“It’s government money — large sums of government money — being handed over to a private entity and therefore the people have to be able to be aware of it,” said Patrick Wright, vice president for legal affairs at the Mackinac Center for Public Policy, the Midland-based group that filed an amicus brief in the lawsuit that led to this Supreme Court ruling.
The problem with MEGA tax credits has been a complete lack of openness about their true cost each year to taxpayers.
The Legislature requires the MEDC to disclose annually how much MEGA tax credits cost and the remaining long-term liability, but that comes a year or more after the fact.
These costs are guesstimated and almost never factored into the decision-making in Lansing when lawmakers are weighing choices each year about whether to increase payments to doctors that serve low-income patients on Medicaid or give a massive tax refund check to a global company that posted $10 billion in profits in 2021 (General Motors).
GM gets its share of the tax pie before the doctors because MEGA credits are a tax code entitlement and not subject to the normal appropriations process.
The lawsuit the Mackinac Center intervened in sought to open the vault at the MEDC and shine some light on what the state agency has promised in tax credits to GM and its cross-town rivals.
In the unanimous decision, the Michigan Supreme Court agreed that the MEDC must cough up a 2016 MEGA tax agreement with GM that the Snyder administration agreed to keep under lock and key.
This ruling could open the door for a wider look at how much each automaker has collected in tax credits since 2009, when then-Gov. Jennifer Granholm cut a deal to let GM, Ford and Chrysler (now called Stellantis) recoup most of their employees’ state income taxes. If you work for one of the automakers, there’s a good chance your employer pockets every cent of the 4.25% state income tax that comes out of your paycheck.
The so-called job retention tax credits have seemingly done what Granholm intended and kept the headquarters as well as the research and development arms of the Detroit Three firmly planted in Michigan for the past 13 years.
But it’s come at a hefty price to the state’s bottom line each year as Michigan has struggled to keep up with crumbling infrastructure and other needs. In December 2014, one still unidentified company’s $224 million tax credit refund blew a hole in the state budget and caused a deficit that fiscal year. The Snyder administration and lawmakers were forced to scramble and to make cuts to fill the shortfall.
These MEGA tax credits are in place through 2030, though it seems doubtful that the automakers will want to give up their tax relief at the end of the decade and start paying the 6% corporate income tax like every other major corporation in Michigan.
A 2020 MEDC report that has since been removed from the agency’s website disclosed GM had $2.2 billion in unclaimed tax credits as of 2020 for the next decade — meaning the automaker could be getting a $220 million refund check each year from the Michigan Treasury Department.
For perspective, $220 million is about half of what Michigan taxpayers spend annually supporting 28 community colleges across the state and the same amount lawmakers appropriate each year to fund the Military and Veterans Affairs Department.
But taxpayers have no idea exactly how much GM, Ford or Stellantis collect individually in tax credits year-to-year because this spending of taxpayer money remains secret, even with the Supreme Court ruling.
Wright said the Mackinac Center is hopeful that last week’s ruling will lead to future victories in the courts or the Legislature — legislators could pass a law at any time changing the laws the MEDC uses to shield tax credit payouts — to bring transparency to tax credits for the state’s biggest businesses.
“Our view is that if there are individual companies getting it, the public has a right to know what are these companies making (in profit), who are they contributing (campaign donations) to — all of the political questions that go into outlays of public money,” Wright said.
— to www.detroitnews.com
