Michigan, General Motors agree to cap lucrative tax credits, but won't specify the amount

LANSING, Mich. – Michigan and General Motors agreed Tuesday to cap the state’s liability for lucrative tax credits but did not specify the amount, as the automaker committed to make $1 billion worth of capital investments in its home state by 2030.

The agreement approved by Michigan’s economic development board is the latest designed to help Gov. Rick Snyder and future administrations better budget for billions in tax incentives authorized when the state was hemorrhaging jobs.

GM qualifies for annual tax credits for retaining up to nearly 35,000 jobs in the state, good through 2029. Under the agreement, the automaker can claim a maximum level of tax credits but said the figure is proprietary information. Michigan Economic Development Corp. officials said they cannot share the figure unless GM agrees, because it is considered private taxpayer information.

The Michigan Strategic Fund board reached pacts earlier this year with Ford and Fiat Chrysler, which released their cap levels. Ford can qualify for up to $2.3 billion in tax breaks. Fiat Chrysler, also known as FCA, is eligible for about $1.9 billion.

In February, the MEDC estimated the value of GM’s tax credits, initially granted in 2009 and amended five times, at $2.1 billion — though that was before it notified lawmakers of a big increase in the state’s overall liability for a number of incentive deals.

“In part, that number is based off of the tax withholdings of our employees and we view that as competitively sensitive information,” GM spokesman Chris Meagher said.

GM will be required to periodically forecast its estimated tax credits and will be unable to claim more in a tax year than projected.

State officials have reported trouble predicting the budget ramifications of the cumulative tax credit liability because of timing issues and uncapped growth in wages, health care benefits and businesses’ investment in an improving economy. The redemption of higher-than-expected credits led to spending cuts in February, the middle of the budget year.

The state stopped awarding new business tax credits beginning in 2012 under a new tax code, in favour of direct cash incentives and loans, but the old credits for about 220 large companies will continue having an effect on the budget. The Detroit Three automakers account for much of the liability, which Strategic Fund board President and Chairman Steven Arwood pegged last month at $8.7 billion to $9.3 billion until 2030.

He said Tuesday that the auto industry, including suppliers, probably accounts for around 90 per cent of the credits’ value. Arwood, who also heads the MEDC, said the agency will work with the Michigan Treasury Department to update the total liability figure early next year now that the amended automaker deals are done.

“The important thing is it’s capped. We are going to have yearly caps, and so for the public there should be no further surprises,” he said. “In the case of General Motors and Ford and FCA, they all retained the jobs. They all did what they said they were going to do.”

GM announced plans Tuesday to spend $356 million on a new engine line in Flint and driveline and powertrain components in Saginaw and Grand Rapids, saying the moves will create more than 50 jobs and help retain nearly 500 positions.


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