By Amy Lane, Crain's Detroit Business

Tax credit backers gird for battle: Groups organize, hire lobbyists

By Amy Lane


LANSING -- The pushback has begun over business tax credits.

Armed with economic data and mustering testimonials, lobbyists and grassroots strength, advocates are planning a fight to prevent elimination of Michigan's brownfield, historic preservation and film industry credits.

They hope to convince the Legislature, which has yet to wade into the issue, and the administration, which wants to wipe the slate clean of tax credits and create an improved business tax structure overall, to provide some limited incentives.

"The approach has been to first fix the environment for everybody before addressing special circumstances," said Lt. Gov. Brian Calley, when asked last week by Crain's why the administration didn't do cost-benefit analyses of such areas as the brownfield or historic pres-ervation tax credits before moving toward their elim-ination.

But tax credit advocates say they can make a compelling case, and they are preparing their arguments.

Historic tax credits

Take the Michigan Historic Preservation Network, an organization that has neither the financial resources nor the staff of many larger Lansing groups but has hired a lobbyist and is banding with other organizations to retain a historic tax credit it says has reached every corner of the state, from Detroit's Westin Book Cadillac hotel to Traverse City's City Opera House to Benton Harbor's 1920s-era Fidelity Building, a central long-vacant retail and office building rehabilitated into senior citizen apartments.

"I think this will be a tremendous battle," said Executive Director Nancy Finegood. "But I think we can prove the economic benefit as well as the tangential benefit to the communities."

The return on state tax dollar investment, according to the network: Some $138 million in credits have helped leverage nearly $1.5 billion in rehabilitation activity that generated 36,000 direct jobs. Because the tax credit is tied to a similar federal historic credit, the Michigan credit has also leveraged $251 million in federal dollars, the network says.

ArtServe Michigan and its web of more than 10,000 advocates plan to aid the network, as does the Community Economic Development Association of Michigan. The association has set up a link on its website for people to share brownfield, historic and some other tax credit development stories -- information that the association and historic preservation network hope to relay to lawmakers. The network also has hired lobbyist Mike Frederick, president of The Frederick Group in Lansing.

Legislative scrutiny awaits

The Legislature has not yet tackled credits, but they've been on the radar screen in both the House and the Senate.

Matt Marsden, press secretary to Senate Majority Leader Randy Richardville, R-Monroe, said the Senate Republican caucus is focused on poring over the governor's proposed budget, but "there will be a discussion of the tax credits." He said in that process there needs to be a cost-benefit analysis of the credits and "a look at all the credits and how they fared."

Gov. Rick Snyder believes an improved business tax structure trumps the need for widespread tax incentives.

He proposes to eliminate the Michigan Business Tax and its accompanying array of credits and incentives and replace them with a new 6 percent corporate income tax on "C" corporations. The governor says the plan would result in a nearly $1.8 billion tax cut for business and a simpler, fairer and more competitive tax structure.

Speaking to the Michigan Economic Developers Association last week in Lansing, Calley said that in looking at the Michigan tax system, "we see a system riddled with favoritism," one that "assumes that the operating environment is so bad" that the state has to provide incentives.

"And so what we proposed is the elimination of all favoritism in the tax system," Calley said.

The state still would have a pot of money to use for economic development incentives, on projects like brownfield or historic redevelopment. Calley said the money, in the form of grants, could be used in times when "it's important to be opportunistic."

The amount of available aid would be far less than what's traditionally been doled out, but Calley said advocates then need to make a case before appropriations committees, as do other interests from areas like education, health care and cities.

Brownfield credits

Even before Snyder's budget came out Feb. 17, the chairman of the Michigan chapter of the National Brownfield Association was among those who met with top Snyder staff to advocate for the brownfield credits.

Chapter Chairman John Byl, partner in the Grand Rapids office of Warner Norcross & Judd LLP and co-chair of the law firm's economic incentives group, said the tax credit has been critical to the success of brownfield development and urban redevelopment. He said that in many ways it "has produced a long-term benefit for the state that outweighs the short-term cost of the credit."

Byl said that typically the private capital investment is at least 10 times the amount of the credit. Based on the amount of credits claimed, the Michigan chapter of the brownfield association says that some $409.3 million in tax credits over the past 10 years have aided an estimated $4.1 billion in investment and fostered 30,000 jobs and more than $120 million in new annual property tax revenue.

The data has been shared with the governor's office. Byl said the chapter board wants to work with the Legislature and administration to preserve the credit or, if that's not possible, to devise a replacement program.

The group is also aligning with others, such as the Michigan Municipal League. Andy Schor, the league's assistant director of state affairs, said the league plans to show lawmakers the economic benefits of brownfield and historic tax credits, particularly in lawmakers' districts.

Film credits

Others that have lawmakers on their lists are in the film industry. Michigan Film First, a newly formed coalition of leaders in Michigan's film and television industry, has hired Lansing communications firm Truscott Rossman LLC in the fight to save film credits.

"We will have people contacting lawmakers, saying they were out of work, now have found a job, have training, and what that means is that they have a future," said firm principal and President John Truscott, who was press secretary to Gov. John Engler.

Truscott said the group plans to make use of a recent study by Ernst & Young which found that in 2010, for every $1 of film tax credit cost, $5.94 of sales by Michigan businesses were generated. Among the data in the study is that film productions employed 5,606 Michigan residents last year and paid them $66.9 million in wages and salaries. The study was commissioned by convention and visitors bureaus for Detroit, Grand Rapids, Ann Arbor and Traverse City.

"It's an extremely compelling case, and it represents the most recent numbers," Truscott said. "This is an industry that's been growing steadily ... and it has a lot of potential to help a lot of communities."

But state Rep. Tom McMillin, R-Rochester Hills, a critic of the credit, said the study doesn't take into consideration that money given as refundable tax credits "could otherwise have been used by all other Michigan businesses if we hadn't cut the checks."

And he said "paying 42 percent of any industry will result in losing money for taxpayers."

The incentive includes a refundable tax credit of up to 42 percent of a production company's expenditures here. As of the end of 2010, the state had paid $95 million in film tax credits, with an additional nearly $209.4 million approved but not yet disbursed, according to the Michigan Film Office.

The incentives are credited for attracting some $648 million in investment.

Screenwriter Jim Burnstein, coordinator of the screenwriting program in the University of Michigan Department of Screen Arts and Cultures and vice chairman of the state film office advisory council, said the film credit aids Snyder in goals to "reverse the brain drain, revitalize Detroit, and help small businesses create more jobs."

He said his students previously left the state after graduation, but the "migration stopped in its tracks" as students saw a burgeoning new industry in the state of which they wanted to be a part.

Burnstein was a leading proponent of the film incentive law and worked toward its passage.

He said elements of the credit can be reduced, but a proposed $25 million grant program to replace the film credits is "the death of that law."