Michigan battles with Ohio over jobs

But old rivals may need to collaborate
BY JEWEL GOPWANIFREE PRESS BUSINESS WRITER

Scott Melton is tempted to move his business to Ohio, even though he doesn't want to leave Michigan.

The president of plastic recycler ACI Plastics in Flint, Melton is weighing offers from Ohio for tax abatements, low-interest loans and training money to build a new plant or even move his factory south of the Michigan border.

These offers from Ohio come just as Melton's firm has outgrown its 125,000-square-foot plant, and a year after Flint raised its property taxes.

Ohio officials "said, 'We know you guys are hurting up there. We know the auto industry is killing you,' " recalled Melton, whose business mainly comes from the auto industry.

The troubles in the auto industry give new meaning to the friendly rivalry between Michigan and Ohio. These rust-belt states don't just share the burden of massive job losses; they're also fighting for the same types of businesses.

Michigan and Ohio are both after automotive firms that are succeeding despite the industry's doldrums, as well as burgeoning alternative energy companies that need the skilled manufacturing workforces both states offer. And sweeping business-tax changes in Ohio could make it tough for other Midwest states to compete.

Despite years of heated competition, Michigan and Ohio are in early talks about joining forces to win new business, a move that economic development experts say is essential given the challenges both states face.

"Their destinies are interlocked," said Don Iannone, an economic consultant in Cleveland.

Ohio's top development official, Lt. Gov. Lee Fisher, said his state isn't targeting Michigan but it is courting certain industries, including autos.

As the auto industry continues to suffer, competition is heightening between Michigan and Ohio. Between 1999 and 2007, Ohio lost 45,000 automotive jobs. During that same period, Michigan lost 142,700 automotive jobs.

Both states have reacted with tax incentives, grant money for training and changes aimed at easing the tax burden on the manufacturing sector.

Ohio is in the middle of a 5-year plan to eliminate taxes on inventory, machinery and equipment, as well as corporate profits.

The state also is cutting personal income tax by 21% in a plan that, paired with a new tax, will cut tax revenue by $3.9 billion a year.

Ohio's leaders have been vocal about the state's tax changes. Ohio Gov. Ted Strickland touted the plan during this year's Management Briefing Seminars in Traverse City, urging auto companies to consider Ohio.

Promising lower taxes, Ohio was the state that reported the most new corporate building and expansion projects in 2007 and 2006, winning top honors both years from economic development magazine Site Selection.

Michigan's tax changes haven't been quite as sweeping. In January, the state replaced its Single Business Tax, which cut taxes for more than half of the state's firms that are on the hook to pay a business tax. The new state tax laws also offer tax credits on money spent on capital investments as well as research and development.

Melton, president of $17-million recycling firm ACI Plastics, next plans to calculate his company's tax burden in Michigan versus what it would be in Ohio, to see if there is a substantial difference.

At a time when most of his costs, including energy and the plastic his plant recycles, are going up, Melton said he needs to consider any move that would save money.

"There is a part of me that says maybe I should lease a warehouse in Ohio and set up a small facility there to see how advantageous it is," said Melton, who also said that he would consider slowly moving all of his operations.

It's not just small companies that are drawn to Ohio.

Automotive interiors firm Inteva Products LLC, with $1.5 billion in sales, is considering Ohio as its new headquarters. The company once belonged to Delphi, but was sold to private investment firm the Renco Group earlier this year.

Inteva's current base in Troy employs 225 people, and it already employs 156 people in Ohio.
The firm plans to make its headquarters decision during the next six to 12 months. So far, said

Inteva Chief Executive Officer Lon Offenbacher, his firm isn't getting much attention from Lansing.

Ultimately, tax incentives as well as tax structure will factor into the company's decision, Offenbacher said.

"It costs a lot of money to move, so once you make the decision, you want to make that a good, long-term, viable decision."

The competition between Michigan and Ohio may never dissipate, but there are new talks between the states' economic development leaders to coordinate their pitches, said Jim Epolito, chief executive officer of the Michigan Economic Development Corp.

One possible strategy, Epolito said, would be to "pick sectors of the economy where we can collaborate, where we can go together and recruit businesses."

One of the next steps is to research which sectors those should be. The automotive and advanced energy industries are potential candidates.

Early discussions have been uncomfortable, Epolito said.

"It's hard to get people who have been competing for a long period of time to sit down at the table and break bread and say we're going to all work together," he said.

Still, Epolito said, collaboration is inevitable, as both regions face the same troubles.

Consultant Iannone said: "I think we're going to end up cooperating and collaborating as much as we engage in head-on competition."

Contact JEWEL GOPWANI at 313-223-4550 or jgopwani@freepress.com.