Saturday, June 06, 2009

The battle for GM's HQ: Good moves or bad policy?

By Nancy Kaffer And Daniel Duggan

In the bidding war for General Motors Corp., Detroit looks like the winner.

With the promise of a 12- to 15-year tax-free renaissance zone, Wayne County Executive Robert Ficano and Detroit Mayor Dave Bing likely have trumped Warren Mayor Jim Fouts, who offered GM 30 years tax-free at its technical center in Warren.

But take a look at the big picture, and the move — announced Friday at the Detroit Regional Chamber's annual Mackinac Policy Conference — has deeper implications for the region.

“Cannibalization is a zero sum game,” said Ric Geyer, principal in Detroit-based strategic consultancy 4731 Consulting. “Our regional brand needs to rely on the strengths of our assets and opportunities that exist here. We need to be careful that we do not base our brand on the belief that we're willing to cannibalize our own companies to survive.”

In a renaissance zone, business, income and real and personal property taxes and, in Detroit, the utility users' tax, are waived.

One tower not owned by GM is occupied by EDS and already has a renaissance zone. If the Michigan Economic Development Corp. approves the request, which Ficano said the county plans to make next week, the four other towers and the Detroit Marriott Renaissance Center would also be in a renaissance zone.

Fouts raised Detroit's ire with the tax abatement offer. At a Mackinac Policy Conference session on regional cooperation Friday, Bing called Fouts “asinine,” prompting a response from Paul Gieleghem, chairman of the Macomb County Board of Commissioners, who likened Fouts' action to Ficano's effort to use renaissance zones for a Wayne County airport-based economic development effort.

“You can't have it both ways,” Gieleghem said. “You can't say Mayor Fouts shouldn't make the business case to GM. We have at the tech center 15,000 jobs. What we want to see at the tech center is growth. Fouts made a business case, and as a region, we have a responsibility to each other to say, "This is how it benefits the region, not just Wayne County.'

“ That the news was released at a session on regional collaboration was an irony not lost on Detroit City Council member Sheila Cockrel.

Cockrel said both offers are a sign of the sense of economic desperation in Michigan. “At some point, we're talking about the survival of the fiscally and financially stable,” she said. Cockrel said it's hard to determine whether offering GM a renaissance zone is a good move.

“Without knowing what taxes would be forgiven, it's hard to make that judgment,” she said. “This is one of those situations that requires careful due diligence. We need to be confronted with what that number is.”

Cockrel said that were GM to accept the offer, she's not sure when the tax cut would start — and what the effect would be on the city's budget.

“Does this increase the deficit? Do we need to make additional cuts?” she said.

Ficano said he didn't know how much tax revenue Wayne County would lose, saying he hadn't analyzed the numbers. Meagan Pitts, Bing's deputy press secretary, couldn't provide total tax revenue collected by Detroit from GM by Crain's deadline, saying that calculating the utility tax paid by GM poses difficulties because that levy is handled by DTE Energy Co.

From January to December 2008, the city of Detroit collected $8.8 million in withholding taxes from GM — that's 3.49 percent of the total $251 million in income tax collected by the city that year, according to data provided last month by the office of then-Mayor Ken Cockrel Jr., who has since returned to his post as president of the Detroit City Council.

The zone also has real estate implications because it sets up an uneven playing field among buildings in Detroit, since rent essentially will be subsidized.

On the other hand, it also could be used as an incentive to attract tenants from the suburbs.

Financial services companies, said Bill Lichwalla, CEO of Southfield-based Plante Moran Cresa L.L.C., were hit hard with the Michigan Business Tax due to the portion of taxes paid on corporate income. Moving a corporate office to a renaissance zone could mean a major savings in tax liability.

“They could have a savings in tax liability that's almost equal to what they'd be paying in rent,” Lichwalla said.

He expects that his clients looking for new corporate offices will be enticed by the renaissance zone.

“A lot of tenants have the perspective that there is a higher cost of doing business in Detroit,” he said. “The incentives available in a renaissance zone will be a big part of the tool kit Detroit can use.”

Given the fear of losing GM to Warren, landlords such as Peter Conkey are more understanding than in the past. Conkey is CEO of Chicago-based HDC Partners L.L.C., which owns and manages the Buhl Building at 535 Griswold.

“We will gladly compete,” he said. “Losing GM, we'd all pay with a greatly reduced tax base.”

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