Michigan can compete, economic chief says

Jaclyn Trop and Brian J. O'Connor/ The Detroit News

After Gov. Rick Snyder eliminated some of the tax breaks used to lure out-of-state businesses to Michigan, developers and municipalities worried that the state had unilaterally disarmed them in the midst of the war to boost jobs and tax base.

But the state's economic development chief, in an exclusive interview with The Detroit News, says Michigan will attract businesses and help existing ones by emphasizing the state's assets and the newly lowered and simplified business tax, and by launching new economic development programs.

Whispers of a $50 million deal being hatched to lure the corporate headquarters of the merged Sears and Kmart back to Kmart's original home in Metro Detroit lends credence to that assurance from Mike Finney, who took over the Michigan Economic Development Corp. in January.

"We've told those developers: There's no reason to slow down because we'll still approve your projects," Finney told The News. "We tell everyone we meet with to bring their projects forward."

Finney's agency is much more closemouthed about the prospects of bringing Sears Holdings, the firm formed when Kmart purchased Sears, back to the state where Kmart was born. But battle-hardened experts in the fight to steal jobs from other states say corporations often make a feint at relocating in order to wring tax breaks and concessions in their current homes.

Because of the enormous cost and complexity of relocating a corporate headquarters the size of the Sears operation in Hoffman Estates, Ill., concessions and incentives from Michigan would have to be at least enough to match any Illinois offer — plus moving costs.

In fact, Kmart in 2004 was on the cusp of finalizing an economic incentive package to stay in Michigan when it suddenly halted discussions and announced the merger with Sears that emptied out the vast Kmart headquarters building that still stands empty on Big Beaver Road in Troy.

If Michigan does move to entice Sears, it won't be with incentives, according to earlier comments Finney made before the rumors started swirling.

Incentives — rather than Michigan's quality of life, cost of doing business and talented work force — "were an awful way to sell" the state, Finney said.

"You should be promoting based on your assets," he said.

Incentives back in line
The budget Snyder signed last week provides $125 million in incentives for business development and $25 million for film incentives. That number is roughly on par with the $150 million in annual tax credits some Michigan businesses received from the development corporation on average from 2000 to 2008, Finney said.

The state hiked its tax break spending to an estimated $199 million in 2009 and $219 million last year after the Legislature loosened the criteria for tax break programs. The increased spending was unsustainable, and the new budget will bring the amount of the incentives in line with pre-recession times, Finney said. But the new budget also eliminated incentives that promoted the redevelopment of contaminated or old properties through brownfield and historic preservation tax credits.

The state's decision to replace the complicated Michigan Business Tax, an obstacle to business attraction, with a flat 6 percent tax will more than offset the loss of brownfield and historic preservation tax credits to develop contaminated or obsolete sites, Finney said. The repeal amounts on average to an 80 percent tax cut for businesses, he said.

And while some developers are worried about the loss of the old tax breaks, the development agency will make up for them with a new program of loans, investments and grants, Finney said.

A working group is developing the details for the new $100 million business attraction program that replaces the Michigan Economic Growth Authority, and brownfield and historic tax credits, said a development corporation spokesman. The group may have a plan ready for the agency's board to approve in late August for the fiscal year that begins Oct. 1, he said.

Tactic gives cities pause
But cities and developers remain on edge about the new approach, said Andy Schor, assistant director of state affairs for the Michigan Municipal League.

"There is a lot of nervousness among my members and developers" because there is less money to do redevelopment projects with state-sponsored financing, he said.

But "we are cautiously optimistic" about the new $100 million program because the league is being consulted about it and likes its initial direction, Schor said. The one drawback is that the money is being split between business attraction and redevelopment — instead of being devoted solely to redevelopment, as the league was led to believe, he said.

If that's the case, the rumored $50 million package of incentives for Sears could eat up a big chunk of the program's cash, although some of that cost would be borne by the county or city where the retail giant would end up landing, bringing an estimated 5,000 jobs. The speculation is that one potential site is on Ford Road in Dearborn, and the other in Southfield, with both Wayne and Oakland counties assisting the development corporation in structuring an offer.

Representatives of Oakland and Wayne counties, as well as a spokesman for the development corporation, wouldn't comment or confirm the rumors Monday. Sears has not confirmed or denied the reports, which also claim the firm is considering making the move to New Jersey, Texas, Tennessee or North Carolina.

jtrop@detnews.com