No More Mr. Nice Guy: Townships fight back against businesses that take them and their tax abatements for a ride.
TRAVERSE CITY – With Tower Automotive and Metavation gone from the scene, Garfield Township is starting to tighten up its tax abatement process and strengthen its legal position in case companies fail to deliver the jobs they promised.
The township plans to start keeping an exact count of the positions added by any new recipients of tax incentives, hoping to hold companies to their commitments on job creation.
Officials do intend to continue to use tax incentives to attract businesses, says Jeane Blood, township treasurer. And tax breaks remain the tool of choice to attract jobs and keep companies from leaving throughout the region.
But rules of the game are changing in Garfield Township. New language in contracts with employers will require a jobs census every other year, certified with a letter from an independent accountant or other third party.
That plan is getting good reviews from Michael LaFaive, a critic of Michigan's tax abatement policies at the Mackinac Center for Public Policy.
State agencies and many local governments haven't been keeping tabs on the number of jobs that recipients of tax abatements create, according to studies by the Midland-based center.
"I think it is great news that the township wants to monitor the jobs," he says. "I also hope they make their findings public."
Blood says the township isn't trying to scare off businesses. "But if we are going to be giving up taxes to get jobs, we had better be getting those jobs."
Observers agree that it's mostly auto-related companies like Tower and Metavation that have fallen short lately – thanks to the industry's poor condition in recent years.
The auto component makers together accounted for about 440 jobs in the township. Both benefited from hundreds of thousands of dollars in tax abatements in return for providing employment.
Novi-based Tower closed down its Garfield Township plant in 2009, and local officials recently accepted a settlement of $265,000 plus attorney fees after pursuing the auto supplier for $1 million in taxes.
Metavation shut down this year, and Blood says the township is taking the first steps to collect from the Inkster-based firm through state channels.
The experience has been better with non-automotive companies, says Tino Breithaupt, senior vice president for Economic Development at the Traverse City Area Chamber of Commerce. He specifically cited the Plascon Group, a maker of specialty plastic packaging in Traverse City.
"Tax incentives have mostly worked," he says. "Plascon has received its third abatement approval from the City of Traverse City in the last five years. It started with eight employees and will be at 60 after the current expansion. They are adding 18,000 square feet and 12 new people."
The issue is not just the number of jobs created; it is whether a company comes to or stays in northern Michigan, says Breithaupt.
Recent tax break recipients like Hagerty Insurance, an insurer of classic vehicles, and Skilled Manufacturing, a precision machining specialist for the automotive, aerospace and other industries, are constantly being wooed by other communities, Breithaupt says. A key customer may also prefer to have a supplier closer at hand and ask a local firm to move.
"When that happens, you are faced with the prospect of losing projects and losing jobs altogether – or throwing incentives on the table to make things happen."
There are opportunities in the other direction, too, as Altus Brands, a maker of electronic hearing protection for shooting and other outdoor sports, demonstrated. It moved from Colorado after MEGA, the Michigan Economic Growth Authority, gave it a $68,000 tax incentive and Garfield officials granted it abatements.
"Tax breaks pushed the economic analysis over the edge for us," says Brian Breneman, company president. With the help of the incentives, Michigan beat out four other states.
Altus Brands is ultimately due to add 25 jobs. "The first year, we were supposed to add five jobs, and we added eight."
Tax breaks are especially well suited to small technology firms, says Ben Bifoss, Traverse City city manager. It's true they couldn't do much to help Tower when the auto industry melted down two years ago, he says.
"But on the flip side, we have had firms diversifying into new high-tech manufacturing. Those tax breaks are beneficial because those businesses really need those first couple of years to get rolling."
At the outset, it's not that hard to get businesses to add staff if they are spending money on a new building or expansion. After all, they need to increase their production to repay the cost of their investment.
But the situation could be different years down the road if conditions change. For example, property tax abatements helped Second Chance, a maker of bulletproof vests, get started in Antrim County during the 1970s and 1980s.
Second Chance's experience is a parable of how uncertain the future can be. It ran into problems in the late 1990s when it switched to an allegedly faulty substitute for Kevlar in its vests and ended up mired in lawsuits and bankruptcy.
Several years ago, the company seemed poised for revival and was granted two tax abatements. But they were withdrawn when it became clear its new owner wasn't going to keep jobs in Central Lake Township, says Supervisor Stanley Bean.
Still, the township hasn't soured on abatements as a strategy. "We are looking for employers. I am sure we would consider them again if someone were creating jobs."
The problems tend to come up long after the excitement over the deal has faded, and complicated changes to the employer's legal structures tend to accompany them.
In many cases, Blood notes, troubled auto suppliers are sold off to other corporations. They in turn are happy to take over the original abatement. But it can be hard to pin responsibility on them if they default on the deal.
As a result, new contracts in Garfield Township will draw a clear line of responsibility to any new owners.
"We are just making sure that every party signs a new agreement when the ownership of the company changes," says Blood. "If they are going to break their agreement, they are going to know that they are responsible." BN