Michigan Education Association

Michigan’s Business Tax Incentives: ‘Some work, others don’t’

Every Michigan parent knows that a good education provides jobs, but tax breaks for select businesses have mixed results according to a new study

EAST LANSING, Mich., May 14, 2009 — Millions of dollars in tax breaks are having mixed results in the goal to help certain Michigan businesses create jobs and spur economic growth, according to the first phase of a research study released today by the Anderson Economic Group (AEG) and the Michigan Education Association.

The AEG study, commissioned by the MEA, inventoried 36 business tax incentives that allow select companies to reduce property, income or business tax liabilities. AEG then took a closer look at eight of the most popular programs, finding “enormous variations” in their effectiveness and bottom-line returns, along with a troubling lack of transparency in reporting the results of these major taxpayer investments.

“There is no comprehensive systematic inventory of the programs and no independent agency that collects information or administers all programs,” said Patrick L. Anderson, AEG principal and CEO. “Our challenge was to study the available data from the eight programs and identify in the first phase of the study which incentives are actually creating the most jobs and doing the most for our economy.”

The study found that nearly $900 million in nominal tax expenditures were dedicated in 2008 to the eight tax incentives examined – that’s equivalent to almost 5 percent of Michigan’s combined General Fund and School Aid Fund for 2007-2008. Based on the available data, AEG determined the relative effectiveness of these eight programs. Results ranged from a “high” rating for the Industrial Property Abatement (PA 198, meant to encourage companies to renovate, expand or build plants in Michigan) to a “low” mark for Michigan’s film incentives program (PA 79 and 455 of MBT act, intended to draw moviemakers to the state). For the latter, AEG analyzed Senate Fiscal Agency data and found that the state invests $40,000 to $50,000 for each job created by the film incentive.

“A credit of $50,000 means the state isn’t just incentivizing the activity – it is actually paying for the activity,” Anderson said.

He added that the existing data on these incentive programs is deeply affected by self-interest – for instance, eligibility for the film incentives program is determined by the Michigan Film Office whose perceived success is largely based on the number of filmmakers it lures to Michigan locations.

While the effectiveness of these incentives varies, the budgetary impact of these tax breaks can be felt across the state, particularly in the public schools charged with preparing students for the jobs Michigan needs.

“We aren’t against using tax incentives to grow Michigan’s economy,” said MEA President
Iris K. Salters. “We want to make sure these incentives work as effectively as possible, especially when our schools are struggling with budget cuts.

“Business owners repeatedly say that workforce quality is more important than tax breaks in choosing where they locate. Public schools prepare that workforce, which is why investing in public education is the best investment we can make for our economic recovery.”

The next phase for the MEA-sponsored research by AEG will feature more in-depth analysis quantifying the tax incentives’ effectiveness, which will result in recommendations for improvement. It will be followed by an annual report that will keep taxpayers updated.

MEA will continue educating voters and policymakers on the economic benefits of public education, as well as advocating passage of “Sunshine Legislation” that will guarantee corporate accountability for every taxpayer dollar received from state incentives.

“These are tough times for our state,” Salters said, “but we’ll get through if we make wise decisions about investing both in businesses and in their future workforce – Michigan’s public school students.”

Visit www.mea.org/investing to read the full Anderson Economic Group report, along with other research about tax incentive effectiveness and the positive returns resulting from investment in public education.

About the Anderson Economic Group
Anderson Economic Group, LLC is a consulting firm that specializes in economics, public policy, financial valuation, market research, and land use economics. AEG experts have extensive experience with tax policy in Michigan and other states, including authoring the 2006 law that repealed the Single Business Tax, analyzing the costs and benefits of a state Earned Income Tax Credit that was adopted in 2008, and producing a 50-state business tax benchmarking study that appears annually in its State Economic Handbook.

About the Michigan Education Association
MEA is the state’s largest public school employee union, representing approximately 160,000 teachers, education support professionals, higher education faculty and staff, school retirees and students. The mission of the MEA is to ensure that the education of its students and the working environments of its members are of the highest quality.


 “The mission of the MEA is to ensure that the education of our students and the working environments of our members are of the highest quality.”

Updated: November 6, 2009 8:26 AM