March 22, 2024 | This Week in Government: Rebranded Good Jobs Program, R&D Credit Pass Senate

Members of the Senate voted Tuesday along party lines to resurrect an income tax capture program that was allowed to lapse in 2019 with what supporters called significant improvements while opponents attacked it as an unnecessary corporate handout.

The body also moved research and development tax credits. The bills were part of a voting spree in the Senate that occurred in the evening with significant economic development policy seeing floor substitutes and quick passage.

The rebranded income tax capture program dubbed the High-wage Incentive for Regional Employment in Michigan program, or HIRE Michigan fund, would, in effect, bring back the former Good Jobs for Michigan program but with significant changes on requirements for job creation, wage levels, and being strong environmental stewards.

Each of the three bills, SB 579, SB 580, and SB 581, passed 20-15 along party lines.

Sen. Mary Cavanagh (D-Redford Township), the sponsor of SB 580, told reporters that this version of the incentives is significantly different from the program designed in the 2010s.

“It has a lot of Democratic priorities when it comes to any new job that comes to Michigan is going to raise you out of poverty … as well as a little bit of an environmental piece,” Cavanagh said.

Several major changes were made to the main bill in the package, SB 579, through an S-5 substitute adopted on the floor prior to being passed.

Under the bill as passed there are three options for eligible businesses to obtain tax capture.

The first option would create a minimum of 250 certified new jobs with yearly wages equal to 150% or more of the prosperity region median wage.

A second option was creating at least 25 certified new jobs with a yearly wage of at least 175% of the prosperity region median wage. This was a reduction from 50 certified new jobs at 175% of the median regional wage from an earlier version of the bill.

A third option was added, which would create at least 25 certified new jobs with yearly wages of at least 135% of the prosperity region median wage in a county with a population of 50,000 or less.

Eligible businesses would be able to enter into agreements for withholding tax capture revenues with several requirements needing to be met.

These would include the creation and maintaining the minimum number of certified new jobs at or above the required wages, that any plans for expansion or location of jobs are economically sound, and that the business will create the required number of jobs within five years of entering into an agreement.

Businesses would also be required to maintain the minimum number of jobs for the period of time it has been authorized to receive withholding tax capture from the HIRE Michigan fund. Failure to maintain the number of jobs would result in the forfeit of withholding tax capture revenues for that calendar year.

The fund would not be able to enter into agreements with businesses that are found to have been issued five or more environmental regulation violations in the three-year period prior to applying for the program or have an administrative consent order or a consent judgment in place involving environmental regulations. If the Department of Environment, Great Lakes and Energy found the business has made improvements and come into compliance with environmental regulations, this could be overlooked.

A business would also not be able to enter an agreement with the state if in the three-year period prior to applying for the fund it had been subject to a criminal violation of the Michigan Occupational Safety and Health Act or willful or repeated violations of the act.

The period of tax capture revenues under the bill would be capped at 10 years.

Under SB 579 as passed, the fund would not be able to designate an authorized business or enter into a new agreement beginning eight years after the effective date of the bill’s enactment, an increase from five years under earlier versions of the bill.

No more than $125 million in withholding tax capture revenues would be able to be committed per year, with leftover monies being added to the next year’s cap. Previous versions of the bill capped the fund at $100 million per year.

Under an S-2 floor substitute adopted for SB 580, tougher disclosure requirements and claw back language was added, while an S-2 substitute for SB 581 adds references to the HIRE Michigan fund.

Senate Minority Leader Aric Nesbitt (R-Porter Township), in a statement following the votes, bashed the Democrats’ movement of the package, calling the bills partisan legislation that would harm small businesses while favoring large corporations.

“Families and small business owners continue to struggle across our state, and Democrats in the Legislature continue to kick them while they’re down,” Nesbitt said. “The Democratic majority is putting big corporations over struggling families – picking winners and losers by handing over millions of Michigan tax dollars to global corporations in secret back-room crony business deals.”

When asked why the bills were moved Tuesday, Cavanagh told reporters there was a need to move the policy changes in line with the passage of the upcoming fiscal year budget.

“It was time to pass, to show that we are not only thinking about it as a budget implementation, but also teeing it up for when the House is ready to do some work on economic development,” Cavanagh said.

As to whether the requirements of the bills on wages and other areas might dissuade businesses from moving or expanding in Michigan, Cavanagh said the bills were the product of work with stakeholders. She said provisions in the bills were based on feedback of what has and has not worked in other states.

Sen. Mallory McMorrow (D-Royal Oak) told reporters there was a lot of work done by Cavanagh and Sen. Sam Singh (D-East Lansing) to improve on how the program was set up previously.

“There’s a difference between a job and a good job, and really putting in language that centers around rewarding companies who are going to be good environmental stewards, who respect their employees,” McMorrow said. “That’s been a lot of the conversations we’ve had within our caucus, is what is the difference between a job and a good job and how can we bake that into a lot of the work that we’re putting forward.”

Singh, who introduced SB 579 and SB 581, in a statement said the HIRE Michigan program was tailored to meet the needs of businesses large and small and spur job growth.

“With this legislation, we are continuing to build on our efforts to create a robust and diverse business landscape,” Singh said. “Couple with extensive resources for training and education opportunities, the HIRE program will empower Michigan’s workforce through high-paying jobs.”

RESEARCH AND DEVELOPMENT TAX CREDIT: Senators also voted to establish a state research and development tax credit, a move that supporters have said would help make Michigan more competitive.

Passing by votes of 23-12 were HB 4368 and HB 5099, while HB 5100, HB 5101, and HB 5102 each passed 22-13.

An S-1 substitute was adopted for HB 5100 before the final vote on the bill.

As passed, authorized businesses with more than 250 employees would be eligible for a tax credit equal to 3% of the business’ qualifying research and development expenses during the calendar year or within the tax year up to the base amount and 10% of the qualifying research and development expenses.

Large businesses with more than 250 employees would be eligible to receive up to $2 million.

Businesses with fewer than 250 employees would be eligible for up to $250,000 per year per business. A credit could be claimed equal to 3% of its qualifying research and development expenses during the calendar year or within the tax year up to the base amount and 15% of the qualifying research and development expenses.

A further 5% credit would be possible if the research and development expenses were part of a collaboration with a research university, not to exceed $200,000 per tax year per business.

The tax credit would be capped at $100 million per year.

An S-1 substitute for HB 5101 was also adopted and provides for similar language as HB 5100 in other sections of statute.

Half of the funds designated for the Strategic Outreach and Attraction Reserve program would be directed toward local community needs rather than large job spurring projects under an overhaul that cleared the Senate on Tuesday.

The shift drew fierce pushback from Republicans who called the SOAR fund, and collectively the state’s various economic incentive programs developed over recent years, to be a disaster. There was no official reaction from Gov. Gretchen Whitmer, the lead backer of the SOAR program, but there seems little doubt she would oppose it just as fiercely, if for completely different reasons than the Senate Republicans. The governor had misgivings about an earlier Senate Democratic proposal to earmark 20% of incentives to communities. One can imagine what her team thinks of going to 50%.

Despite their criticism, SB 559 and SB 562 cleared the Senate in 20-15 votes Tuesday along party lines. The nearly 12-hour session was a veritable voting spree after the Legislature’s largely somnolent year so far as the Senate passed multiple economic development bills, the long-stalled hate crimes legislation, bills authorizing contractual surrogacy and more. Like the House, the Senate decided to get an early start on the two-week spring recess scheduled to begin next week and scrubbed attendance and voting for the remainder of this week.

Prior to the votes, Sen. Mallory McMorrow (D-Royal Oak) said since the creation of the SOAR fund, markets and the economy have changed. Companies have scaled back some projects receiving state aid. Others have met sharp opposition from local residents. .

“Sometimes we have to take hard lessons in acknowledging that sometimes, even with the best intentions, things may not turn out the way that we wish,” McMorrow said.

She said the bills before the chamber make adjustments to better position the state for growth.

“By focusing on the fundamentals, including transit, housing and climate resilient, durable infrastructure, businesses and talent will seek to locate here and drive further investment and thriving communities,” McMorrow said.

An S-3 floor substitute adopted for SB 562 includes a huge change to the package, which requires 50% of SOAR fund monies deposited each year must be reserved for use through the Michigan 360 program. The original proposal was to set aside 20% for the Michigan 360 program, a huge shift in the use of dollars.

An S-3 substitute for SB 559 was adopted prior to passage and also made multiple changes to language and requirements for the program.

Language was also added to the bill allowing unused Make It in Michigan Fund, the new name for SOAR, monies to lapse to the General Fund, which was not the case previously.

Senate Minority Leader Aric Nesbitt (R-Porter Township) ripped the bills before the chamber, listing off well over one dozen economic development programs pushed in Michigan over the last several years.

“Whatever you call it, it’s the same failed concept: giving tax dollars to massive corporations, some of the most profitable corporations in the world, often foreign companies, in the hopes they’ll create more jobs in Michigan,” Nesbitt said. “This is like trying to paint over the name ‘Titanic’ on the bow before the ship goes under. Change the name doesn’t change the outcome.”

He pointed to a recent Bridge Michigan report that about 40% of economic development incentive deals have created jobs paying less than the median wage.

“I don’t know how many layers of lipstick are on this pig by now, but it’s still a pig, and it’s so long past time we put it out to pasture,” Nesbitt said.

The MEDC has said it focuses on assuring jobs exceed the regional media wage. The figures reported in Bridge were for the state median wage. Still, that report has raised serious questions about the governor’s mantra that state incentives are helping create “good-paying jobs.”

Sen. Thomas Albert (R-Lowell), a vocal critic of the SOAR fund in recent years, was succinct in his latest attack on the program in urging a vote against the bills prior to the votes.

“SOAR is an objective disaster, and it should be repealed,” Albert said.

McMorrow explained to reporters that the increase in the percentage from 20% to 50% was based on feedback from lawmakers and from looking at research on the effect of major incentive programs.

“There is a limit to what we can accomplish with incentives,” McMorrow said.

She said the 50% of funds directed toward Michigan 360 program community priorities “do not need to be tied to an economic development project.”

“So if you are metro Detroit, the city of Detroit, this could be the first step towards regional transit in a way that is more proactive, in a way that signals to companies not only in Michigan, but around the country, that we hear you and we are investing in things that are going to attract and retain young talent in our state,” McMorrow said.

Under the bills, the SOAR fund would be renamed the Make it in Michigan Fund, which would operate the existing Critical Industry Program and the Michigan Strategic Site Readiness Program.

“This would really expand what is eligible to be considered a project under the Michigan Strategic Fund,” McMorrow told reporters following session. “Rather than waiting for an RFP, for example, waiting for a company to come and express interest in the state, the Strategic Fund could meet and work with local, regional economic developers to identify an investment that could spur economic development and approve that as a project.”

McMorrow said she believed the proposed changes would provide additional flexibility for spurring investment.

By being more nimble in where the state is spending its money, she said the hope would be to improve Michigan’s ability to attract new projects that will help the state become more attractive for people and their families to locate.

A bill that had yet to go to Gov. Gretchen Whitmer‘s desk despite having passed both houses of the Legislature in identical form more than four months ago was finally presented to the governor Wednesday.

HB 5048 would allow counties with less than 600,000 people and a city within the county of at least 40,000 people to assess a hotel-motel tax of 8% on accommodations charges, up from the current 5%, with approval from county voters. The bill also would allow Kent County to enact an ordinance to collect a separate excise tax of 2% of the total charges for accommodations, also subject to county voter approval.

The funds from both taxes can be used to support construction and maintenance of convention and entertainment facilities. A potential amphitheater and soccer stadium in Kent County have excited the region’s leaders and created the impetus for the bill, sponsored by Rep. John Fitzgerald (D-Wyoming).

The bill won final approval on Nov. 9. Typically, bills are presented to the governor within a week, often less, of final legislative approval for signing or veto. But there’s nothing requiring the Legislature to present the bill, and it was held back.

Even more curiously, legislative leaders refused to comment on what was happening with the bill.

The Detroit News reported that Whitmer asked for the bill to be held back until other economic development bills won approval.

Tuesday night, the Senate passed two legislative packages sought by the governor: the HIRE Michigan bills allowing employers hiring a certain number of new employees to keep the state income tax withholdings for those employees and a tax credit for research and development.

Fitzgerald, asked Wednesday whether the Senate votes played a role in the House presenting his bill, said while he never linked the two, “I think that one could draw some parallels between broader economic development packages and 5048.”

Of his bill finally going to the governor’s desk, Fitzgerald said he has been working with legislative leaders and the governor’s office and believes it is now in a great position to become law.

“In any situation, sometimes it just takes a little bit of a stiff wind or some things to line up,” he said. “I would never speak for the governor, but I do believe this bill having plenty of time, ample time for review, has been subjected to a thorough round of vetting. I do believe that it will become law, and I do feel confident in its success.”

A message left with the governor’s office was not immediately returned. Amber McCann, spokesperson for House Speaker Joe Tate (D-Detroit), did not immediately respond to a request for comment.

Gov. Gretchen Whitmer is hoping to iron out some details of the economic development package passed by the Senate this week once it gets to the House.

Whitmer said that she did not agree with the Senate’s decision to move half of the funding designated for the Strategic Outreach Attraction Reserve program to the Michigan 360 fund (See Gongwer Michigan Report March 19, 2024) in a conversation with reporters following a separate event on Thursday.

“We had an ongoing dialogue,” she said. “That was something we had not thoroughly discussed, and so I’m confident that as the bills movie into the House, we’ll be able to have a little more thoughtful dialogue on that front.”

The governor was pleased that the Senate voted on the package before the Legislature left on its spring break.

“I think that’s real progress,” she said. “Now, we’ve got an opportunity to make them better.”

On Wednesday, the governor’s office provided a statement vaguely praising the bills sent to the House, but not directly addressing the shift in SOAR funds (See Gongwer Michigan Report, March 20, 2024).

House Speaker Joe Tate (D-Detroit) said his chamber was ready to work with the governor and the Senate to make Michigan as competitive as possible.

“Last year, we did an R&D Tax Credit package, as well as some other economic development tools that we sent over to the Senate,” he said. “I think there’s a big appetite around that, because we want to be very competitive, and I know that’s the governor’s vision as well.”

Tate also addressed the transparency bills introduced by members of his caucus last week (See Gongwer Michigan Report March 13, 2024) saying he thought there were some items in the package the House could address, but he fell short of committing to any specific aspects of the legislation.

“We’re going to go through committee, it’s going to be a deliberation process,” he said. “There are items that we can, and we will, look at. I think this is something that has been a part of our values as House Dems, and we’re going to continue to do that work.”

The first step toward making kindergarten mandatory for Michigan children 5-year-olds was taken with a Tuesday vote along party lines in a Senate committee to report legislation to do just that.

School districts would be required under SB 285 to provide kindergarten for children who are at least five years old.

The bill, reported by the Senate Education Committee, would require that a child at least five years old as of Sept. 1 be enrolled on the first day of the school year that begins during the calendar year in which the child’s fifth birthday falls.

Under current law, kindergarten enrollment is not required in Michigan but recommended. Enrollment in public or nonpublic schools is required for children who reach six years old by Sept. 1 of that school year.

Prior to being reported, Sen. Stephanie Chang (D-Detroit) offered an S-2 substitute that would strike a provision stating children less than nine years old who do not reside within 2.5 miles from the nearest traveled road of a public school would not be required to attend a public school.

“That does not seem like something we should have in law in 2024,” Chang said.

The substitute was adopted unanimously.

Members voted 5-1 to report the bill, with Sen. John Damoose (R-Harbor Springs) voting no and Sen. Ruth Johnson (R-Groveland Township) abstaining.

Damoose told reporters his vote against the bill “isn’t that significant of a no for me,” saying he felt the issue is one that should be left to parental choice.

“I just at the end of the day think parents can make these decisions on their own,” Damoose said. “I don’t think we need to mandate absolutely everything.”

A total of 17 states and the District of Columbia require some form of mandatory kindergarten.

The bill would be effective beginning with the 2025-26 school year, and both the half-day and full-day kindergarten options would be available. The current exemptions for homeschool, private, or religious schools would still be allowed for kindergarten as there are for other grade levels.