Why GM can continue to benefit from tax deals despite planned cuts


December 3, 2018 5:01 am

DETROIT — General Motors may be able to continue claiming its maximum amount of tax credits from the state of Michigan even after the automaker sheds 8,100 salaried jobs in North America and possibly closes its Detroit-Hamtramck assembly and Warren transmission plants.

That has some state lawmakers calling for a re-examination of the taxpayer subsidies that the last three governors of Michigan have bestowed upon GM and its crosstown rivals Ford Motor Co. and Fiat Chrysler Automobiles in an effort to keep the automakers firmly planted in the state.

GM’s tax credits, the total value of which is shrouded in secrecy, can be applied to a maximum of 34,750 retained jobs under a December 2015 deal the automaker struck with Gov. Rick Snyder’s administration.

The automaker’s current in-state workforce totals 51,000 employees, GM spokesman David Caldwell said.

While GM hasn’t said where all of the salaried jobs are being eliminated in North America, most of the company’s white-collar workforce in engineering, design, research, middle management and executive ranks are based in Southeast Michigan.

Even if all of the proposed job cuts were made in Michigan, GM could still have a 8,100-employee buffer above the cap for the number of Michigan jobs it can claim for Michigan Economic Growth Authority tax credits under the Michigan Business Tax.

That’s because the automaker can claim a tax credit on the payroll of up to 34,750 jobs retained annually through the end of 2029 under the deal cut three years ago with the Michigan Economic Development Corp. 

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In 2015, GM agreed to a cap on the total value of its tax credits after the refundable MEGA tax credits swelled to more than $600 million annually, wiping away much of the state’s tax revenue from the 6 percent corporate income tax.

Secret deal

At the same time, the Snyder administration signed a nondisclosure agreement with GM to shield the value of the automaker’s tax credits from public disclosure — a deal some lawmakers with GM plants in their districts want to re-examine. 

“We need to make sure they’re holding up their end of the bargain,” state Rep. Darrin Camilleri, D-Brownstown Township said. “Part of the problem is we don’t know what that bargain is.”

GM’s plans to cut jobs in Michigan and possibly close two plants runs counter to the original purpose of the tax credits to get the automaker to maintain its large presence in Southeast Michigan, Camilleri said.

“The idea was to keep and retain jobs — and we need to keep companies to that standard,” said Camilleri, whose Downriver state House District 23 is home to GM’s Brownstown Battery Assembly Plant.

Senate Minority Leader Jim Ananich, a Democrat from Flint where GM assembles its highly profitable Chevrolet Silverado and GMC Sierra trucks, said the company’s job reductions in 2019 should be leverage for the MEDC to renegotiate the MEGA tax credits deal.

“If you’re going to cut jobs, should we continue to give people the same tax credits we’ve given in the past when they’re laying off people?” Ananich asked. “I think most people would probably say no.” 

MEDC officials declined a request from Crain’s Detroit Business, an affiliate of Automotive News, last week to voluntarily disclose the value of GM’s MEGA tax credits, citing the NDA.

“The MEDC and our partners at the local and regional level will continue to work with General Motors, as well as other OEMs and suppliers, to ensure Michigan remains the global epicenter of the automotive industry as the future of mobility and market conditions evolve,” MEDC spokesman Otie McKinley said in a statement.

GM also won’t disclose the value of its tax credits, which are paid out of the state Treasury.

“I can’t speculate on that,” Caldwell said in an email to Crain’s.

GM’s tax credit is based on the 4.25 percent individual income tax each eligible employee pays the state. The credits are tied to the wages, overtime and profit-sharing checks — all of which have risen in recent years as GM has posted record profits.

For a GM engineer earning $100,000 annually, the company can claim a credit of $4,250. For an assembly line worker making $50,000 annually or $24 per hour, the refundable tax credit is about half of what the engineer’s job is worth in taxpayer subsidies.

If the majority of GM’s job reductions in Michigan hit the salaried white-collar ranks, the overall value of the company’s tax credits could decrease because it would have fewer higher-paid employees to claim under the subsidy formula, said James Hohman, director of fiscal policy for the Mackinac Center for Public Policy, a Midland-based free-market think tank.

“I do expect that to decrease their annual MEGA credit amount,” Hohman said.

Failed efforts

Efforts in the Legislature to force the state Treasury Department to disclose the value of each company’s MEGA tax credits or curtail the program have failed to gain any steam. 

State Rep. John Reilly, R-Oakland Township, has a bill to make public the value of GM’s tax credits. The bill has languished in the House Tax Policy Committee for the past 14 months and will likely die at year’s end.

But given that GM has upheld its end of the deals, it would be difficult to claw back promised tax credits, Hohman said.

“Even if they changed the law, GM might still point to that (2015 nondisclosure agreement) and say, ‘You still can’t disclose what we’re getting,'” Hohman said.

Hohman and the Mackinac Center have long been critics of the MEGA tax credits, which began as a job-creation tool under Republican Gov. John Engler and morphed into a job-retention subsidy under Democratic Gov. Jennifer Granholm in the depths of the Great Recession. 

In 2009, just after GM and Chrysler got bailed out by U.S. taxpayers and went through historic bankruptcies, the Granholm administration gave GM a tax credit worth $1.07 billion over 20 years that was tied to the retention of 20,000 jobs in Michigan and making $2.5 billion in capital investments at in-state assembly plants and facilities.

In subsequent years, the MEDC’s governing board, the Michigan Strategic Fund, granted GM multiple amendments to add more workers to the “global retention” MEGA tax credit, thus rapidly increasing its value — and cost to taxpayers.

Within five years, GM’s tax credits doubled in value as the Granholm and Snyder administrations let the automaker add nearly 13,000 jobs to its tax credit claims. By July 2014, GM’s remaining tax credits were worth $2.1 billion, the last public disclosure of their value made by the MEDC, according to state records.

In 2015, after ballooning MEGA credit redemptions had forced midyear state budget cuts, the Snyder administration inked agreements with GM, Ford and FCA to cap the remaining value of the credits so future governors and Legislatures could budget for them.

Ford agreed to cap its remaining credits at $2.3 billion through the end of 2029, while FCA accepted a $1.7 billion cap for the remaining life of the MEGA tax credit program.

Capital investments

But GM worked out a deal with the MEDC to keep the value of its tax credits and annual payouts confidential. As part of the deal, GM pledged to invest an additional $1 billion in capital improvements to Michigan facilities before the credits expire on Dec. 31, 2029, a pledge GM met the following year when the automaker reported making $1.55 billion in capital investments, according to the MEDC’s most recent annual report to the Legislature.

The MEDC spokesman said it’s still too early to tell how GM’s job reductions will impact its MEGA tax credits, which the company redeems annually.

“Without knowing if or how the company’s employment levels in the state will be impacted, it’s premature for us to comment on any potential effect to existing MEGA tax credits,” McKinley said. “We will continue to monitor the situation to understand what, if any, any implications arise.”

Reilly represents District 46 in northern Oakland County, where GM employs 1,166 workers at its Orion Assembly plant in Lake Orion. That plant produces the Chevrolet Sonic and Chevrolet Bolt EV, as well as GM’s Cruise autonomous testing vehicles.

From Reilly’s vantage point, he contends the job-retention MEGA tax credits have outlived their original purpose.

“All of the central planning we put into these ideas is not the way the market works,” Reilly said. “I’m opposed to these kind of interruptions in the marketplace. This didn’t keep the jobs here, right? Those dollars could be better spent.”

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