Michigan House Rejects Cronyism Bills

‘TIF on steroids’ legislation dead for now

Little Caesar's Arena

As Michigan continues to recover economically, a Michigan House committee rejected bills that would have taken us back to the “lost decade” way of doing business.

Legislation that would give private developers taxpayer cash died in Lansing today. Senate bills 1061 through 1065, which had passed the Senate, found opposition in the House Local Government Committee. While it is common practice to resurrect lame-duck legislation in a new year, these bills should remain buried.

The reasons are multiple. These bills are unfair to those who are not lucky enough to obtain such a deal and are ineffective as economic growth generators. They also take revenue that might be put to better use somewhere else in government and make it harder to roll back taxes for everyone who is not part of the favored few. Members of the House were clearly unimpressed with the legislation.

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The bills were designed to mimic Tax Increment Financing (TIF) programs that traditionally have allowed some units of government to capture new property tax revenues purportedly generated from some new development. That revenue can be used to pay off bonds floated on behalf of a private, for-profit business by, say, a city.

The obvious first use of this law, had it passed, may have been a new soccer stadium and related construction in southeast Michigan. Detroit developers were particularly big backers of the legislation.

Lee Chatfield, chair of the committee, told Gongwer News, “I didn’t feel like it was the best direction for our state to take.”

Fortunately, he wasn’t the only House member to oppose the legislation in what could be a called a ‘profiles in courage’ moment. Speaker Kevin Cotter and other House members did too despite enormous pressure from a non-profit group and well-heeled business interests to vote for the bills.

Chatfield told the Michigan Information Research Service, a Lansing-based newsletter Chatfield believes that “low-tax, low-regulation environment are the tools he would propose to use to attract industry, business and talent to Michigan.”

The bills died on a day of great news about Michigan’s growing economy, underscoring just one reason that such bills are unneeded. The Bureau of Economic Analysis reported that Michigan had the fastest economic growth (as measured by its gross domestic product) of any Midwest state in the second quarter of 2016.

This type of legislation does not necessarily foster economic growth, and academic literature has painted an unflattering portrait of its effectiveness. A 2015 study out of Indiana’s Ball State University, as one example, reported that “TIF districts in Indiana were actually associated with less employment, less taxable income and slightly higher tax rates.”

The deals are also unfair. Those developers not lucky enough to strike such deals are put at a competitive disadvantage. Their own tax dollars, paid on income generated from their unsubsidized investments, are used against them.

The end to this legislation is Christmas come early for most taxpayers and developers alike.

Editor's note: This column was updated with additional comments.

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