Recommendation #1: Pursue economic policy neutrality

Michigan policy makers should pursue a strategy of strict economic neutrality with respect to land development, avoiding any political pressure to subsidize one industry at the expense of others. Despite the best intentions of policy makers, economic development programs and strategies intended to pick economic "winners and losers" inevitably disrupt the smooth functioning of markets and create unfair advantages for some businesses at the expense of others. Little evidence exists to suggest that state or local governments will do any better than national governments in the doomed effort to identify and protect niche industries.

For example, the Governor’s farmland task force recommended in 1994 a number of policies designed to protect the Michigan agricultural industry from competition, including preferential tax treatment. The rights of farmers to engage in economic activity certainly must be protected, but there is little evidence to suggest that the survival of Michigan’s agricultural industry is in doubt, or that the industry is particularly disadvantaged relative to others. And even if it were, it is unfair to subsidize it at the expense of the state’s other industries.

The Governor’s task force estimated that Michigan’s agricultural industry contributes about $37 billion each year to the state’s economy. More detailed economic data suggest that the direct contribution of agriculture to the state’s economy is much more modest. The number of people employed on farms and in agricultural services is less than 3% of Michigan’s workforce of 5.1 million people.[111] Manufacturing employment, in contrast, consists of 19.4% of the state’s work force. Total earnings from farms, agricultural services, and related manufacturing — the money people take home and spend — amounts to about $3.7 billion, or just 2.3% of total earnings statewide. Manufacturing, including food processing, has a much higher effect on the state economy.

Therefore, any state land use policy should incorporate the following specific policy recommendations to maintain economic neutrality:

  • Tax incentive programs that target specific industries and firms should be avoided;

  • Agriculture’s tax status should be the same as other commercial and industrial sectors of the economy;

  • Tax policies should be fair and uniform across the board; and

  • Local regulations and permit issuance should be streamlined to reduce the cost of doing business in Michigan and encourage wealth creation and investment in all businesses and industries, including agriculture.

Unintended Consequences of Public Policy:
Michigan’s Public Act 116

A prime example of how well intended programs may not achieve intended outcomes is Michigan’s Farmland and Open Space Program, which aims to preserve farmland by allowing farmers to voluntarily withdraw their land for future development in exchange for tax credits. The program, which was initiated in 1974 by Public Act 116 and amended in 1996, now enrolls 41% of the state’s farmland.

The counties facing the most pressure for development are the central city counties and the surrounding suburban, or "collar" counties. Yet, some of the counties with the highest amount of land enrolled are rural. Of the 13 counties with more than 100,000 acres in the program, nine (62.9%) are counties outside of metropolitan areas and face little development pressure (see Appendix C on page 59).

Since urbanized counties have lost substantial portions of farmland to urbanization, of course, significant amounts of acreage might not qualify for the program, biasing enrollment numbers toward rural counties. A quick look at other central city and collar counties, however, shows that several have more than 100,000 acres of farmland, including the counties housing some of the state’s largest cities — Ann Arbor, Flint, and Grand Rapids. Some of the smallest proportions of land in the program are in the suburban Detroit area. All of these central city and collar counties have less than half their farmland in the program.

This undermines the notion that farmers and rural property owners are universally in favor of protecting farmland from development. If farmland owners were interested in protecting their land from development, they would naturally enroll their land in the program to secure the tax credits and other exemptions. The fact that farmers and property owners in central city and collar counties are not enrolling their land in the program suggests they prefer to leave their development options open for the future.

This is a strong argument in favor of economic policy neutrality for the state of Michigan.