What is MEGA?

As proposed by the Michigan Jobs Commission, the Michigan Economic Growth Authority would be a 7-member state board chaired by the chief executive officer of the Michigan Jobs Commission, and include the state treasurer, the director of the Department of Transportation, the director of the Department of Management and Budget and three other individuals appointed by the Governor with the advice and consent of the Senate.

The MEGA board would administer a "Job Expansion Incentive Program." This program would provide refundable single business tax (SBT) credits for up to 20 years for selected Michigan firms whose business investments create over seventy-five "high-paying" jobs in Michigan. Out-of-state firms must create one hundred fifty such jobs in Michigan to be considered for the credits. The credits would equal up to the amount of state income tax paid by the new employees plus an amount equal to the company's increased SBT liability. The incentive is capped at, and could be used by the company to offset, the planned capital investment, related infrastructure, employee training costs and relocation costs of the project.

To understand how the credit would work, assume a Michigan manufacturing firm is selected to receive a MEGA tax credit for a $10 million expansion that creates 100 new jobs. Assume further that the new expansion generates income which creates $50,000 per year in additional SBT liability. If the average state income tax paid by these employees is $1,500, the company would receive a $200,000 (100 x $1,500 + $50,000) SBT credit each year for up to 20 years, for a total credit of $4 million.

State officials are cautious about estimating the impact on the state budget, but first year revenue reductions in the range of $7-$10 million have been proposed. A mid-range figure of $8 million in first year reductions, assuming a 20 year credit period, would mean that the board is expected to authorize approximately $160 million (current year dollars) in SBT credits for the first year of the project. Although new credits would not be authorized after December 31, 1998, those authorized before that time would continue for up to 20 years. Over its 4-year life span, the proposal would allow the MEGA board to authorize approximately $640 million in single business tax credits. If the Legislature extends the program, the credits could increase indefinitely, and the proposed legislation sets no limit on the amount of credits that can be granted.