Toyota Land Deal: Unequal Treatment, Awful Outcome

For months now, Gov. Jennifer Granholm has been finagling a land deal to lure Toyota Technical Center USA to Southeast Michigan. Unfortunately for the governor — but fortunately for Michigan citizens and the rule of law — a judge on Monday cleared the way for a legal challenge against her administration’s backroom efforts to give undue preference to Toyota in selling the land. Gov. Granholm has responded to the court’s ruling by vowing to stay the course and wield all her powers to secure the prime real estate for the proposed automotive tech center.

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The prospect of new hi-tech jobs is appealing, of course. But Michigan has more to lose than to gain if the governor succeeds with her corporate welfare scheme, which has already exacerbated the state’s longstanding problems in attracting new investment.

The state Legislature first authorized the sale of the disputed 690-acre York Township property (the former site of Ypsilanti State Hospital) in December 2002. The authorizing legislation, Public Act 671, explicitly required competitive bidding and a sale price no less than “fair market value,” which was independently appraised in 2003 at $11.9 million. Lawmakers also conditioned the sale on the state’s preserving ownership of oil, gas and mineral rights.

Only Toyota and DPG York, LLC, a group of Michigan developers, submitted bids for the property. DPG’s $25 million bid met all the conditions of P.A. 671. Toyota’s $9 million bid, however, was below the fair market value required by the statute, and reportedly also was contingent on acquiring the oil, gas and mineral rights that lawmakers intended the state to retain.

By all rights, DPG should have won the purchase rights. But in carrying out the auction, officials of the Granholm administration ignored the Legislature's directive to sell the land to the highest bidder. Contrary to the unambiguous language of P.A. 671, the state Department of Management and Budget rejected the higher bid based on little more than political preference for Toyota. DPG, after all, had bid $16 million more than the automaker for the land, and the firm planned to invest $1 billion in mixed-use development that would have generated an estimated $20 million annually in new tax revenues. DPG also had a successful track record, having developed over $3 billion of real estate in Michigan and generating hundreds of millions of dollars in tax revenue.

Amazingly, state lawmakers subsequently backed the administration’s flouting of their will. The governor sought and won new legislation giving the DMB unparalleled discretion to engineer a land sale favorable to Toyota. In contrast to the original sales authorization, the new statute, Public Act 326, did not require open bidding, nor did it require that the sale price meet or exceed the fair market value of the property. Instead, agency officials needed only to determine that the sale represented “fair value” for the state. Moreover, the state was to finance environmental cleanup of the site — the cost of which is currently estimated to exceed the proceeds of the sale.

Consider for a moment the significance of this legislative reversal. Businesses are already dissuaded from locating or expanding in Michigan through the state’s punishing tax rates and regulatory bullying (not to mention excessive labor and energy costs). By upending state law in Toyota’s favor, Gov. Granholm and the Legislature supplied another powerful reason for investors to steer clear of the state. They sent a clear message to businesses around the country: The rule of law in Michigan applies only to the politically favored. As state Sen. Bruce Patterson said, “We look like a Third World country when we engage in this type of practice.”

Not surprisingly, DPG York has filed suit, requesting that P.A. 326 be nullified on constitutional grounds, and that the commonly accepted standards of P.A. 671 be reinstated for the sale. On Monday, Ingham County Circuit Judge Joyce Draganchuk refused the state’s request to dismiss the lawsuit. Unless the state prevails on appeal, the governor’s actions will be tested at trial.

The Granholm administration has not yet struck a deal with Toyota, but ultimately, the courts must decide the constitutionality of the Legislature’s delegating such open-ended and discriminatory authority to an executive branch agency. Judge Draganchuk already has concluded that the issue merits a trial.

But Michigan citizens are the losers no matter which way the case is decided. Gov. Granholm and the Legislature have, by their actions, marked Michigan as a state where businesses cannot take for granted due process and equal protection under the law.


Diane S. Katz is director of science, environment and technology policy with the Mackinac Center for Public Policy, a research and educational institute headquartered in Midland, Mich. Permission to reprint in whole or in part is hereby granted, provided that the author and the Center are properly cited.