Tax Break for Toyota

[FordMan]

Tax break for Toyota: $38.9 million

State wants to seal York Township deal

April 12, 2005

BY JAMIE BUTTERS and TOM WALSH
FREE PRESS BUSINESS WRITERS

Toyota Motor Corp., long considered the most significant competitive threat to Detroit's automakers, is expected to receive $38.9 million in tax breaks from the State of Michigan for its proposed engineering and testing operations near Ann Arbor.

David Hollister, director of the state Department of Labor and Economic Growth, told the Free Press on Monday that the incentive would be offered as part of Toyota's planned $11-million purchase of a 690-acre site off U.S.-23. in York Township. Toyota unveiled its interest in the project in August and an incentive package was expected.

The state and the automaker plan to sign a purchase agreement at 9 this morning before a special 10 a.m. meeting of the Michigan Economic Growth Authority board. The sale would not likely close for a year, Hollister said, while environmental work and other preliminary checks are completed.

As the state's biggest automotive companies struggle to compete with Toyota and other Asian rivals, Democratic Gov. Jennifer Granholm's administration -- with the support of the Republican-controlled Legislature -- is working to make sure that companies from Japan, China and elsewhere invest in Michigan's signature industry. Granholm plans to meet this week with Chinese officials in Detroit for the Society of Automotive Engineers annual convention.

To that end, Hollister said winning the Toyota deal is a great achievement that will secure Michigan's economic identity.

"It really, I think, solidifies this idea of Michigan being the epicenter of R&D in North America, if not the world," he said.

The state has extended lucrative tax breaks to hundreds of companies over the last 10 years, including a $95-million package to create 1,400 new jobs at the Ford-Mazda plant in Flat Rock in 2003. But the Toyota deal would rank among the highest in terms of its per-job cost -- about $97,250 each -- compared with the $68,000 per job created at the Flat Rock plant. The difference stems from the cost of attracting high-paying, white-collar jobs in research and development.

Other states have offered considerably more. Alabama, for example, has granted DaimlerChrysler AG's Mercedes-Benz plant in Vance, Ala., about $372 million in overall incentives to create up to 4,000 jobs there. That's about $93,000 per job.

Toyota raises bid

Toyota's proposed land purchase price is higher than its original $9-million bid but less than half of the amount offered by Oakland County developers who want to build residential and commercial structures there. The land was appraised at $11 million.

Hollister said the deal will lock in 400 direct jobs from Toyota -- paying about $1,500 a week -- and likely create another 277 jobs indirectly, generating more than $1 billion in personal income over 20 years. "These are really, really, really good jobs," he said.

But good jobs don't excuse changing the rules in the middle of the process, competing bidders say.

Last August, a unit of Diversified Property Group bid $25.25 million for the site. The state threw out DPG's and Toyota's bids and the Legislature passed a law authorizing the state to negotiate exclusively with Toyota.

One court ruled in favor of DPG, but an appeals court ruled on behalf of the state. DPG plans to appeal to the state Supreme Court and has existing appeals in the works with the lower court.

The company's lawyer, Stephen McKinney of Birmingham law firm Hyman Lippitt, said he is confident that the courts will reject Toyota's deal. "If they say this is an unconstitutional law, that's going to void the agreement," he said.

Hollister sounded equally confident that the deal will stand. He also said that the state has not offered DPG any money, as far as he knows, to drop the claim.

The state is also making a push for Chinese automotive companies to invest in Michigan.

The world's largest nation lags other giant auto nations in terms of the number of companies that have operations in Michigan. While the state counts about 500 companies each from Germany, Japan, Great Britain, France and Canada, it lists only 10 Chinese firms.

The true number may be closer to 20, but it is still a small group -- seen by economic developers as a huge opportunity.

China has grown to become the third-largest national auto industry behind only Japan and the United States. The Chinese government has aspirations of building a world-class industry with global brands developed there.

In a speech to the Detroit Chinese Business Association on Sunday, Jianong Wu, the vice mayor of the 30-million person Chongqing municipality, said that businesses from the region are looking for high-end engineering talent.

Granholm plans to meet with Wu on Wednesday to make the case for Chinese companies to invest in Michigan.

"The governor is anxious to spur new investment in Michigan and recognizes as well as anyone that we live in a global economy," said spokeswoman Liz Boyd.

Big picture

GM is still the world's largest automaker, but Toyota is the world's most profitable and is growing quickly in markets from North America to Europe to China.

In the United States, it has a history of making economic-development officials look good because it typically creates more jobs than it promises and at even higher pay.

But state tax credits are often criticized by government watchdogs that see the state as picking economic winners when it could lower taxes for all or spend more on education and other services.

The Midland-based Mackinac Center for Public Policy has studied the 10-year history of the MEGA grant program and found it to be an ineffective tool for job creation. The free-market group is releasing a paper today that analyzes the history of the program. It estimates the state has granted $3 billion in potential state and local incentives through MEGA.

"It has had zero impact on per-capita income, employment growth or the unemployment rate in any county it's been used in, and therefore in the state in aggregate," said Michael LaFaive, director of fiscal policy at the Mackinac Center, and coauthor of the paper.

But Hollister said that the state needs every tool at its disposal to compete against the likes of Ontario, which last year made more cars and trucks than Michigan did, for the first time ever.

Hollister said the economic-development programs are available to all and important to protecting the state's economy: "We don't see this as a slap at anybody."

[tgagneguam]

...In the United States, [Toyota] has a history of making economic-development officials look good because it typically creates more jobs than it promises and at even higher pay...

I think this should be GM's new mantra: under-promise (particularly with respect to product) but over-deliver. Right now, they seem to have it backwards.

And it's fine for the State to grant tax exemptions to Toyota. After all, it'll be putting Americans - who pay taxes - to work.

[TiburonJT]

We Michiganders know that this is good news since we have the highest unemployment rate in the country.

[Ming]

Why should I, as a Houstonian, support Detroit's American-Headquartered automotive industry when you guys in Michigan elect politicians who sell out to Japan-Headquartered Toyota?

[dav305z]

Great thinking. Lets support a company that wants to bring 400 jobs to the state, nevermind that their direct competitor employs thousands of people. Dumb thinking if you ask me.

[uujjj]

The amount of the tax break seems huge, but remember Michigan sees this as just the beginning of the establishment of the Japanese automakers in that state. They figure that once Toyota starts investing in the state, they will keep doing so. I expect them to pursue similar deals with other foreign automakers if given the chance.

I reluctantly agree with what they are doing. After watching the local automakers tread water for the last 30 years, the state's elected officials know they must reduce Michigan's economic dependence on the Big 3 or risk losing even more jobs. Still, even though it is the right decision for the state's economy this feels awful.

[4runner]

Very good news for the state of Michigan! This will further demonstrate to the world that Michigan is a global automobile research and development hub and not just the Big 3's backyard.

I know a few of you think this is selling out. Nothing can be further from the truth. First, over the course of the last 20 years the big 3 have cut far more jobs than they have created. What incentive does Michigan have to exclude Toyota? Second, GM's slide is GM's fault - If (or should I say when) Toyota overtakes GM it will be GM's fault not the Governor's.

[TiburonJT]

Originally Posted by Ming

Why should I, as a Houstonian, support Detroit's American-Headquartered automotive industry when you guys in Michigan elect politicians who sell out to Japan-Headquartered Toyota?

Michigan has offered tax breaks to the domestic manufacturers as well. It's not like we only want foreign competitors, but with the highest unemployment rate in the country we need jobs. Maybe you should drive through Flint, MI and see what happens when an economy is not diversified (with different companies and different industries).

The state and/or local governments have taken similar actions in the past -

"General Motors has received huge tax breaks, such as 107 million dollars for its Flint engine plant, 93 million dollars for the Warren Tech Center, and 169 million dollars for its new Lansing plant. In addition to this, the state took the outdated GM Building off GM's hands, and gave it tax breaks for its new headquarters in the Renaissance Center."

"Last month, General Motors won approval of a separate tax break if it makes a $350-million investment at its southeastern Michigan Powertrain plant in Mound."

"Governor Jennifer Granholm has announced the approval of more than $28 million in tax credits--to encourage General Motors to expand its Flint Engine South plant and retool its Flint Truck Assembly plant."

"In 2001, the drug giant Pfizer received a 25 million dollar state tax break to build a facility near Ann Arbor."

"Robert Bosch Corp. will move its Braking Div. headquarters from South Bend, IN, to its corporate campus in Farmington Hills, MI, employing about 475 people. Bosch had announced the move last May, but then said it was considering staying in Indiana. But a $20.8-million tax break from the Michigan Economic Growth Authority made the decision a little easier. Groundbreaking is set for spring."

[FusionSVT]

Originally Posted by Ming

Why should I, as a Houstonian, support Detroit's American-Headquartered automotive industry when you guys in Michigan elect politicians who sell out to Japan-Headquartered Toyota?

Not everyone voted for Granholm and MIND YOU as I recall theres a Toyota truck plant being built in good ol' texas(san antonio i believe). Youre as big of a sell out as we are under your standards.

[TiburonJT]

Originally Posted by Ming

Why should I, as a Houstonian, support Detroit's American-Headquartered automotive industry when you guys in Michigan elect politicians who sell out to Japan-Headquartered Toyota?

Maybe you should ponder the following for a while. Seems as though Texans have some explaining to do as well.

"The city of San Antonio and the county where the plant is located, shared equally with the state in the incentive package given to Toyota."

Ming, how can you and your fellow Texans elect politicians who sell out to the Japan-headquatered Toyota?

[mbukukanyau]

Try get GM a Tax Break in Japan

UAW will not even give GM a tax break.. they will milk it to death.. They want a pay increase I heard

[ghughes]

Totally re-god*amned-diculous - but consistent with us trade and economic policy - You dont pay the fox to live in the henhouse to guard your hens -

[460ford]

So ****************ing stupid, It seems as though half of american wants gm and ford to go out. Will people ever get their heads out of their asses?

[TiburonJT]

Originally Posted by 460ford

So ****************ing stupid, It seems as though half of american wants gm and ford to go out. Will people ever get their heads out of their asses?

Do you know how many jobs GM has shipped overseas, even after all the tax breaks. Don't act as if we don't try to keep GM jobs as well. Should we kick out Chrysler now that it German? There are a ton of foreign companies and companies with many foreign investors that operate in the US, it is not as clear cut as you want to make it out to be. Tax breaks saved hundreds of Pfizer (foreign company which bought Pharmacia, which had bought Upjohn) jobs in Portage, MI (the city gets A LOT of revenue from Pfizer) and SE Michigan, but the state was active in keeping Pfizer here. The communities in which these companies are located, and their employees, appreciate the fact that they still have these jobs.

[jbernie]

The only problem I see with the tax breaks is with the fact they are doing it in the backyard of all the Big 2.5... and even then it isn't an issue as why build that sort of a facility in say North Dakota (woo!) when you have plenty of willing talent in the state of Michigan?

Kudos to Toyota for selecting a location that desperately needs jobs, hopefully there will be a positive effect to the local economy.

Keep in mind the saying, "beggars can't be choosers", if they say no to Toyota then the aren't really that desperate for industry. Although, given Toyota's financial "hardship" (not!) one could ask if they really need the assistance. In some ways the tax breaks are bad when it comes to a highly profitable company, I could understand it more if you are giving a break to a company that needs some assistance in keeping an existing facility open and even more so if that company was the main source of employment for the town, but when a multibillion company is offering itself to the highest bidder over $40 million (small change) it doesn't always look good.

Unfortunately I dont see all levels of government saying no we wont offer tax breaks to filthy rich companies.

Opinions either way

James

James