Michigan awards GM $1bn in incentives for new electric cars

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Michigan has always been in the hunt for new model manufacturing in Michigan. This one pitched by Michigan to GM is nothing new. Just another state buying a company by funding its stay. I can find my records on this, Michigan owes $billions to corporate Michigan. This all started with Governor Engler. Companies are used to it, so now they expect to get it. Read on . . .

Automakers’ history of taking fat subsidies and overpromising job growth make some analysts skeptical of the deal. 

‘A really bad deal’: Michigan awards GM $1bn in incentives for new electric cars

In September, Ford stunned Michigan when it announced plans to build two massive electric vehicle (EV) plants in the nation’s southeast instead of its midwestern back yard. Fearing the future of the automotive industry was leaving Detroit, the state’s political class swung into action.

Four months later, lawmakers responded by handing a staggering new subsidy deal to GM that they claimed would fortify the Motor City’s standing as the world’s auto capitol during industry electrification: In exchange for $1bn in tax incentives, the Detroit-based automaker promised $7bn in investment for new battery and EV plants that could create 4,000 new jobs.

“This news is great for us and for Michigan, the epicenter of where we’re developing EVs,” GM president Mark Reuss said during the announcement.

But what’s good for GM may make less sense for state taxpayers, a Guardian analysis of the deal finds. Once again large corporate subsidies – paid for by taxpayers – look set to benefit the corporations while leaving taxpayers out of pocket.

Michigan has effectively agreed to compensate GM more than $310,000 for each job created, but during the next 20 years, the positions are unlikely to generate more than $100,000 in tax revenue in the very best-case scenarios.

Collectively, the plants’ jobs will probably return less than $300m of the state’s $1b investment when contributions to state income, sales, property and other taxes are factored in.

The state also claimed the direct and indirect jobs created by the project will generate $29bn in new income over 20 years, or the equivalent of 29,000 jobs paying $50,000 annually. Economists from across the ideological spectrum who reviewed the analysis said that level of job creation is highly unlikely and pointed to a US Commerce Department report that labels such claims “suspicious”.

Moreover, a state memo shows GM agreed to create only 3,200 positions – 800 fewer than it publicly promised, and the deal also allows it to close the plants within several years but keep most of the money.

The package is “a really bad deal for Michigan taxpayers”, said Greg LeRoy, executive director of corporate subsidy watchdog Good Jobs First. Michigan isn’t alone: The deal is among a new wave of colossal corporate subsidy packages that lawmakers across the country are cooking up to lure EV manufacturing and more giveaways are in the works. And like other huge corporate sweeteners – notably the $4.8bn used to lure Taiwanese manufacturer Foxconn to Wisconsin – LeRoy warns these “trophy deal” announcements may help political campaigns. However, they are also reckless deals that threaten to blow holes in states’ budgets in the coming decades.

As the combustion engine is phased out, tax revenue from its production and use will drop off, and states will need EV revenue to replace it. EV manufacturing requires fewer direct and indirect jobs and adding generous subsidy deals further limits its financial returns.

Already, Michigan has handed out more subsidy deals, worth at least $50m, than any other state, and it has struggled with budget shortfalls stemming from billions it owes on combustion engine tax incentives that have yielded questionable job and revenue returns.

“You would think after all that history Michigan would be gun shy to do something like this that could bite them,” LeRoy said.

GM and the Michigan Economic Development Corporation, a quasi-public agency that negotiates the state’s subsidy deals, didn’t respond to specific questions about the package and keeps its math secret. But the MEDC wrote in an email that it’s up to taxpayers to “de-risk” large projects for corporations, and the subsidies are essential for landing auto investment.

“We cannot take for granted that they will stay in Michigan if we aren’t keeping up with our competitors,” a spokesperson said.

GM added, “It is always up to the government entities to determine if and when incentives are granted, but our experience has shown that incentives are an important part of supporting the business case.”

Critics say history also shows automakers are proficient in igniting economic war among states, a strategy former Ford and Chrysler CEO Lee Iacocca detailed in a 1990 interview: “Ford, General Motors, Chrysler, all over the world, we would pit Ohio versus Michigan. We would pit Canada versus the US.”

GM is planning to spend $35bn on EV and autonomous production through 2025, and Michigan lawmakers say they are competing against the southeast. Though Ford pointed to the southeast’s cheaper electricity, geography, available land and geological advantages as motivating its decision, “Michigan lawmakers found themselves embarrassed by the loss and reacted swiftly,” said Michael LaFaive, fiscal policy director with the right-leaning Mackinac Center for Public Policy, which tracks corporate subsidies.

“These funds have more to do with job announcements than they do real jobs,” LaFaive said.

‘They turned their back on our state’

Between 2002 and 2006, Michigan taxpayers contributed incentives worth about $110m to fund expansions of GM’s Ypsilanti township and Warren transmission plants near Detroit. State documents show the company and MEDC projected hefty returns: about 20,000 new or retained jobs and $2bn in new state tax revenue by 2027.

Within several years, GM had created new transmission line jobs – in Mexico.

The automaker shuttered the Ypsilanti township plant in 2009 and shipped its few hundred remaining jobs to Ohio or overseas. Less than a decade later, GM pulled the plug on the Warren transmission plant.

For decades, Michigan automakers and the MEDC have hyped similarly extravagant subsidy packages as job- and revenue-creation troves, but MEDC documents obtained by the Mackinac Center and analyzed by the Guardian reveal a pattern of anemic returns on taxpayer investment in GM.

Perhaps most infamously, the company in 1981 took $460m in subsidies while convincing Michigan leaders to raze a Detroit neighborhood so it could build its Poletown plant, which leaders claimed would create 6,000 direct positions and 19,000 indirect jobs. Poletown briefly employed 5,300 workers in 1985, but that figure quickly declined, and it never came close to achieving its promised productivity.

Similarly, Ford took billions in Michigan tax incentives over the last 20 years before announcing its southeast EV plans. Michiganders have spent decades “investing in [automakers’] factories and what have they given us in return?” asked state Democratic floor leader, Yousef Rabhi.

“They’ve abandoned those factories, fired thousands of hard working Michiganders who they left out in the cold with no remorse and moved those jobs to China, to Mexico,” Rabhi said. “Frankly, they turned their back on our state.”

The new generation of EV factory incentives are effectively the same as those used to attract combustion plant investment in past decades, one of which the state auditor general found created about only 21% of its promised jobs, while LaFaive noted a large body of scholarly and other independent analysis that “demonstrate repeatedly that these programs have zero to negative economic impact”.

The MEDC disagreed, and said it is “grateful” for GM’s history of investment in the state while noting that the automaker employs nearly 50,000 people in Michigan.

When GM’s manufacturing job creation numbers in the state failed to live up to the subsidy package hype, the MEDC in 2020 changed the math to include more white collar jobs created at the company’s corporate headquarters in downtown Detroit.

Meanwhile, GM has recorded $70bn in profits since 2010 while taking $8 bn in subsidies in recent decades – more than all but one company nationwide. The idea that it needed incentives to invest in Michigan “is absurd”, said Matt Gardner, a senior fellow at the progressive-leaning Institute on Taxation and Economic Policy (ITEP).

Businesses report that tax subsidies infrequently determine where they invest, and Gardner pointed to Amazon’s decision to build its second headquarters in New York City even after the city yanked a proposed subsidy package worth billions.

“GM has the money: If they see the need to invest, then they’re going to do it with or without the incentives,” Gardner said.

Anatomy of a subsidy package

The value of local and state incentives for GM’s two new plants totals at least $1b and may generate 3,200 direct jobs – or about $312,000 for each direct job created.

GM says the positions will pay an average of $56,000 and $46,000 annually. For those earners, the conservative Tax Foundation and ITEP estimated an effective Michigan tax rate of between 9.2% and 10%, based on state tax law and IRS returns.

At that rate, the plants’ workers could contribute about $4,600 in taxes each year, and over 20 years, the time period the MEDC used in its analysis, they could collectively generate about $294m – well shy of the state’s $1b investment.

However, several economists called the analysis “very generous” to GM and the MEDC because it assumes the plants’ employees will provide new tax revenue. In other words, it posits “that these people didn’t have any jobs previously, that they weren’t spending any money”, Gardner said.

With unemployment low, GM is unlikely to hire many unemployed workers, so the jobs will probably generate much less than $294m in new tax revenue over 20 years, economists say. In January, the state also slashed electric rates for some large users, like automakers, which may shift the utility grid’s cost burden on to residential customers.

However, the analysis doesn’t include construction jobs or increases in GM’s state corporate taxes. The company and MEDC didn’t respond to questions about state taxes, but it’s unlikely to push the needle much: GM’s 2021 SEC filings show it paid between $102m and $272m in all 50 states in recent years.

Meanwhile, economists said they strongly doubted MEDC’s claim that the plants’ direct and indirect positions will generate 29,000 new jobs and $29b in new income over the next 20 years. Many indirect jobs are low-paying, and the program that industry and the MEDC uses to develop economic impact projections is easily and commonly manipulated.

Forecasting 20 years of economic impacts is nearly impossible, LaFaive said, and the MEDC’s job projection “strains credulity”.

AB: Of course, Michael LaFaive of the Mackinac Center for Public Policy would tell you such. Then too, MEDC is not the most accurate in forecasting the future either. Anything beyond 5 years is going to be a best guess. If Michigan did nothing to entice the big three, LaFaive would be right in the mix with a different story to tell.

“They can’t tell the future because they can’t tell the future,” he said.

‘A really bad deal’: Michigan awards GM $1bn in incentives for new electric cars | Electric, hybrid and low-emission cars, The Guardian, Tom Perkins

MEDC Feeling the Heat for Corporate Welfare Deals Coming Home to Roost, Michigan Capitol Confidential, Jack Spencer.