The Michigan legislature and the governor are working to make Michigan a more business-friendly state by changing the tax structure. But, while businesses are benefiting from already passed tax reductions --and anticipate more-- the change is costing communities.
I went to one city to see how it was handling those changes.
When I visited, it was a beautiful day in downtown Monroe. The city is situated on the River Raisin in the southeast corner of the state, right on Lake Erie. It’s just 19 miles north of Toledo, Ohio.
Monroe has a lot of history behind it. It was the site of the Battle of River Raisin in the War of 1812. General George Armstrong Custer grew up here.
And historically, it’s been a manufacturing town.
Like a lot of cities in Michigan, Monroe is a community now struggling to “reinvent” itself.
Many of those manufacturing jobs have been lost. A Ford stamping plant once employing 3000 people is now a warehouse. Auto suppliers in the area have gone out of business.
Much of the economy has shifted from good-paying manufacturing jobs to less well-paying jobs in the service sector. And that’s meant less money to go around the community.
“As a consequence, you’ve seen a lot of local governments either revenue dry up because not only has the industrial base shrunk, but salaries paid in the area have gone down. So, that’s kind of a pattern you’ve seen across the state and it’s true to some extent here.”
Charlie Slat is the Business Editor for the Monroe Evening News.
He says Monroe still has some manufacturing. La-Z-Boy furniture is headquartered there. The parent company of Monroe shock absorbers is there and there’s a steel mill. There is some new downtown development. But, Monroe is not what it once was. There are a fair amount of empty storefronts with For Sale or For Lease signs on them, once vibrant businesses that didn’t make it through the recession. And many of the people who lost their jobs also lost their homes to foreclosure.
Slat says that’s affecting the budgets of local government. The City of Monroe continues to lose money because home values are way down. That means a major source of revenue, property taxes, have dropped.
“At a point where things might be stabilizing or turning up a little bit, economically government services are still feeling perhaps the worst pinch they’ve felt ever.”
Monroe, like other Michigan cities, will also see less revenue sharing from the state because of the new tighter budget that cut business taxes. And towns like Monroe could lose even more money if a proposal for another tax cut for business is approved. A proposal to eliminate the Personal Property Tax on business equipment is being considered by the legislature.
Many officials in cities, schools, and other local government entities in the state are really worried. Communities have relied on the Personal Property Tax for part of their budget. It doesn’t get filtered through state officials so it can’t be cut by them. It goes directly to local governments. Some local officials say they’ll be forced to make more cuts to police and fire protection, close libraries, close schools or cut programs if the Personal Property Tax is eliminated.
But the Mayor of Monroe, Bob Clark, is resigned to smaller city budgets. His city has been cutting for years.
“We used to have 250 employees in the City of Monroe. We have 167 currently. And we provide services in an efficient and effective manner with the number of personnel that we have.”
Mayor Clark says further changes in the state tax structure such as eliminating the Personal Property Tax are important for bigger businesses such as the Brazilian-owned steel mill in Monroe.
“Our company, Gerdau-Mac Steel, they had a negative impact from some of the changes.”
Gerdau is one of the larger corporations in the state that will not benefit from the new business tax structure. Many medium and small businesses will pay less with the new flat six percent corporate income tax. But many of the biggest corporations, like the steel mill in Monroe, will pay more.
Mayor Clark says elimination of the Personal Property Tax will help Gerdau Steel and that might be more important than the cuts the City of Monroe will suffer with the elimination of the tax.
That is not a sentiment shared by many other cities’ leaders.
While Monroe budgeted around cuts in revenue sharing from the state and is anticipating further cuts if the Personal Property Tax is eliminated… it’s also benefitted indirectly from other taxpayer money.
Right next to the steel mill a new business is about to start operating, due in large part to federal and state money.
VenTower is installing big machinery and testing it, getting ready to start producing big towers for wind turbines. Soon 150 people will work here. The offices were still under construction when I visited, so VenTower is temporarily housed in an empty office on the third floor of the City Hall, where there are not as many city employees these days.
Scott Viciana is a Vice President of VenTower Industries. The federal government, the State of Michigan and the City of Monroe worked to put together grants and loans to get the clean energy business to locate here.
“The package ultimately got us here, with some strong efforts by Randy Richardville and some other folks who really took a keen interest in our project.”
Randy Richardville is State Senator Randy Richardville, the Majority Leader in the Senate. Monroe is his home.
VenTower got federal and state government grants and loans to build its plant in Monroe during the Granholm administration. It did not anticipate the new tax structure under Govenror Snyder that benefits small and medium size business like Ventower. Scott Viciana says, still, it’s nice.
“Up and coming breaks that potentially could be coming for businesses and citizens, I think that’s just really icing on the cake for us.”
It’s not clear that currently new manufacturing plants like the wind turbine tower plant would get all that help today. Governor Rick Snyder has said the state should not be picking winners and losers for investment. The state is much more picky about who it will help.
Meeting with Senator Randy Richardville in his office in the capitol, I had to ask if a deal like VenTower’s could even be made these days. He says not all state grants and credits are gone.
“It’s not a total across-the-board elmination. There still is some degree of picking winners and losers, but it’s a little more refined approach in the future and I think that’s probably smart on a return-on-investment standpoint.”
Senator Richardville says there are still tax credits for cleaning up old polluted sites and rebuilding, known as brownfield credits, and the state approved more funding for the Michigan Economic Development Corporation, which makes grants and offers other services to businesses thinking of moving to Michigan and some of those already in the state.
Senator Richardville says communities such as Monroe are being forced to change because of the economy.
It’s trying to attact tourism with its rich history and a nearby state park on Lake Erie. It’s also trying to draw people to Monroe with big jazz festivals.
Richardville says given the decline in Monroe’s manufacturing base, the city and the surrounding area are coming back.
“It was one of the hardest hit counties in the state. So, if you use that as a benchmark, then I would say Monroe has come back farther and faster than most.”
But in Monroe, like many Michigan communities, maybe it’s not really a recovery. It’s a transition. And it’s expected to evolve slowly. The struggle for city governments will be trying to maintain an attractive quality of life in communities with ever shrinking budgets due to cuts to local governments made by the state government in Lansing.