State talks to GM; Fiat Chrysler accepts $1.7B tax cap – The Detroit News
Lansing — Gov. Rick Snyder’s administration is in talks with General Motors Co. to accept a voluntary cap on the value of its state tax credits after securing deals with two crosstown rivals so it can contain the ballooning cost to the state treasury.
Fiat Chrysler Automobiles NV agreed Tuesday to a $1.7 billion cap on the remaining value of Michigan business income tax credits the automaker will be entitled to claim over the next 14 years. Chrysler’s original tax incentives were valued at $1.3 billion over two decades when Gov. Jennifer Granholm’s administration announced them in October 2010.
In June, Ford Motor Co. accepted a $2.3 billion cap on the remaining value of its Michigan Economic Growth Authority tax credits in exchange for making $3.1 billion in additional investments in Michigan facilities. Its incentives were valued at $909 million in October 2010.
Snyder’s economic development director said Tuesday he hopes to secure a deal with GM next month, concluding a year-long effort to rein in the state’s $9.38 billion long-term MEGA tax credit liability.
“I am hopeful that by the end of the calendar year we will have closed out all of this,” said Steve Arwood, CEO of the Michigan Economic Development Corp. “When you look at what these companies have been willing to commit to the state of Michigan, I think it’s just a huge win to have this settled.”
The Snyder administration sought changes to the MEGA tax credits that Granholm awarded Detroit’s Big Three automakers in 2009 and 2010 in an effort to anchor the companies in Michigan following Chrysler and GM’s bankruptcies and federal bailouts.
The escalating costs of the tax credits — caused by growing payrolls at the Big Three — have strained the state’s annual $10 billion general fund. It prompted a $325 million midyear budget cut in February and prompted the Snyder administration to ask the companies to agree to caps on the value of the remaining taxpayer-funded incentives.
Arwood said Monday the deals with Ford, Fiat Chrysler and potentially GM have “collared the liability” so the value of the tax credits will not continue to balloon after the profitable automakers awarded employees bonuses and agreed to pay increases in recently approved contracts.
At the request of state officials, the automakers have agreed to three-year forecasting of their tax credit claims, Arwood said.
In previous years, the cost of the tax credits was unpredictable, skyrocketing from $75 million in the 2013 fiscal year to nearly $750 million the following year, according to the House Fiscal Agency.
The MEDC projects MEGA tax credits will cost the state in excess of $500 million annually through 2028 before the last business tax credits expire in 2031.
How FCA credits changed
The Michigan Strategic Fund board on Tuesday approved an amendment to Fiat Chrysler’s MEGA tax credit that requires the Auburn Hills automaker to make an additional $1 billion investment in its Michigan automotive manufacturing facilities in exchange for the $1.7 billion in tax credits through 2029.
Arwood said he hoped to have a deal in place with GM in time for the next Michigan Strategic Fund board meeting on Dec. 15.
GM has been awarded a series of tax credits that were originally valued at $2.1 billion, covering 34,750 jobs, or 77 percent of its 45,500-employee workforce in Michigan.
“We continue to have productive discussions on this matter with the MEDC, but have nothing to announce today,” GM spokesman Chris Meagher said in a Tuesday email.
The former Chrysler Group LLC previously agreed to make $3.3 billion in capital investments to secure its tax credits five years ago. But the value of those tax credits exceeded projections, creating unforeseen tax refund costs and budget-busting holes in the state’s general fund budget.
The MEGA tax credits are calculated based on a company’s payroll and what employees covered by the incentives would pay the state in individual income taxes.
Earlier this year, the MEDC projected the value of Fiat Chrysler’s earned and unearned credits had risen from $1.3 billion to $1.98 billion through 2031.
“It could have been more than that, so with this amendment we’re actually capping the liability on an overall basis and an annual basis to the state,” said Jason Cooper, senior manager of local and state taxes at FCA US LLC.
Fiat Chrysler’s amended MEGA credit would expire in 2029, two years earlier than originally planned. The agreement also increases the number of jobs covered by the MEGA credits, rising gradually from 20,000 to 27,000 jobs by 2029, according to an MEDC memorandum for the Strategic Fund board members.
The pact also gives Fiat Chrysler the flexibility to “bank” $25 million in credits from one year and apply them toward the automaker’s tax bill in subsequent years.
“FCA US LLC values its productive partnership with the State of Michigan and its residents,” the automaker said in a Tuesday statement. “The amended tax credit agreement with the MEDC provides greater economic certainty for all parties, caps the value of tax credits FCA US can claim and requires the company to make an additional $1 billion capital investment over the remaining term of the global MEGA tax credit.”
Under the company’s recently ratified 2015-2019 contract with the United Auto Workers union, Fiat Chrysler outlined plans to invest $5.3 billion in its manufacturing operations.
The company did not outline exact investments for each plant. But most, if not all, of its major Michigan facilities are expected to be involved: $315 million for stamping plants in Sterling Heights and Warren; $3.4 billion in assembly operations, including several Metro Detroit facilities; and engine plants in Detroit, Dundee and Trenton are part of $1.5 billion to be invested in powertrain operations.
FCA said Tuesday the company “does not have any future investment plans to announce at this time.”
Detroit News Staff Writers Melissa Burden and Michael Wayland contributed.