Right to Work Repeal "Narrows" But Doesn’t Close the Funnel For Incentives in Michigan
As to whether repealing the state’s Right to Work law will slow that momentum, Chris Lloyd, Director of Infrastructure & Economic Development for McGuire Woods, said it would for some executives, but won’t matter as much for others.
Lloyd has spent his last 25 years with McGuire Wood, where he’s been hired by companies to do site locations, negotiate tax incentives and nail down expansion projects. He was involved in nailing down Cassapolis for the new Hydro Aluminum Recycling Plant, for example.
Years ago, Michigan "wasn’t even on the radar" for companies, but a bipartisan commitment to improving education and training opportunities for its workers has changed that, he said.
Companies looking to invest in a new project aren’t starting "with a blank slate." They have an idea of what they want, and every project is different. Some want to be close to a logistics chair. Some want to be close to a supplier. Some want to be close a customer base. Some want to fill a gap in their service area. Some are looking for a strong partnership with a community college or university.
Likewise, what they need from an area differs, Lloyd said.
"Sometimes, there’s a rush to incentives. A company will come in and a community will say, ‘We can give you a $5 million tax credit.’ That’s nice, but a $5 million tax credit may not be what they need," Lloyd said.
In some cases, it’s a change in a zoning ordinance for more signage. It’s a service line. It’s a road. It’s a turn lane. It’s renewable energy. It’s a pipeline to trained workers.
He said he’s never going to knock a good tax and regulatory climate. That said, companies looking to make a long-term investment in a community need a little extra. Again, it’s not necessarily a bag of cash, but something.
"Even in places with a good tax and regulatory climate, incentives still play a role," Lloyd said.
Presuming the Governor signs the Right to Work repeal, is that a deal killer for Michigan?
"We have some clients who say if you’re not a Right to Work state, they won’t consider it. For other clients, it’s not a material issue. It’s not an eliminating factor for them," Lloyd said.
Asked if he’s had a client who preferred going to a state without a Right to Work law, Lloyd said none have ever said that explicitly. The company may put a heavy premium on a skilled workforce, which unions can be good at providing. They may need a certain number of workers with a certain certificate, which, again, a union can provide.
That said, "If you’re not Right to Work, you have narrowed the funnel. But I can’t say it’s going to eliminate you from every deal because that wouldn’t be the truth."
The Legislature is sending Governor Whitmer a bill that repeals the state’s 10-year-old Right to Work law, which allows workers the ability to not join the union at their place of employment regardless of what contract agreement may be in place. She is expected to sign it.
Republicans Pick Up First Significant Legislative Wins of Session
Rep. Matt Hall (R-Kalamazoo)’s HB 4219, along with other pieces of Republican-introduced legislation taken up on Thursday in the House and Senate, were part of an agreement that resulted in Republican yes votes on the $1.338 billion supplemental bill that included nearly $800 million for a Ford battery plant in Marshall.
Following the passage of Republican-led initiatives, House Republican spokesperson Jeremiah Ward said this could be called “Republican results week.”
In the House, the legislation passed expanded the membership on the Michigan Strategic Fund Board from 11 to 13 members, exempted the sales tax on all installation and delivery services and put Michigan into compliance with federal criminal background check requirements.
Hall’s bill allows the House and Senate Minority leaders to nominate three people each for a Michigan Strategic Fund Board slot. The Governor would pick from the three. The bill passed 93-10.
In addition to Democratic Reps. Veronica A. Paiz (D-Harper Woods), Natalie Price (D-Berkley), Helena Scott (D-Detroit), Samantha Steckloff (D-Farmington Hills) and Regina Weiss (D-Oak Park), the list of no votes included Republicans Steve Carra (R-Three Rivers), James Desana (R-Carleton), Neil Friske (R-Charlevoix), Matt Maddock (R-Milford) and Josh Schriver (R-Oxford).
The second package, spearheaded by Rep. Pat Outman (R-Six Lakes), exempted business delivery and installation costs from sales and use tax. The Senate passed its own versions of the same bills earlier in the afternoon. The package moved out of the House Tax Policy Committee on Wednesday, and included Outman’s HB 4039, Rep. Greg VanWoerkom (R-Norton Shores)’s HB 4137 and Rep. Kevin Coleman (D-Westland)’s HB 4253.
Outman said the bills stemmed from retailers who were frustrated with confusing sales and use tax laws. In Michigan, a delivery or installation charge placed on the same invoice as a taxable good is subject to the state’s sales and use tax. If a customer pays for delivery or installation separately from the goods, the aforementioned tax does not apply.
The state’s Department of Treasury projected a $70 million loss in state General Fund revenue and local governments’ constitutional revenue sharing in the bills’ first full year if implemented.
The bill passed, 85-19, and six members passed. Republican Reps. Friske, Jaime Greene (R-Richmond) and Matt Maddock(R-Milford) voted no.
Maddock said he voted no because he doesn’t believe in government picking winners and losers with specific tax breaks for specific corporations.
VanWoerkom’s bill passed, 85-18, and Rep. Betsy Coffia (D-Traverse City) was added to the list of excused members mid-way through session, along with Reps. Abraham Aiyash (D-Hamtramck), William Bruck (R-Erie), Jaime Churches (D-Wyandotte), Jenn Hill (D-Marquette), Rachel Hood (D-Grand Rapids) and Sharon MacDonnell (D-Troy). Friske and Maddock were, again, Republican no votes.
Coleman’s legislation, part of the same package, earned an 88-15 vote in favor. The entire package was also granted immediate effect.
A similar package of two bills, HB 4054 introduced by VanWoerkom and Rep. Jamie Thompson (R-Brownstown)’s HB 4055, exempt industrial processing machinery and equipment from sales and use tax, with the loss of revenue coming out of the School Aid Fund.
The loss of School Aid funding earned opposition from the Michigan Association of Superintendents and Administrators during Wednesday’s House Tax Policy Committee hearing, but both bills passed with immediate effect.
VanWoerkom’s bill earned an 80-23 vote, with Carra, Friske and Maddock again voting no. Thompson’s bill received an 81-22 vote in favor, with Rep. Amos Oneal (D-Saginaw) switching over to a yes vote.
Over in the Senate, the installation and delivery bills – SB 158, SB 159 and SB 160– passed with Sen. Jeff Irwin (D-Ann Arbor) casting the lone no vote.
Sen. Mark Huizenga (R-Walker)’s substitutes to SB 158 and SB 159 scrap any outstanding state Treasury audits connected with these taxes. Any balances owed by a business entity to the department through taxes would be canceled.
Huizenga’s sub clarified that the School Aid Fund (SAF) would be held harmless from any lost revenue to the state, and that the sales use and tax exemptions outlined in the bills would not apply to electricity, natural gas or artificial gas sales by utilities.
SB 160, which was part of the package, would update a technical reference to an act instructing a governor to report specified tax information in a yearly budget message to lawmakers.
Finally, Rep. Kathy Schmaltz (R-Jackson)’s HB 4045, creates a Volunteer Employee Criminal History System Act and requires the Michigan State Police to develop and administer a background check program that allows certain businesses or organizations to conduct a criminal background check on prospective employees. It passed, 96-7.
On that one, Maddock said the bill gives the Michigan State Police a monopoly on running background checks when the private sector does it.
“It distracts from the 20,000 fugitives they should be getting off our streets,” he said.
Bank Collapses Are Common, Investor Fear is the Real Danger
University of Michigan-Flint Economics Professor Chris Douglas said 30 banks have failed since 2015, but because the investors in Silicon Valley Bank had such a high-profile clientele and were able to use an effective follower base on social media, they were able to whip the business world into a frenzy with their collapse. This presented a problem when clients began removing funds from regional banks across the nation.
“The typical American probably had no idea eight banks failed in 2015,” Douglas said.
Douglas said people putting money in banks are pretty confident about doing so, but if they see other people pulling their money out of the bank, it can create more people running to the bank asking for cash.
“It’s just a couple of people that get spooked,” he said. “Other people see those people get spooked, so they get spooked, too, and everyone runs for the exit at the same time.”
He said the practical result was regional banks, like Comerica Bank, founded in Detroit, end up losing investor confidence. He said the stock dropped from $59 to $33 on March 10, when Silicon Valley Bank ended up in trouble.
Because the investors in the banks were riling up the community, the federal government stepped in and said the Federal Deposit Insurance Corporation, or FDIC, would make sure everyone got their money back.
Douglas said that leads to something referred to as a “moral hazard.”
Western Michigan University Assistant Professor of Finance Matthew Ross defined a moral hazard in economics as incentivizing bad behavior.
“When somebody gets bailed out, that makes future bailouts more likely because if you don’t have bad consequences for bad decisions, probably you’re going to get more bad decisions,” Ross said.
Ross said instead of the bank owners and investors taking a loss and going down with the ship because they overextended themselves, the FDIC bailed out everyone. As a result, the rest of the banking community ends up absorbing the damage and passing it on to customers.
“In some sense, it is a bailout of these primarily tech startups out in California,” he said.
He said the reason for the overextension was that Silicon Valley Bank and Signature Bank were victims of their own success after they both had lobbied to have the investment cap raised from $50 billion to $250 billion 10 years after the housing market crash in 2008, the largest in history.
The FDIC makes sure that people who have deposits are insured for at least up to $250,000. Anything above that would have to be gained during liquidation of the bank, which is why the Michigan State Housing Development Authority said they checked their portfolio to make sure the deposits were secure.
Douglas said the problem is that bailouts can encourage banks to act more like Gordon Gekko, the fictional character from the Wall Street movie, than a financial institution.
“Banking should be boring, You should just take deposits, use those deposits to issue loans, buy safe treasury securities and this shouldn’t be glamorous,” Douglas said.
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Left: DCD Lobbyist Jake German attending the State of the County Address with Heidi Warrington, Chief Nursing Officer of Common Ground
Right: Oakland County Executive David Coulter delivers the State of the County Address
Left: Senator Mat Dunaskiss with Madison Heights Mayor Roslyn Grafstein at the 2023 State of the County Address
Right: Randy Carter and State Representative Brenda Carter with Deb Brinson, CEO of Honor Community Health and Mat Dunaskiss at her office in the Capitol
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