last modified: Monday, December 19, 2005 10:15 AM
An Overview of Michigan’s Tax Abatement Programs
The paper will begin with a brief history and overview of tax abatement programs. The second section analyzes the various programs enacted by the state government. The final section compares certain aspects of these programs to other states.
Tax Abatement Programs: A Brief Overview
According to a recent study published by professors at
The study points out that these programs are an attractive option to states for the following reasons.
First, the tax burden of a business is one of the few things that are under state and local governments’ control. Second, tax abatements are politically easier because they do not explicitly require cuts or diversions in spending from other programs. The proliferation of these programs is credited to the fact that abatement programs in one state or jurisdiction compels surrounding and competing states to adopt these practices as well.
Tax Credit and Abatement Programs in
Another important program is the Renaissance Zone Act in 1996. This established areas in 38 counties across the state that virtually eliminated state and local taxes for individuals and business within these areas. Authors of the bill recognized a need to “facilitate economic development” and “prevent physical and infrastructure deterioration.” (5) Renaissance zones were originally designated urban, rural, or ex-military sites. In 2000, a category for agricultural processing was added. Abatements last between 10-15 years, during which time the state reimburses some public entities such as local school districts and public libraries for lost revenue.
The state also provides a similar program for residential
development and improvements. Neighborhood Enterprise Zones (NEZ) were
established in 1992 to help distressed residential areas. The
program allows local governments to waive 50% of property tax liability
on new construction, or the same amount of a property tax increase on rehabilitated
projects. Criteria include high unemployment rates, lagging appreciation
of home values, and a declining population. (6) There are only 10 designated
NEZ’s: Several Metro Detroit communities (including
Another important program is the Michigan Economic Growth Authority (MEGA). Established
in 1995, MEGA grants are aimed at bringing high-paying, technology driven
The final important tax incentive program is the Brownfield Tax Credit
Program. Enacted in 1996, the program encourages private-sector
investment in environmental clean-up and redevelopment of contaminated
or obsolete sites. For a project to qualify, a municipality must set
up a Brownfield Redevelopment Authority and apply to MEGA. The program
provides two types of incentives for qualifying projects. The first
is a SBT credit of 10% of eligible costs to a limit of $1 million, with
one project each year allowed a maximum of $30. Projects in state-designated
core communities may also qualify for tax increment financing to help
cover costs. (9) According
Comparing Programs across States
There are several dimensions across which tax abatement programs can differ, such as duration limitations, state or local awarding process, and program eligibility requirements. In this section, three other measures are explored; one that deals with bearing the cost of lost tax revenue and two measures that many other states employ to ensure projects deliver promised benefits.
Dealing with Lost Revenue
Tax abatement programs may help attract jobs and
investment, but it leaves the state and local jurisdictions with lost revenue. This
can negatively affect public entities like school districts and libraries
that rely on both local taxes and state aid.
There are two effective elements to tax abatement programs that
Special Conditions for Abatement
States often include special conditions that must be met in order for tax abatements to take effect. These requirements vary, but usually include minimum requirements for job creation or value or investment added. (12) These programs are similar to claw-back provisions in that they provide incentives for companies to deliver what is promised, and also allow the state to avoid losing tax revenue on a project that does not bring the expected benefits to the community. Of the 35 states with abatement programs, 20 set these special conditions for businesses. (13)
1 “Variation in Property Tax Abatement Programs Among States”, Dalehite Mikesell and Zorn, Economic Development Quarterly, May 2005
3 “Survey of Economic Development Programs, 2001” by Citizen's Research Council of Michigan, www.crcmich.org
6 “Survey of Economic Development Programs, 2001” by Citizen's Research Council of Michigan, www.crcmich.org
9 “Survey of Economic Development Programs, 2001” by Citizen's Research Council of Michigan, www.crcmich.org
10 “Variation in Property Tax Abatement Programs Among States”, Dalehite Mikesell and Zorn, Economic Development Quarterly, May 2005