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Gov’s Priorities: R&D Tax Credit Bills, Economic Incentives, Disaster Relief Fund

May 7, 2024

The research and development (R&D) tax credit bills, economic incentives allowing certain employers to withhold payroll taxes and a refill of the state’s Disaster and Emergency Contingency Fund (DECF) are among the things that Gov. Gretchen Whitmer wants to be sent to her desk this spring, based on an April list of her priorities.

On April 15, the governor sent a letter to Senate Majority Leader Winnie Brinks (D-Grand Rapids), House Speaker Joe Tate (D-Detroit), Senate Minority Leader Aric Nesbitt (R-Lawton) and House Minority Leader Matt Hall (R-Kalamazoo) – the Legislature’s quadrant leaders – detailing her current policy priorities.

Beyond finalizing a state budget in time for the June 30 statutory deadline, she zoomed in on her economic development proposals from her State of the State address and a replenishment of the DECF.

The letter was sent ahead of Democrats Mai Xiong (D) of Warren and Peter Herzberg (D) of Westland being sworn into their respective seats in the House, after they won special elections earlier this month. Due to these election wins, the House will operate with a 56-54 Democratic majority, instead of a 54-54 split that influenced the chamber’s schedule-making earlier this year.

Essentially, if all Democrats can get behind the governor’s economic development or supplemental spending proposals now, they can have a much easier time reaching Whitmer’s desk without the political obstacles of a House chamber that was evenly divided.

Gov. Gives R&D Tax Credits, HIRE In MI Tax Capture Plan A Nudge 

“In my state of the state address, I proposed four new tools: an R&D tax credit, the HIRE Michigan Fund to encourage companies to hire in Michigan, simplified Renaissance Zones to create jobs in underinvested areas, and an Innovation Fund to boost high-growth startups,” Whitmer said in her letter. “Let’s get these new tools in the toolbox so we can continue creating jobs.”

During a lengthy session on Mar. 19, ahead of the Legislature’s spring recess, the Senate approved a five-bill package establishing R&D tax credits, as well as a three-bill package creating the High-wage Incentive for Regional Employment (HIRE) in Michigan program.

The R&D tax credit bills received a mix of Republican and Democratic support, providing the tax credit program with an overall limit of $100 million annually, and authorizing each business to claim a tax credit worth 3 percent of existing R&D spending based on their average yearly expenditures in the last three years.

For employers with 250 workers or more, they could access a tax credit worth 10 percent of new spending on in-state R&D, up to $2 million per tax year. For businesses with less than 250 workers, they could acquire a tax credit worth up to 15 percent of increased R&D spending in Michigan, with a value cap of $250,000 per tax year.

Two bills in the House package, HB 5100 and HB 5101, have been awaiting concurrence votes in the House after they were changed with Senate substitutes, meaning that the legislation as a whole has not yet reached the governor’s desk.

Some suspect that the package has been held up by how the Senate’s HIRE in Michigan legislation did not receive bipartisan support in March.

Nesbitt described the proposal as Democratic legislators “putting big corporations over struggling families – picking winners and losers by handing over millions of Michigan tax dollars to global corporations in secret back-room crony business deals.”

As they were approved by a party-line vote in the Senate, SB 579, SB 580 and SB 581 would allow awarded companies to accept $125 million in tax captured from new employee payrolls annually.

Eligible recipients could be a business – but not a retail establishment, a professional sports stadium or a casino – that delivers 250 new jobs in the state with a median yearly wage worth at least 150 percent of the prosperity region’s median wage.

Recipients could also benefit if they generated at least 25 certified new jobs with a median annual wage equal to at least 175 percent of the median wage in the prosperity region, or if they created 24 certified new jobs in a county with 50,000 residents or fewer – with those small community jobs offering annual wages equal to at least 130 percent of the prosperity region’s median wage.

When the HIRE in Michigan proposal was discussed earlier this year, it was looked at as a new iteration of former Gov. Rick Snyder’s “Good Jobs for Michigan” program, but more geared toward rewarding multiple smaller-sized businesses instead of a few corporate juggernauts like Ford Motor Co. and Pfizer Inc., the past program’s major awardees.

The bills could not pass in the House in a similar party-line manner, 54-54. However, if all Democrats can get behind the proposal now that Xiong and Herzberg are in the chamber, the HIRE in Michigan legislation could be sent to the governor’s desk 56-54.

However, Michael Johnston – the vice president of government affairs for the Michigan Manufacturers Association (MMA) – informed MIRS on April 26 that his organization was looking for a bipartisan group of legislators in the House “to find an answer on HIRE.” He said there were provisions in the legislation that the MMA didn’t really support ahead of Senate Republicans rejecting it in March.

“It’s really about economic development and building (a) business climate … the R&D tax credit is really important to make us more like other states. We’re one of only 13 states that don’t have an R&D tax credit,” Johnston said. “And the HIRE package is a tool to attract small and medium-sized companies, and so together they are an important message on economic development for Michigan, and being an attractive place to invest in the future.”

Johnston described envisioning it to be appropriate for Whitmer to sign off on the R&D tax credit and the HIRE in Michigan proposal, as well as her other incentive proposals, as a collective bundle. He added that the $100 million annual cap on the R&D tax credit alone was not being much in the scope of R&D investment.

Earlier this month, Executive Director Britany Affolter-Caine of the University Research Corridor appeared on the MIRS Monday podcast, with the corridor being an alliance between the University of Michigan, Wayne State University and Michigan State University.

In the R&D tax credit legislation, employers can access an additional credit of $200,000 per year if they conduct R&D with one of Michigan’s research universities.

“Anything that helps (incentivize) better coordination with our industry partners, with working with my universities in the research space, is very helpful on multiple fronts,” Affolter-Caine said. “We do see more industry-sponsored research in other states. It tends to be in higher-ed … something that private institutions do very well. We are public-serving institutions, and so … (there are a) few more hoops.”

She said that Michigan is a “top 10” state when it comes to academic R&D, a “top 10” state when it comes to industry R&D, but is not a “top 10” state for academic R&D that is sponsored by industries.

“If this tax credit seems to be another piece that helps foster this kind of work together, we would expect to see some parity there, that we would end up in the top 10,” Affolter-Caine said. “It is one really important way to make sure that research is being done that is directly impacting companies in our state. It’s a way to make sure (that) innovation is getting out into the space to help our companies grow and be more competitive, and we want to make sure we’re fully a part of realizing that as much as we can.”

DECF For Severe Storms Needs To Be Refilled In Time For Summer, Whitmer Says 

As for the other component of Whitmer’s April priorities, the governor said that the DECF has been “severely depleted” after tornadoes impacted mid- and southeastern Michigan communities in August 2023. She also mentioned that earlier commitments to local communities for previous storms, as well as the state’s obligations to partially match money coming from the Federal Emergency Management Agency, have furthermore impacted the fund.

Under state statute, the Legislature is required to ensure the DECF doesn’t fall below $2.5 million, and in her budget proposal for Fiscal Year 2025, Whitmer called for a $10 million deposit into the fund.

“As we face down another summer of severe weather, we can be sure the state will be called upon to help local communities prepare, recover, and rebuild,” Whitmer said in her letter.


Article courtesy MIRS News for SBAM’s Lansing Watchdog newsletter

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