‘A really bad deal’: Michigan awards GM $1bn in incentives for new electric cars | Electric, hybrid and low-emission cars
Itn September, Ford stunned Michigan when it announced plans to build two massive electric vehicle (EV) plants in the nation’s southeast instead of its midwestern back yard. Fearing the future of the automotive industry was leaving Detroit, the state’s political class swung into action.
Four months later, lawmakers responded by handing a staggering new subsidy deal to GM that they claimed would fortify the Motor City’s standing as the world’s auto capitol during industry electrification: In exchange for $1bn in tax incentives, the Detroit-based automaker promised $7bn in investment for new battery and EV plants that could create 4,000 new jobs.
“This news is great for us and for Michigan, the epicenter of where we’re developing EVs,” GM president Mark Reuss said during the announcement.
But what’s good for GM may make less sense for state taxpayers, a Guardian analysis of the deal finds. Once again large corporate subsidies – paid for by taxpayers – look set to benefit the corporations while leaving taxpayers out of pocket.
Michigan effectively has agreed to pay GM $310,000 per job. However, in the 20-year future, these positions will not generate more tax revenue than $100,000 even in the best of cases.
Collectively, the plants’ jobs will probably return less than $300m of the state’s $1b investment when contributions to state income, sales, property and other taxes are factored in.
Also, the state claimed that direct and indirect job creations will result in $29bn worth of income growth over the next 20 years. That’s the equivalent to 29,000 salaried jobs earning $50,000 each year. Economists from across the ideological spectrum who reviewed the analysis said that level of job creation is highly unlikely and pointed to a US Commerce Department report that labels such claims “suspicious”.
Moreover, a state memo shows GM agreed to create only 3,200 positions – 800 fewer than it publicly promised, and the deal also allows it to close the plants within several years but keep most of the money.
The package is “a really bad deal for Michigan taxpayers”, said Greg LeRoy, executive director of corporate subsidy watchdog Good Jobs First. Michigan isn’t alone: The deal is among a new wave of colossal corporate subsidy packages that lawmakers across the country are cooking up to lure EV manufacturing and more giveaways are in the works. And like other huge corporate sweeteners – notably the $4.8bn used to lure Taiwanese manufacturer Foxconn to Wisconsin – LeRoy warns these “trophy deal” announcements may help political campaigns, but are also reckless deals that threaten to blow holes in states’ budgets in the coming decades.
The combustion engine’s retirement will cause tax revenues from production and its use to drop. States will then need EV revenue in order to replace them. Manufacturing EVs requires less direct and indirect work, and generous subsidies further limit its financial returns.
Michigan already has given out at least 50 million subsidy agreements. It has also struggled to deal with its budget deficits due to billions it owes for combustion engine tax incentives, which have produced questionable revenue and job returns.
“You would think after all that history Michigan would be gun shy to do something like this that could bite them,” LeRoy said.
GM and the Michigan Economic Development Corporation, a quasi-public agency that negotiates the state’s subsidy deals, didn’t respond to specific questions about the package and keeps its math secret. But the MEDC wrote in an email that it’s up to taxpayers to “de-risk” large projects for corporations, and the subsidies are essential for landing auto investment.
“We cannot take for granted that they will stay in Michigan if we aren’t keeping up with our competitors,” a spokesperson said.
GM added, “It is always up to the government entities to determine if and when incentives are granted, but our experience has shown that incentives are an important part of supporting the business case.”
Critics say history also shows automakers are proficient in igniting economic war among states, a strategy former Ford and Chrysler CEO Lee Iacocca detailed in a 1990 interview: “Ford, General Motors, Chrysler, all over the world, we would pit Ohio versus Michigan. We would pit Canada versus the US.”
GM plans to invest $35bn in EVs and autonomous production by 2025. Michigan legislators claim they face stiff competition from the southeast. Though Ford pointed to the southeast’s cheaper electricity, geography, available land and geological advantages as motivating its decision, “Michigan lawmakers found themselves embarrassed by the loss and reacted swiftly,” said Michael LaFaive, fiscal policy director with the right-leaning Mackinac Center for Public Policy, which tracks corporate subsidies.
“These funds have more to do with job announcements than they do real jobs,” LaFaive said.
‘They turned their back on our state’
Between 2002 and 2006, Michigan taxpayers contributed incentives worth about $110m to fund expansions of GM’s Ypsilanti township and Warren transmission plants near Detroit. According to state documents, the MEDC and the company projected substantial returns. They expected about 20,000 new jobs or retentions and $2bn of new state tax revenue in 2027.
Within several years, GM had created new transmission line jobs – in Mexico.
In 2009, the automaker closed down the Ypsilanti Township plant and sent its remaining 100 jobs to Ohio. GM closed the Warren transmission plant less than a decade after it was built.
Michigan’s automakers have promoted similar extravagant subsidies as revenue-creation troves for decades. However, MEDC documents obtained from the Mackinac Center by Guardian show a pattern in poor returns on taxpayer investments in GM.
The most famous was the fact that in 1981, Poletown took $460m to pay for subsidies. It also convinced Michigan leaders in Detroit to tear down a Detroit area so they could construct its Poletown plant. Poletown leaders said it would create 6,000 positions directly and 19,000 indirect ones. Poletown had 5,300 employees in 1985. However, that number quickly dropped and the company never achieved its promise of productivity.
Ford received millions in Michigan tax incentives for the 20-years prior to announcing its southeast electric vehicle plans. Michiganders have spent decades “investing in [automakers’] factories and what have they given us in return?” asked state Democratic floor leader, Yousef Rabhi.
“They’ve abandoned those factories, fired thousands of hard working Michiganders who they left out in the cold with no remorse and moved those jobs to China, to Mexico,” Rabhi said. “Frankly, they turned their back on our state.”
The new generation of EV factory incentives are effectively the same as those used to attract combustion plant investment in past decades, one of which the state auditor general found created about only 21% of its promised jobs, while LaFaive noted a large body of scholarly and other independent analysis that “demonstrate repeatedly that these programs have zero to negative economic impact”.
The MEDC disagreed, and said it is “grateful” for GM’s history of investment in the state while noting that the automaker employs nearly 50,000 people in Michigan.
When GM’s manufacturing job creation numbers in the state failed to live up to the subsidy package hype, the MEDC in 2020 changed the math to include more white collar jobs created at the company’s corporate headquarters in downtown Detroit.
Meanwhile, GM has recorded $70bn in profits since 2010 while taking $8bn in subsidies in recent decades – more than all but one company nationwide. The idea that it needed incentives to invest in Michigan “is absurd”, said Matt Gardner, a senior fellow at the progressive-leaning Institute on Taxation and Economic Policy (ITEP).
Businesses report that tax subsidies infrequently determine where they invest, and Gardner pointed to Amazon’s decision to build its second headquarters in New York City even after the city yanked a proposed subsidy package worth billions.
“GM has the money: If they see the need to invest, then they’re going to do it with or without the incentives,” Gardner said.
A Subsidy Package: Anatomy
The value of local and state incentives for GM’s two new plants totals at least $1b and may generate 3,200 direct jobs – or about $312,000 for each direct job created.
GM claims that the average salary for these positions is between $56,000 to $46,000 per year. The conservative Tax Foundation, ITEP, and based upon state tax law, and IRS returns, estimated that these income earners will pay between $96,000 and 10% in Michigan taxes.
At that rate, the plants’ workers could contribute about $4,600 in taxes each year, and over 20 years, the time period the MEDC used in its analysis, they could collectively generate about $294m – well shy of the state’s $1b investment.
However, several economists called the analysis “very generous” to GM and the MEDC because it assumes the plants’ employees will provide new tax revenue. In other words, it posits “that these people didn’t have any jobs previously, that they weren’t spending any money”, Gardner said.
GM has low unemployment so it is unlikely that they will hire many workers without a job. The jobs are likely to bring in less than $294m per year in tax revenue, according economists. In January, the state also slashed electric rates for some large users, like automakers, which may shift the utility grid’s cost burden on to residential customers.
However, the analysis doesn’t include construction jobs or increases in GM’s state corporate taxes. The company and MEDC didn’t respond to questions about state taxes, but it’s unlikely to push the needle much: GM’s 2021 SEC filings show it paid between $102m and $272m in all 50 states in recent years.
Meanwhile, economists said they strongly doubted MEDC’s claim that the plants’ direct and indirect positions will generate 29,000 new jobs and $29b in new income over the next 20 years. Indirect jobs can be low-paid, and both industry and MEDC use the same program to calculate economic impact projections.
Forecasting 20 years of economic impacts is nearly impossible, LaFaive said, and the MEDC’s job projection “strains credulity”.
“They can’t tell the future because they can’t tell the future,” he said.