Tax breaks boost deficit By Leah Samuel Special to The Michigan Citizen As Detroiters brace for cuts in city services, and city workers - faced with layoffs and wage cuts - prepare to pay their city taxes in April, local companies can look forward to massive tax deductions.
An analysis of City of Detroit data shows that over a five-year period, beginning in 1994, the Detroit City Council approved over $200 million in corporate tax breaks. Now, with millions of dollars in corporate taxes still going uncollected, the cash-strapped city is eliminating jobs and raising taxes for residents. "I don't think anybody can afford tax abatements any more," City Council President Maryann Mahaffey said. A 2000 report by the City Council's Fiscal Analysis Division lists over 60 abatements granted from 1994 to 1999. Each agreement provided a company 12 years of reduced taxes. The oldest of these agreements will expire in 2006, while the most recent will continue until 2011. Corporations get tax abatements by entering into agreements with the city. The agreements, which the city council approves, allow companies to pay reduced taxes for a period of time and have become a regular part of doing business in Detroit. The Greater Detroit Regional Chamber touts tax abatements as a way to bring revenue to the city. "I wouldn't look at it as losing taxes," John Carroll, the Chamber's vice president of business development, said. "Abated taxes are better than no taxes. If the city didn't get those businesses in, they wouldn't have gotten the taxes they got." But the effect of these deals is that residents' taxes pay for city services that companies use but do not support with their full share of taxes. These include services such as police and fire protection, public lighting and street maintenance. City officials have defended tax breaks by suggesting that the companies receiving them would bring jobs to the city. But the jobs often come at a tremendous cost to the city in uncollected revenue. In 1996, American Axle and Manufacturing received a tax abatement of about $33.5 million over 12 years. With the company promising to create 170 new jobs, the company received a tax break of over $197,000 for each new job. Corver Engineering got a tax break contract worth up to $1,050,600 in 1999, promising nine new jobs. That comes to almost $117,000 per new job. The new jobs were not only expensive, they were also relatively few. In nearly all cases, companies getting tax breaks promised mainly to hold on to existing jobs. The total number of jobs each company promised reflected mostly retained jobs, with a smaller number of newly created jobs. "The [tax abatement] law is written in such a way that we only need to consider whether they will retain jobs, not whether they will create new ones," explained Mahaffey. In fact, for 26 of the tax break agreements, there were no new jobs promised at all. DaimlerChrysler is one example. In that five-year period, the city council granted the automaker five tax abatements, which would save the company over $119 million in taxes. For each of its tax break agreements, DaimlerChrysler promised only to retain current jobs. And even the job retention did not always happen. As of 1999, 16 companies, including DaimlerChrysler, lost jobs despite their promises to retain them. "I think we're in a box," Mahaffey said. "If we don't give [them a tax break] they go to Tennessee. If we do give it to them, they'll come in, create no jobs, live out their 12 years and then go to Tennessee." After giving away over $200 million in tax abatements (and ending up facing a deficit of over $200 million), city officials are left to decide whether offering corporate tax breaks is worthwhile. "I expect that they would still do them," Carroll, the Chamber vice president, said. "City council needs to look at the real impact of these tax abatements." But Mahaffey said that eliminating tax abatements could perhaps become one of the city's cost-cutting measures. "I don't know if we can declare a moratorium," she said, "but we can definitely look into it."
