Narrow server farm vote shows legislative rift on tax breaks

December 15, 2019 GMT

LANSING, Mich. (AP) — A razor-thin legislative vote on tax breaks for a Grand Rapids-area data center could portend problems for other companies or industries hoping to secure incentives to stay in or expand into Michigan.

In the Republican-led Legislature’s final days of voting this year, it was not a major expansion of gambling or the restoration of budget vetoes that drew the most debate. Instead, a deeply divided House spent more than an hour debating and passing, by the slimmest of margins after some arm-twisting, a bill that would give additional tax exemptions to Switch.

The Las Vegas-based company opened a mega-campus of computer servers in suburban Grand Rapids in 2017, after Michigan exempted it and “co-located” clients from sales, use and business equipment taxes. Switch also was freed of many property taxes under a 2016 agreement.


The legislation would clarify that Switch is exempt from certain school taxes it was assessed for the first time about a year ago. Switch has conceded that the deal as written clearly does not abate some taxes but has said the levies run counter to its “understanding” of the agreement with the state, Kent County and Gaines Township.

The bill sparked contention in the House, where it passed 55-53 on Wednesday, even after Switch and two school districts worked out their differences. The Senate, which passed a different version of the measure in September, adjourned for the year without voting.

The legislation may ultimately be signed into law. But the controversy surrounding it is more evidence of the difficulty facing lawmakers and economic development officials who still want such incentives after the state previously cut business taxes.

Michigan’s $200 million “Good Jobs” program, which is used to attract large-scale business expansions, will expire at the end of December after the Senate declined to vote to renew it and raise the cap to $500 million. Companies keep all or half of the income taxes if they create new jobs paying at least the regional average. The incentives helped to entice Fiat Chrysler to build an assembly plant in Detroit and drug maker Pfizer to add a manufacturing plant in the Kalamazoo area.

“It’s helped put Michigan on the map for these large-scale projects, beating out Silicon Valley, neighboring Great Lakes States and key metropolitan areas across the country. We can’t afford to lose it,” said the Good Jobs for Michigan Coalition, which includes business groups, economic development organizations and municipalities.


But Lonnie Scott, executive director of the liberal advocacy group Progress Michigan, said the Legislature should not give “handouts” to corporations that “cannot be bothered with paying their fair share” when communities and public services need tax revenue.

Bills that would give tax breaks to new single-company data centers that create at least 30 well-paying jobs — Google, Facebook, maybe General Motors — are stalled in a House committee. The Michigan Economic Development Corp. saw its budget for business attraction and community revitalization incentives — cash grants and loans to companies — slashed by $26 million, or 25%, in the state budget.

And Pure Michigan, the state’s $36 million advertising and marketing campaign that critics view as as a subsidy for the tourism industry, was vetoed by Democratic Gov. Gretchen Whitmer amid a budget impasse and may not be revived.

About two-thirds of House Democrats and one-third of House Republicans opposed the bill to assist Switch, including the legislator representing the district where it is based.

GOP Rep. Steve Johnson of Wayland called it “truly awful” legislation that would give a “special deal” to one company at the expense of its competitors despite Switch already getting more than $600,000 in tax breaks this year.

Democratic Rep. Kara Hope of Holt said she doubted legislators would have been asked to reconsider Switch’s breaks if local voters had not passed a new millage.

“This company doesn’t need our help. But you know who does? Our schools, our communities, our infrastracture, and this tax break will hurt them,” she said.

The Switch bill is tied to legislation that would ensure the state school aid fund is not affected by the lost tax revenue, but Hope said “there’s still a cost if we hold the schools harmless at the expense of our general fund.”

Rep. Steve Marino, a Republican from Macomb County’s Harrison Township, defended the bill as necessary to “uphold the state’s promise” to Switch.

“This is a company that has poured more than $150 million into the west Michigan economy on a $5 billion capital buildout that is supposed to last over 10 years,” he said. “These dollars would otherwise not be here if Switch did not plan to locate here based on whatever legislation happened to pass in 2015.”



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