Michigan

Tax incentive evaluation ratings

Fact Sheet May 3, 2017 Read time:

Projects: Economic Development

Note: This page was updated Jan. 23, 2019, to reflect Michigan’s improved rating after the enactment of H.B. 6052.

Rating: Making progress

Key points:

Michigan is making progress because the state has adopted a plan for regular evaluation of tax incentives.
The state will use a competitive request for proposals process to select a nonpartisan, independent evaluator to study incentives and offer policy recommendations.
Evaluations will include whether an incentive is meeting its intended goal and analyze the incentive’s economic and fiscal impact.

Michigan evaluation law

Year enacted: 2018
Who evaluates: Private or academic contractor.
Length of review cycle: Four or six years, depending on incentive.

For more information on state ratings, please visit our interactive map.

The following information was current as of May 3, 2017.

Michigan has shifted its economic development strategy in recent years, investing heavily in tax incentives at some points and scaling back at others. Because the state lacks an ongoing process for evaluating incentives, however, it made these shifts without adequate information about whether these programs were working or how they might be improved.

Michigan scaled up its suite of economic development tax incentive programs during its long, severe economic downturn, placing big bets on such industries as advanced battery manufacturing. Then in 2011, the state significantly scaled back its tax incentives, preferring to cut business taxes broadly and deploy grant-based programs.^a In late 2015, though, the state reversed course, creating a new sales and use tax exemption for data centers designed to lure a Nevada-based company to make a potential $5 billion investment in the state.^b

As lawmakers have considered these changes, they have debated both the cost and effectiveness of the state’s incentives. Budget challenges have been a particular area of concern. Even though the state’s flagship MEGA tax credit program was closed to new participants in 2011 (along with many other tax incentives), the costs of the program are expected to continue until at least 2032 as a result of the state’s pre-existing commitments.^c In 2015, lawmakers had to close a midyear budget gap with spending cuts after it became clear that the incentives were going to be far more expensive than projected, throwing the budget out of balance by hundreds of millions of dollars.^d

As the state continues to weigh its approach to economic development, lawmakers should consider building a stronger foundation for future decision-making by establishing a regular cycle for review. Evaluating cash and tax incentive programs together, as states such as Oklahoma are doing, would allow policymakers to compare the results of programs with similar goals across the state’s economic development portfolio.^e Without an ongoing process for evaluation, lawmakers will not have the information they need to understand whether incentives are successful and to identify opportunities for improvement.