Shortchanging Michigan

Gov. Jennifer Granholm is asking the Michigan Legislature quickly to pass a bill allowing the Toyota Motor Corp. to purchase 690 acres of state-owned land near Ann Arbor. The automaker plans to develop a research and engineering center for the site, and the governor has declared, “We are going to do everything in our power to make their dream a reality.”

The prospect of a new technical center and new jobs is appealing, and Southeast Michigan is a natural location for it, given the area’s leadership in automotive technology. Still, there are fundamental problems with the proposal, and the Legislature should reject it.

First, there is the purchase price being proposed by Toyota. The automaker has offered the state $9 million for the property, while an alternative bidder, DPG-York, is willing to pay $25 million.

In effect, the governor is asking the Legislature to give Toyota a $16 million discount on the land. This is bad enough when the state is facing a budget deficit and debating new taxes, but the budget consequences are minor compared to the economic impact. Think of the damage that will be done to future economic activity if the state of Michigan is seen as conducting discriminatory business practices that favor the politically well-connected. How many businesses will be dissuaded from investing in Michigan by the fact that they aren’t among the chosen players by the Lansing politicians?

The number is likely to be high. Consider the justifiable bitterness the partners of DPG-York have already expressed. According to the Detroit News, they have issued a statement in which they say they believe they were “simply screwed” and add, “What this boils down to is our right to expect that the state would have conducted a fair, honest and open bid.” The News reports that the partners also contend that their project would generate more jobs and tax revenue than Toyota’s would.

Whatever the benefits Toyota’s center will provide, the alternative use of the property will generate economic development and new jobs as well. Moreover, DPG-York is proposing a mixed-use development, which would allow the construction of housing, along with offices and other commercial uses. If the Toyota deal goes through, and if you one day hear people bemoan the fact that Ann Arbor has so little “affordable housing,” ask them to recall that in this case the state of Michigan actively took steps to prevent a developer from increasing the supply of homes in the area.

Mackinac Center for Public Policy economists have a long-standing and well-known position on the effectiveness of targeted “business incentives.” This general and philosophical objection may not be enough to shore up wavering legislators worried about a popular governor accusing them of not caring about jobs so close to an election.

Still, the Toyota case doesn’t just involve a low bid. It asks legislators’ approval to amend state law, because Toyota has requested gas and mineral rights to the land. Thus, legislators should consider that they’re being asked for an awful lot at once: a hasty exemption from a law for a single corporation seeking a $16 million price reduction on a state-owned property – when Michigan faces a substantial budget deficit. Further, the rhetoric about “creating jobs” is implicitly based on (without any real proof) that Toyota will locate this facility outside of Michigan unless the taxpayers sell them an asset for $16 million less than it is worth.

Legislators might instead follow the lead of State Rep. Matt Milosch, whose district includes the property. Rep. Milosch noted that the need for legislative approval “allows Toyota to come back with a higher bid.”

The right price sounds like $25 million – and equal treatment for all bidders. The Legislature should make sure the state gives everyone’s “dream” a chance to come true, not just Toyota’s.

Chris Bachelder is communications director of the Mackinac Center for Public Policy, a research and educational institute headquartered in Midland, Mich. Permission to reprint in whole or in part is hereby granted, provided that the author and the Center are properly cited.