Ford strikes US$2.3B tax-credit deal with Michigan state

LANSING, Mich.—Ford Motor Co. would have to invest $3.1 billion in Michigan facilities over the next 10 years to qualify for its maximum tax credits under a deal that limits the state’s liability for incentives issued to keep auto jobs in the state.

The Michigan Strategic Fund approved the amended tax agreement with Ford, as Gov. Rick Snyder tries to get a handle on $9.5 billion in business tax credits for which the state is liable into 2031.

Many of those credits were issued during the recession, primarily for promises by Detroit’s major automakers—Ford, General Motors and Chrysler—to keep jobs in the state. Snyder and lawmakers had to make budget cuts months ago after being caught off guard by larger-than-expected tax credit redemptions.

State economic development officials said the new deal gives Ford a strong incentive to grow and maintain its Michigan presence, while the state gets better predictability on the size and timing of credits being claimed annually.

The deal combines and revises four agreements the automaker struck with the former Michigan Economic Growth Authority between 2009 and 2011. The deal does not change the overall number of retained jobs that Ford can qualify for, currently set at 40,200, but it caps the total value of credits at $2.3 billion through 2025.

That would double Ford’s cumulative in-state capital investment to at least $6.2 billion.

“That’s a strong sign that they believe in Michigan’s economy and are interested in investing with it. So I view it as a good win-win,” Snyder told The Associated Press in a phone interview.

The $2.3 billion cap was based on a prediction of what Ford might have qualified for under its original “open-ended” agreements, said Charlie Pryde, Ford’s regional director for state and local government relations.

State officials have reported trouble forecasting the budget ramifications of prior deals because of timing issues and uncapped growth in wages, health care benefits and businesses’ investment in an improving economy.

The Snyder administration approached Ford in mid-February, hours after telling legislators that Michigan was potentially on the hook for nearly $3 billion more in business tax credits than planned, said Michigan Economic Development Corp. CEO Steve Arwood.

Arwood said the Ford agreement is a “great framework” for the MEDC’s similar talks with a half-dozen companies, but he stopped short of saying whether GM and Chrysler were among those other companies.

“It’s exactly what we had hoped to achieve out of this. It contains the transparency. It contains working with the individual company (on a) plan forward so there are no surprises,” Arwood said.

Ford likely will not have trouble spending $3.1 billion in Michigan in the next decade. Over the last year, Ford has spent an estimated $1 billion retrofitting plants in Dearborn and near Kansas City, Missouri, and a Michigan metal stamping factory to produce its new F-150 pickup truck. And in 2013, the company invested $555 million at its plant in Flat Rock to build the new Mustang.

Ford will be required to periodically forecast estimated tax credits received to date. There also will be unspecified limits on the amount credits that can be claimed in a given year.

The state stopped awarding new business tax credits beginning in 2012 under a new tax code _ in favour of direct cash incentives and loans _ but the credits will continue having a budget impact.

Lawmakers are currently considering legislation that would prevent the state from significantly amending existing tax incentive deals unless the new agreements lower the credits’ value.

Associated Press Auto Writer Dee-Ann Durbin contributed to this report from Detroit.