On March 19, the Michigan Senate approved measures to reinstate targeted tax incentives for job creation and establish an R&D tax credit. These changes aim to revamp the state’s economic development suite of incentives.
The legislation reshapes the Strategic Outreach and Attraction Reserve (SOAR) Fund into the Make it in Michigan Fund and designates half of its roughly $500 million a year in funding for a new program, Michigan 360, to support spending on regional transit, affordable housing, the redevelopment of demolished or vacant properties, infrastructure, childcare, job training, or other activities.
Two other SOAR Fund programs, the Critical Industry Program and the Strategic Site Readiness Program, would see reduced funding allocated for direct awards to companies and site preparation efforts.
“Something that we heard loud and clear from a lot of our members and from a lot of the research … is that these community investments really matter and there is a limit to what we can accomplish with incentives,” Sen. Mallory McMorrow (D-Royal Oak) said. “We can’t incentivize our way out of some of the things that young people are telling us they want in our communities.”
Under the R&D tax credit legislation, which resembles a House bill passed last fall, businesses can qualify for the credits based on a percentage of their base expenses plus new expenditures. Those with 250 or more employees could receive a credit of 10% above the base, capped at $2 million annually. Smaller companies could claim a 15% credit, capped at $250,000 per year. Additionally, collaborating with a research university could result in an extra 5% credit, up to $200,000 annually. If the $100 million cap is reached, qualifying companies’ credits would be adjusted pro rata.
While the changes to the SOAR Fund were passed along partisan lines, the R&D Tax Credit legislation received support from both parties.
Legislation was also passed to establish the High-wage Incentive for Regional Employment (HIRE) program, replacing the Good Jobs for Michigan program. Under HIRE, Michigan could incentivize businesses by allowing them to retain up to 100% of income taxes from new jobs. To qualify, businesses must create a minimum of 25 jobs with a median wage equal to 175% of the regional median (or 135% in counties with 50,000 jobs or less) or a minimum of 250 jobs at 150% of the regional median. The total annual capture would be limited to $125 million, totaling about $1.6 billion overall.
The fate of these proposals now returns to the House, where they could be taken up as soon as April when Democrats will regain their narrow 56-54 majority after two special elections.