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Ford, as expected, launched this week to win the Detroit City Council and secure a $ 100 million tax break from the city to support its rehab. The facility, Michigan Central Station, and Ford wants to transform it into a hub for the automaker's electric and autonomous vehicle programs. Detroit's city council members, for a list of reasons, should reject the request.
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Ford's $ 740 million plan to redevelop Michigan's Grand Central has generated good-bye-times for the Blue Oval. The train station stands as a testament to the city's decline, which ultimately increases in 2013 with the largest municipal bankruptcy in U.S. history. Ford's planned rehab of the station captured national attention for that very reason; Much has changed in Detroit over the past five years, with many businesses flocking to the city's core.
But the change is a big cost to the public. A massive new arena for the Detroit Red Wings, at $ 324 million between the city and the state, and the Detroit still has a host of problems. The city's school district continues to flail, with officials recently turning over every local school's drinking fountain to high levels of lead and copper; its poverty rate remains high; and its budget remains tight, with a major pension obligations due in the coming years. It remains one of the most violent cities in America.
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All of this is to be continued, and it needs to be continued.
What Ford's asking for $ 100 million over the next 35 years; in return, it would receive a net-benefit of $ 371 million, contingent on, uh, a lot of things:
That amounts to about $ 10 million in new tax revenue each year for the city, [chief of services and infrastructure for Detroit’s mayor Arthur] Jemison said.
Ford employees, suppliers and contractors would still be subject to the tax code of 2.4 percent for non-residents.
"That's back that we do not have today," Jemison said.
Vacant Sitting, The Michigan Central Station was costing the previous owner, billionaire trucking mogul Manual "Matty" Moroun, about $ 1 million annually in taxes, with roughly $ 200,000 going to the city's coffers.
"Today we're getting $ 200,000 from that property," Jemison said. "When the project is done and there's 5,000 people working in the project, we'll be earning $ 10 million a year. That's the value. "
"I think it's a worthwhile business deal," he added.
It is worthwhile-for Ford.
Ford's proposal calls for an abolition practically everything: no real or personal property taxes, no corporate income tax, no utility user tax, along with some other subsidies, all at a cost to Detroit for $ 104 million.
Jemison admitted in his interview with Crain's Detroit Business that the net-benefit projection of $ 371 million for Detroit hinges on the assumption that Ford's addition of 2,500 employees will, magically, create an additional 2,500 "indirect" jobs in the Corktown neighborhood.
This is important. It means coffee shops, bars, dry cleaner, you name it; by virtue of Ford entering the train station, presto chango, 2,500 additional jobs will arrive in tow.
I'm sure Detroit officials have an explanation for this calculation, but it's a guess. And one that-even if you consider it's totally sound to produce an economic forecast dating out 35 years for this sort of project-doesn't even appear that sound.
Let's say all 5,000 of these new employees-along with a planned 2,000 construction workers-live in the City of Detroit and will pay a 2.4 percent income tax. (This will not happen-most workers in Detroit's downtown commutes from the suburbs-but for the sake of this exercise, why not.)
Let's also assume the average salary of these workers is $ 75,000.
At $ 75,000, with each worker paying a 2.4 percent tax, with no deductions whatsoever, you'd get close to that $ 371 million number, but that's an extremely charitable presumption.
What will be more likely to happen soon, when they will be rehabbing the train station and other buildings nearby. Ford will move in 2,500 workers, and then, other businesses will pop up nearby. The latter is a bold assumption. And, of course, after the construction workers are done, Detroit will be taking care of it when they were employed. That is to say Jemison's $ 10 million average-computed, it seems, using the extremely complicated calculus of roughly $ 370 million per year divided by 35 years-it's a hard estimate that should not be taken seriously.
A simpler choice, as I laid out last month, would be the first choice for the city for any tax breaks, and the property and corporate income taxes associated with locating the city's greatest assets.
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And it is an asset. The train station attracts reams of people every year, and it's a beautiful structure that deserves to be rehabbed. But what's on the table is a request for forego crucial tax revenue to support police and fire services, infrastructure upkeep, basic city services-all for the benefit of having the building occupied by Ford, and the potential for an increased amount of income if the stars align perfectly.
This is not to pick Ford specifically. Corporate welfare is a zero-sum game, pitting major cities against one another, which is why behemoths like Amazon can launch a maniacal Olympics Tax Break Deals and cities respond subserviently. Amazon does not need the public's help. Amazon is fine.
Ford is fine, too. The company has a chest of $ 17 billion in cash reserves right now. It previously said it needs $ 20 billion to weather the next (inevitable) recession; if that's the case, maybe it should not spend a half-billion dollars on a building right now. Since it was supposed to be more effective and more affordable, the Blue Oval should be slipped off an extra $ 100 million to the detroit to kick in.
Ford will be using Detroit's roads, its water system, and if its some of its workers do move into the city, its schools. Detroit's coffers, Ford should do the same if it wants to assume control of the city's most fabulous ruin.
This is not a complicated ask. Corporate welfare deals all these costs of Byzantine cost-benefit analyzes that have been taken into account to a greater extent. Michigan Central Station; you can not reasonably be sure that you will be able to work your way around the barista five years from now.
As these things go, Ford is, of course, an accelerated timeline, and, of course, it needs the Council to fast-track approval of its requested tax breaks. Winter needs coming, and officials say Ford needs the green-light from council-members so it can be done to repair the train station's leaky roof, and ensure it's no longer exposed to the elements.
The same thing happened when the deal for the Red Wings arena was being pitched in 2014. Councilmembers had a metaphorical gun to their head and were told they would fall under the leadership of the team to train rink, or they'd risk the entire project coming unraveled. The council approved that deal; this time they should say no.
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