Ford, as expected, launched a charm initiative this week to win over the Detroit City Council and secure a $100 million tax break from the city to support its rehab of a train station near downtown. The facility, Michigan Central Station, has been shuttered for decades, 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 litany of reasons, should reject the request.
Ford’s $740 million plan to redevelop Michigan Grand Central has generated gobs of goodwill for the Blue Oval at a time when it really needs it. The train station stands as a testament to the city’s decline, which ultimately crescendoed 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 dozens of large businesses flocking to the city’s core.
But the change so far has come at a significant cost to the public. A massive new arena for the Detroit Red Wings, at $324 million between the city and state, being the chief example, and Detroit still has a host of problems. The city’s school district continues to flail, with officials recently turning off every local school’s drinking fountain due to elevated levels of lead and copper; its poverty rate remains high; and its budget remains tight, with a major pension cost obligations due in the coming years. It remains one of the most violent cities in America.
All of this is to say Detroit still has plenty of challenges ahead, and it needs to find ways to generate revenue to address those challenges and continue to grow.
What Ford’s asking, according to a presentation delivered this week, is for Detroit to give away $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 city’s personal income tax of 2.4 percent for residents and 1.2 percent for non-residents.
“That’s revenue that we don’t have today,” Jemison said.
Sitting vacant, the Michigan Central Station was costing the previous owner, billionaire trucking mogul Manuel “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 abatement practically everything: no real or personal property taxes, no corporate income tax, no utility user tax, along with some various subsidies, all at a cost to Detroit for $104 million.
Jemison admitted in his interview with Crain’s Detroit Business that the projected net-benefit 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, a 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 a simpler way of putting it is that it’s a guess. And one that—even if you consider that 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 won’t happen—most workers in Detroit’s downtown commute from the suburbs—but for the sake of this exercise, why not.)
Let’s also assume the average salary of all of these workers is $75,000—seems like a fair number when you balance out new bar workers with new engineers.
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’ll more than likely happen is this: Detroit will receive most of the new income tax revenue early on, when construction workers are rehabbing the train station and other buildings nearby. Ford will move in 2,500 workers, and then, perhaps, other businesses will pop up nearby. The latter part is a bold assumption. And, of course, after the construction workers are done, Detroit will be taking in less per year than it did when they were employed. That is to say Jemison’s $10 million average—computed, it seems, using the extremely complicated calculation of roughly $370 million per year divided by 35 years—is a lousy estimate that shouldn’t be taken seriously.
A simpler choice, as I laid out last month, would be if Ford elected not to ask the city for any tax breaks, and paid the property and corporate income taxes associated with locating in one of the city’s greatest assets.
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 now is a request to 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 revenue if the stars align perfectly.
This isn’t to pick on 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 of Tax Break Deals and cities respond subserviently. Amazon doesn’t 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 about $20 billion to weather the next (inevitable) recession; if that’s the case, maybe it shouldn’t spend a half-billion dollars on a building right now. Since it apparently feels this is necessary to support its autonomous and electric vehicle ambitions, the Blue Oval should slice off an extra $100 million to cover the share it’s now asking 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. Like any resident or business that is asked every year to cut a check for Detroit’s coffers, Ford should do the same if it wants to assume control of the city’s most fabulous ruin.
This isn’t a complicated ask. Corporate welfare deals all hinge on these sorts of Byzantine cost-benefit analyses that may take forever to understand whether they’ve actually produced a net-benefit to the city’s bottom line. You can reasonably project how much property tax revenue a company will generate by occupying a building like Michigan Central Station; you can’t reasonably project whether that occupation will lead the nearby coffee shop to hire a barista five years from now.
As these things go, Ford is, of course, on an accelerated timeline, and, of course, it needs City Council to fast-track approval of its requested tax breaks. Winter is coming, and officials say Ford needs the green-light from council-members so it can set about repairing 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 had only one day to decide whether to tear down the hockey team’s former rink, or they’d risk the entire project coming unraveled. The council approved that deal; this time they should say no.