LANSING – The tax credits being claimed from the repealed Michigan Business Tax are causing a lot of headaches as their unpredictability is seen as one of the biggest drivers behind bleak figures at Friday’s January Consensus Revenue Estimating Conference, but officials at the Michigan Strategic Fund say there is little they can do about it due to the very nature of those agreements.

Mark Morante, senior vice president of the Michigan Economic Development Corporation and Michigan Strategic Fund fund manager, said in an interview with Gongwer News Service that he estimates there to be more than 200 active agreements created under the now-defunct Michigan Economic Growth Authority.

The MEGA credit dates back to 1995 as the state’s incentive-based program that offered credits to companies against their Michigan Business Tax, which has also since been repealed and replaced with the Corporate Income Tax instituted by Governor Rick Snyder. The state now provides only cash incentives (generally by way of a Michigan Business Development Program grant).

But the MEGA credits are once again gaining notoriety as the state embarks on creating its fiscal year 2015-16 budget and balancing the current fiscal year 2014-15 budget, with the lack of predictability being a major factor (see separate story). Despite that MEGA credits have not been issued since 2011, some companies are just now cashing in on their agreements with the state because the economy has gotten better. And that’s the part of the conversation at hand that might be getting overlooked, Morante said.

“What you see there is (the question of), ‘Is MEGA creating these jobs?’ No, the economy creates the jobs. What MEGA does is locates or retains those jobs in Michigan rather than Indiana, Ohio, Texas, Ontario, or Mexico (for example),” Morante said. “In an odd way, that’s a good thing to be happening. That means more people are working and there’s more investment.”

Still, as the state looks to balance its budget and prepare a new one, there’s no denying that the credits are playing a major factor. That’s why the costs estimated by the administration, the House Fiscal Agency and the Senate Fiscal Agency could range anywhere from zero to $600 million at any given time, Morante noted.

Indeed, the revenue loss from MBT credits jumped 10-fold in 2014 compared to 2013, state economists said Friday.

And unfortunately for those crunching the numbers, there’s little predictability to be had, he said.

“I don’t think there’s anything we can do to smooth out our knowledge on a year-to-year basis,” Morante said. “There could be things done in terms of recognizing potential liability in a year that would maybe set aside funds.”

But that’s not for lack of trying. Morante said. Every year, the MSF and the MEDC work with the Department of Treasury and others to review the number of agreements the state could face for a given year. The MEDC reviews each company, even of those who may not apply for the credit, and essentially rates whether a MEGA award is likely to be claimed based on that company’s performance, project management, and the specifics of their agreement.

Throwing a wrench in that formula is having to take into account, to the extent possible, companies that have never filed for their potential credit(s) but still could, among other factors.

“We pretty much know what could happen, but don’t know when it could happen. We have companies right now that can still, and in fact are, coming in for certification of their credit from 2010 and ’11 and ’12 because they’re allowed to do so under our tax laws. You have four to five years to file your state MBT,” Mr. Morante said. “You can ask for extensions, there can be timing issues, you could be in an audit situation and have more time to file, or you can ask for amendments.

“There’s both a lag issue here, and also there are some companies who simply don’t get them all at once but they come in and get two or three at a time, so that makes it difficult for Treasury to do this,” he continued. “And we’re not working on accrual basis – we close the books on a cash basis.”

In the three years since the MEGA credits were ended, Mr. Morante estimates the MSF, which is responsible for handling the MEGA credits, has amended between 25 and 30 agreements with companies, some more than once.

Add to that figure another estimated $73 million for credits given out in 2011 when Governor Rick Snyder and his administration were transitioning from the MBT to the CIT and developing the MEGA replacement. Those costs will stretch out over the course of seven-to-ten years, through about 2021, Morante said.

But he wants to be clear: “The amendments we’re talking about were not to make it easier for folks to collect money. That’s not what we were doing.

“There are weights, levels that (companies) have to maintain. There are a number of jobs they have to be creating, if it’s a creation MEGA, over where they were when they signed to begin with. You can’t, for example, lay people off and then hire people back and make that count. They go through a stringent process to verify the information is correct.”

And despite some concerns raised at the conference about it, there is no way that a company could receive MEGA credit for jobs created outside of Michigan (though a company could, of course, have locations outside of the state).

“The intent of the MEGA program is that we get those jobs to locate here that are driven here by the economy,” he said.

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