GRAND RAPIDS ? The vigorous debate over incentives has been raging since the first tax exempt bonds were issued by the State of Mississippi in the late 1930?s to attract business to the state. The debate has not stopped and in fact, is heating up again ? in Michigan.

Michigan was late in instituting economic development incentives. The first two were in 1974, Act 338, which gave the state the ability to issue tax exempt revenue bonds to finance real and personal property; and Act 198, which allowed the state to issue property tax breaks on real and personal property.

During the 1980?s and 1990?s every state in the country created additional and ever more sophisticated incentive programs to retain and attract jobs and expand the tax base. Today incentives range from tax breaks, to tax credits, labor training programs, outright grants, leases of fully improved sites at $1 a year, gifts of land, brown field tax credits, Renaissance Zones and more.

During Gov. Engler?s administration, the Michigan Economic Development Corporation was created. One of the first things the MEDC tackled was to benchmark Michigan against our most aggressive competitor states in terms of Michigan?s tax environment as well as our incentive programs.

The result was an improved tax climate as well as a number of incentive programs that were some of the most sophisticated in the country. They include the MEGA program which is a Single Business Tax Credit for major expansions of existing firms, as well as companies new to the State; the Renaissance Program; and the Brownfield Redevelopment Program. The MEGA program has since been amended so that we can assist smaller, high tech firms.

The debate, of course, stems from the argument that companies receiving these incentives are unfairly advantaged over those that don?t. The fact remains that all States, as well as foreign countries offer incentives to keep or attract jobs and investments. Many of the incentives today are often used for retention of existing jobs, as much as for attracting new jobs. In fact, most new jobs in any area or state come from those companies that are already there. This is particularly true in Michigan. Michigan?s competitor states are largely in the South, many of which developed attraction aimed at Midwestern industrial states. Southern states have very aggressive target marketing programs, including attractive incentive packages.

Michigan had no choice but to respond by creating its own incentive packages. Unfortunately, many companies when asked publicly don?t like to admit that incentives played a role in their decision making process. However, as every economic developer will quickly tell you, one of the first questions we receive is, ?What can the State or community do for me if I expand here.?

The debate heated up again when the Fifth Circuit Court of Appeals in Cincinnati disallowed the incentive package given by the State of Ohio to DaimlerChrysler for an expansion of its Jeep plant in Toldeo. The Court?s said the incentives violated the Interstate Commerce Clause. A similar lawsuit has recently been filed in North Carolina against a package offered to Dell Computers. The Ohio decision has been appealed. It could go all the way to the Supreme Court. If the decision stands, it would mean all incentive programs are against the Interstate Commerce clause. In that case we will all be playing on a very different playing field in the future.

Until the case is settled, Michigan should not unilaterally disarm, like some Michigan legislators and think tanks are urging. We need to fight for k every company that is already here, and continue to market to new firms. In a perfect world we wouldn?t need incentives. In our world our competitors are offering them, and we need to have similar economic tools in our economic development toolbox.

Birgit Klohs is president of The Right Place Program, a Grand Rapids-based economic development corporation.