First Person: Michigan Recalibrates Economic Development Strategy and Initiatives
Hit hard by the recession, Michigan is now offering a variety of initiatives and programs to address company needs and create jobs. Area Development discussed these tools with Michael A. Finney, President and CEO of the Michigan Economic Development Corporation (MEDC).
Q3 / Summer 2013
Finney: The most active tool is the Small Business Credit Initiative — a loan program designed to help small- and medium-size companies that are in a growth mode and have challenges accessing debt. We can make loans up to $5 million in participation with a bank. The Small Business Credit Initiative has $100 million for that program.
Our second most active tool is the Michigan Business Development program, a cash incentive that the state makes available in increments up to $10 million. Funded with $170 million, this program can be used by any industry from film, pharmaceuticals, manufacturing and everything in between. Funds are made available as grants to companies that demonstrate they are creating jobs and making investments. Money is also available for startups for equity participation.
AD: Michigan will begin phasing out its Personal Property Tax (PPT) for most businesses beginning in 2014. How will this benefit companies and manufacturers?
Finney: Phasing out the PPT gets to the heart of the overall cost of doing business in Michigan. Without the PPT, companies will have an incentive to invest in capital equipment. While it’s too early to know how much this will save businesses, we believe it will be substantial.
AD: Are there any other tax initiatives that would be of interest to companies looking to locate in Michigan?
Finney: Michigan also refinanced its federal unemployment insurance, which will save businesses about $1 billion. Our unemployment compensation decreased 7 percent over the last two years, a savings that is passed directly to employers. And the elimination of Michigan’s business tax, which was replaced by a Corporate Income Tax (CIT), will save companies $1.8 billion. This is a flat 6 percent tax on net Michigan sales.
AD: What programs is Michigan introducing to advance its innovation economy, and how can these be utilized by an innovative company locating or expanding in Michigan?
Finney: Last year we pledged $8 million to support a business incubator program across the state, and another $3.5 million to support very high value acceleration services through those incubator networks.
We continue to put tens of millions of dollars into our entrepreneurial system to ensure that early-stage tech companies and innovation-based companies have the highest probability of success. We use our Business Accelerator Fund to provide high-value services to businesses that are in an early stage of commercialization. We provide grants up to $50,000 for prototype development or any other activity that leads to commercialization within two years.
Venture Michigan has $300 million that is being invested with venture capitalists who choose to do business in Michigan. This tells them that Michigan is serious about venture capital in our state. And we have identified gaps where small scale, early-stage companies are looking for seed venture capital funding, and address this with our venture matching program. Here we invest up to $500,000 on the basis of the same term sheet of venture capitalists headquartered in Michigan. It is an easy way for companies to get access to additional equity capital when negotiating deals with venture capitalists. Around $10 million has been set aside for the program.
AD: Can you provide any specific examples?
Finney: A new version of the Centers of Innovation Program tries to attract significant research facilities that can help innovation-based companies move forward faster. An example is SRI, which utilized Centers for Innovation funding to locate a clinical trials facility here. Its facility will be used to assist in commercializing the facility’s innovations and those of smaller life science companies in Michigan that have to search the country for clinical trial locations for their on going developments.
AD: What types of companies can take advantage of the Pure Michigan Business Connect initiative?
Finney: This is a very important initiative that does not involve tax credits or incentives — just us using our database and making connections. We leverage the relations we have with medium and large businesses in our state that are looking for a variety of goods and services and introduce them to Michigan businesses that are in a growth mode and looking for new customers. We help Michigan businesses find each other.
DTE Energy and Consumers Energy initially committed $500 million combined of Michigan-based procurement activity. Because the program has done so well for them over the last two years, they have increased their commitment to $2.1 billion.
We forecast that this initiative will deliver about $8 billion in B2B activity over five years. If we hit our goal, Michigan will see about 40,000 jobs created as a result of new business coming to Michigan.
AD: How has the Michigan Logistics & Supply Chain Strategy helped companies, and what does this mean for other industrial firms considering Michigan?
Finney: Michigan has been slow in getting into the logistic supply business. Although we recently completed a supply chain strategy that collaborated with other organizations, it’s too early for measurable results. We expect to ramp up this initiative during the balance of this year and in early 2014.
AD: Why did Michigan eliminate tax credits? What impact will this have on an industrial company?
Finney: We eliminated tax credits because companies said these credits did not help them make investments in facilities, people, and inventory since they are usually collected over extended periods of time. Instead, we introduced the cash incentive program that I described earlier.
AD: Now that Michigan is a right-to-work state, how is this affecting businesses locating or expanding there?
Finney: It’s too early to tell since the change was made at the beginning of this year, but we are getting positive anecdotal feedback. The site location community and selected businesses are telling us that Michigan is now being considered — whereby it would have eliminated if it were not a right-to-work state.
AD: What challenges are Michigan companies facing post-recession? How are they being addressed?
Finney: The single biggest challenge is access to talent at every level. Michigan has about 60,000 open jobs at any given time. Meanwhile, unemployment remains at a high of 8.4 percent. This tells us we have a skills mismatch. We need to identify, as early as possible, business needs and work with individuals who are looking for opportunities that are here today.
That effort is going on through a variety of programs. One is our Community Ventures program, designed to help people with limited skills and experiences find opportunities with manufacturing companies that have available jobs that pay decent wages for unskilled labor. Another, the Michigan Advance Technician Training Program, partners with companies that are prepared to invest in candidates to grow their own talent. We are running a pilot with two community colleges and expect to field the program in 2014. The idea is to get in front of the curve, understand business needs, and develop a pipeline of young talent that can meet demands of employers.