Broad-based economic development

Senator Patrick Colbeck

Senator Patrick Colbeck

By Sen. Patrick Colbeck

7th Senate District

 

Most of us become upset when we learn of government policies that pick winners and losers…especially when it comes to economic development incentives.

The most famous example is the now extinct Michigan Film Incentive Program that siphoned our tax dollars off to the Golden State. But there are still plenty of such policies lurking around in our government, and for every one we remove, it seems two or three new ones appear in its place.

You may recall the $10 billion Mega Credits program or the $11 million Data Center program that gave preferential treatment to select companies, when many of our long-standing businesses weren’t taxed by the same set of rules.

Now, similar programs are being proposed and are beginning to move in the new legislative year.

The focus of all of these incentive programs is to lower the total cost of doing business so employers can expand into new locations, purchase new equipment, hire new employees, and be able to more fairly compete with firms overseas.

That is a laudable goal.

Even more laudable, though, would be to promote policies that lower the cost of living for ALL of the citizens of our state. In other words, we need to adopt policies that promote what I like to refer to as “broad-based economic development.”

What would such policies look like?

Let’s start by examining the costs of doing business. Typical expense line items for businesses would include taxes, electricity and health care.

It turns out that everyday citizens also pay for taxes, electricity, and health care.

What if we were to lower the total cost of doing business by adopting policies that lower taxes, lower the cost of artificially high health-care, and lower the costs of monopolistic utility rates?  Not only would we encourage the growth of businesses, more importantly we would also lighten the financial load upon our families.

How would a broad-based economic development policy replace something like the $11 million per year Data Center program? Let’s look at how much money Data Center companies spend on electricity. Data Centers have high electricity demands. Electricity is required to power up computers and cool them down. A typical data center has electric bills of $9.5 million per year[1]. If the state were to adopt policies such as real electric choice, we could reduce the cost of electricity by more than 10 percent across the state[2]. That would result in potential savings of $54.5 million per year[3] for the data centers eligible for the state incentive program, but it also would result in an average annual electricity cost savings of $127[4] for every family in the state.

Let’s look at how much money the Data Center would spend on health-care for its employees. A minimum of 400 jobs must be created for the Data Center program to continue past 2022. The cost of for 400 employees is roughly $7.3 million per year[5]. A savings of 20 percent on health- care costs would save them over $1.4 million per year[6]. These same reductions in health-care expenses would save the average family in Michigan $3,628 per year[7].

In summary, a broad-based economic development strategy would have yielded $55.9 million in savings for the Data Center industry. Even if this estimate is off four-fold, data centers would still see more savings via a broad-based incentive program than a state program that picks winners and losers. Furthermore, the state’s Data Center program saved Michigan families $0. A broad-based economic development strategy would have saved Michigan families over $3,755 per year.

So, we could grow our state’s economy via targeted tax incentives to favored businesses or we could adopt policies that not only would help businesses but also help families struggling to make ends meet. It is my hope that we start pursuing economic development policies that help us all.

Sen. Patrick Colbeck represents the 7th Senate District, which encompasses the cities of Livonia, Northville, Plymouth and Wayne, as well as the townships of Canton, Northville and Plymouth.

[1] $0.16/kW-Hr, 6800 kW for Ann Arbor Data Center results in $1,008/hr results in $9.5M/yr for electricity.

[2] 2016 testimony by school superintendents before legislative committees stated that their participation in the electric choice programs in Michigan saved them 20% per year.  September 23, 2015 article in Governing Magazine called Power Plays: The Increasingly Competitive Electricity Landscape cites that the 14 competitive states increased cost of electricity by 40.9 percent between 1997 and 2014 while monopoly states increased costs by 59.9%. http://www.governing.com/blogs/view/gov-local-government-electricity-competition-monopoly-challenge.html .

[3] Typically six technicians plus one general manager per data center. $11 million credits apply to 400 employees, which correlates to 57 data centers. 57 data centers x $950,000 savings per center = $54.5 million in savings.

[4] Average of $1,270 per year on electricity for Michigan residents.

[5] Based on $18,142 per year for average family assuming 100 percent employer coverage.

[6] Minimum of 400 jobs at $18,142 per year for health-care correlates to $7.3 million per year.  20 percent yields $1.4 million savings.

[7] Average household health-care expense is $18,142 per year per NCSL (http://www.ncsl.org/research/health/health-insurance-premiums.aspx).

Posted in Colbeck-Editorials, Uncategorized.