Detroit jobs lost despite city tax breaks

7,500 laid off despite abatements to keep or add 25,000 workers

Christine MacDonald / The Detroit News

Detroit --The City Council soon could crack down on tax breaks after learning Detroit cut taxes on $2.7 billion in investments in the past decade to businesses that not only failed to follow through on jobs promises, but laid off at least 7,500 workers.

Two of Detroit's top employers, General Motors and Chrysler, fell the most short of jobs projections in the city-issued breaks that, for all companies, cost the city about $15 million last year. But the council also could scrutinize breaks benefitting Mayor Dave Bing.

The Bing Group -- like other companies hit by the economy -- didn't fulfill job promises. In its case, it fell short at four of six projects that received tax breaks last year. Assessment records indicate they saved the company $180,000 in 2008.

Many were granted years ago, before the cataclysmic decline of the auto industry. But they bring renewed debate to an old controversy about the economic-development tool:

Should poor cities like Detroit continue to dole out tax breaks to businesses that don't deliver? Can they afford not to?

A council report this summer casts doubt on the effectiveness of the breaks -- Industrial Facilities Exemptions -- finding that Detroit slashed taxes on a proposed $3.6 billion in investments that were supposed to retain 24,200 jobs and create 1,260. By the end of 2008, the businesses had employed 16,684 and invested nearly $1 billion less than promised, the report stated.

Officials with the Bing Group, an auto supplier, acknowledge they fell 172 jobs short last year, but said they were meeting promises before having to cut workers.

"We had to survive as a business," said Kirk Lewis, company president and CEO. "We had to make these types of decisions."

Even so, the council could debate going to court to recoup some taxes from some companies, mainly those that made profits but cut jobs.

Members this month also could move to revoke 13 existing abatements to businesses that appear to have closed but may still be getting tax breaks on shuttered factories. Two of those are to the Bing Group. Bing officials say those facilities are still operating and should keep the breaks.

Councilman Kwame Kenyatta said he doesn't want to scare away businesses, but those that don't deliver on promises should receive scrutiny. And he thinks the Bing Group should be reviewed like all others.

"We gave these businesses a tax break because they made a commitment that they wanted to bring jobs to the city," Kenyatta said. "This sends the message that this is not just a free giveaway."

In a written statement, Bing said the city shouldn't change its policies.

"I don't think companies who got abatements got into those agreements and hoped their businesses would shrink or lose money," said Bing, who added he's had no discussions with city staffers about The Bing Group.

Bing has said he put his stake in the company in a blind trust that removes him from company operations while he is mayor but allows ownership to revert to him after he leaves office.

Bing's staffers said the agreement to do so is not a public record, and declined The News' request to release it.

Detroit checks jobs progress

The issue highlights ongoing debate about the effectiveness of the breaks, which allow businesses to pay half the taxes for up to 12 years on new projects.

Detroit is one of the few municipalities that check the job numbers against promises, said Gary Sands, a Wayne State University professor of urban planning and critic of the breaks.

Throughout Michigan, broken job promises are blamed on the economy. Bob Tess, manager of economic development services in Macomb County, said he's advising businesses applying for tax breaks to be conservative in promises.

In Detroit, Chrysler was under projections last year by more than 4,800 jobs on its eight abatements, including at Jefferson North Assembly, which total $1.5 billion in investment.

"The tax abatements ... have been in effect for numerous years with full compliance," according to a Chrysler statement.

General Motors fell short of meeting its job projections by 2,500 at its Detroit-Hamtramck assembly plant. Tough times forced the company "to take some very difficult but necessary actions," said Dan Flores, a company spokesperson. But he said GM is preparing for a $330 million investment to outfit the plant to build the new Chevrolet Volt electric vehicle.

Kaufmann Window and Door in Detroit promised 36 jobs would be retained and another eight created with a $425,000 expansion but now employs just 30, said Frank Sandercott, company comptroller.

"That was years ago when we had high hopes," Sandercott said.

And more cutbacks are expected. American Axle & Manufacturing, which has four industrial abatements, is severely cutting its Detroit operations and moving work to Mexico.

Pricey to continue, or stop

The Bing Group may have under-performed on jobs, but it invested $10 million more than it promised on projects receiving four tax breaks.

But two abatements for Detroit Automotive Interiors, including one that expired in 2008, are up for revocation by the council because the company is listed as closed.

The Bing Group's Lewis said a partnership with Lear Corp. ended in 2005 and they now have another company, Bing Metals, operating on the property. He said the company notified the city in 2008, but Detroit officials never scheduled a public hearing on a transfer for an abatement. Lewis said he plans to appeal to the council in the next few weeks.

"Just because Dave Bing is the mayor doesn't mean we have to be uncompetitive," Lewis said. "We don't expect anything but to be treated fairly."

A council staffer suggested last month the city recoup in court a percentage of the abated taxes if the company hadn't produced all the jobs promised.

"It's something we should seriously go after," said Irvin Corley Jr., council analyst.

Sands said Detroit may have a tough time. He said the law needs to be strengthened in Lansing to give the breaks only when businesses produce a minimum number of jobs.

"Detroit ... can't afford them," Sands said. "A lot of investment would have happened without the tax abatement anyway."

"But I fully understand the city's position that we can't be the only ones saying no."

Businesses say Detroit can't afford to stop giving abatements.

Frank Venegas, chairman of the Ideal Group, said he is in a "bidding" war between Howell, Detroit and Toledo on a proposed expansion of a division of his business, which repurposes equipment at shuttered plants.

In Detroit, where he already has another plant, taxes are higher even with the breaks and he has to pay for ambulance and security service because of the slow response time.

"It's a very difficult business climate to work in the city of Detroit," Venegas said. "Everybody else is giving (the breaks). The city has to."

cmacdonald@detnews.com (313) 222-2396