Battling the Big Box Bullies

Opinion

By Amy Kerr Hardin | July 25, 2017

 

Armchair fiscal-policy critics abound. They love to opine on how their local leaders have bungled the budget, draining dry the community coffers. It's all too easy to assume these financial jams are the result of some dastardly longitudinal experiment in incompetence on the part of officials. Yet, contrary to the incessant finger wagging directed at local leaders past and present, the systemic problem is much more complex and nuanced than some comprehend.

In Michigan, many of those budgetary decisions in question were grounded in the state's 1998 mandate to share statutory revenues — a formula-based percentage of the state’s sales tax collections — with its cities, villages, and townships. The mandate worked in tandem with an understanding that businesses would be required to pay their fair share in property taxes as determined by local assessors. Historically, both provided a reasonable bulwark for sound public-policy math. However, neither of these previously reliable revenue streams can now to be trusted.

Place the blame squarely on Lansing lawmakers and state tax courts, both acting in concert with business interests and their lobbyists.

At about the same time state officials decided to neglect their lawful duty to share revenue among their constituent communities, tax courts similarly thought it a swell idea to allow commercial property owners to screw those same municipalities out of commercial real estate tax dollars.

The public policy organization Good Jobs First reports that subsidies for Michigan businesses already rank third largest in the nation, clocking in at over $14 billion in recent years — all paid out of taxpayer’s pockets. So, it's unconscionable that the state's tax tribunal is aiding and abetting in yet another corporate welfare racket designed to further hijack critical local revenues.

Called "dark store" tax credits, they’re just as ominous as they sound. The premise of the tax dodge is called "functional obsolescence": Major retailers build structures that they claim are meant only for short-term use, a decade or two, and then deem them unsuitable for future occupancy. Here's how the scam looks in action:

Step One: Developers propose construction plans for a super-sized store. Local officials are enticed by the prospect of increased revenues from the development. Post construction, the mega-retailer files to have its taxes reduced to a level similar to that of an abandoned structure in the community — a dark store. All the retailer needs then is for the Michigan Tax Tribunal to rubber stamp its request, which typically happens. Going forward, the retailer not only enjoys a criminally low tax rate but also fleeces the community through exorbitant refunds for property taxes paid previously.

Step Two: The flimflammery continues. When the big box retailer eventually relocates to a newer facility, it places a deed restriction on the old property to prevent competing businesses from operating there, creating a win-win for the seller — no competition, and a ready example of an abandoned structure to bolster its “dark store” argument with the tribunal. For the community, however, it’s a lose-lose, leaving it suffering from blighted buildings and the loss of tax revenues.

The negative impact on Michigan’s communities runs deep. Local units of government have collectively forfeited around $100 million since 2013. A Meijer store in Okemos won a tax settlement from Meridian Township that nicked the municipality for $320,000. The bulk of those funds were pilfered from the Okemos Public School budget. Alongside Meijer, Home Depot and Lowes are hot on the action. Their combined reassessments cost Mason County $300,000 in lost revenues, and Ottawa County lost $745,000. Lowes took Marquette Township to the cleaners for a $755,000 refund — an amount so significant to the function of its community that the local library had to cut its hours. Menards, a frequent filer like Meijer, attempted to tag the City of Escanaba for a hefty refund, but city officials appealed, and the case is now headed to the Michigan Supreme Court. So far, 30 municipalities have jointly submitted an amicus brief in support of the city.

One vigilant Michigan lawmaker devoted himself to putting an end to the corporate piracy. The late Rep. John Kivela, a Democrat from Marquette, twice introduced legislation to block the dark store treachery. His first attempt flopped, but the second bill passed the House in 2016 by a 97–11 margin. Unfortunately, the Senate never took it up before the session closed.

Last March, just weeks before Kivela took his own life, Rep. David Maturen, a Republican from the Kalamazoo area, introduced new legislation (HB-4397). The latest version has broad bipartisan support, with about half the House co-sponsoring the effort. Maturen is the vice chair of the House Committee on Tax Policy, where the legislation is currently being considered. His majority party affiliation will boost the bill. The Michigan Municipal League, the Michigan Townships Association, and the Michigan Association of Counties have thrown their full weight in support of the measure. Perhaps the third time will be the charm.

Whether Lansing acts to shut down this corporate chicanery or not, Michigan’s municipalities would be well served to gird their loins. The Institute for Local Self-Reliance, a public policy think tank, advises local leaders on how to deflect the dark store ruse and big box blight. In addition to implementing zoning policies that directly address the issue, the institute encourages officials to require developers to post a bond for demolition, and to require the timely removal of abandoned structures.

It would also go a long way towards restoring faith in Lansing if the tax tribunal would stop enabling these big box bullies.

Amy Kerr Hardin is a retired banker, a regionally-known artist, and a public policy wonk and political essayist at Democracy-Tree.com. She and her husband have lived in the Grand Traverse area since 1980, where they raised two children, and have both been involved in local politics and political campaigns.