In Michigan last week, Washtenaw County Circuit Court Judge Donald Shelton issued a ruling that could well spark a long-delayed national debate about what local communities receive in return for providing taxpayer subsidies to demanding companies operating plants there.
Judge Shelton’s 28 page opinion ruled that General Motors could not transfer production of its Chevrolet Caprice cars from the Willow Run plant in Ypsilanti, Michigan to its Arlington Texas factory resulting in the loss of 2500 jobs. Since 1975, over one billion dollars in tax abatements from Ypsilanti Township and Washtenaw County were awarded GM for operating its assembly and parts plant, according to the lawyer who brought the suit. At an ever more insistent pace, GM has been demanding tax abatements from 20 Michigan communities. The company in 1985 served notice that it wanted its total property tax bill in these towns reduced by 30 to 85 percent, implying that it would curtail or close down plants if these subsidies were not forthcoming.
Of course, GM did not say it would reduce its use of community services such as fire, police, highway and water treatment. Nor did it specifically agree in writing to keep these plants operating for any period of time in return for these millions of dollars. It implied that it would stay, however. Unfortunately, the town officials were so frightful about a big employer moving out that they did not formalize in contractual form these property tax reductions with a quid pro quo of continued factory operation for the designated period.
But Judge Shelton relied on a common law doctrine called “promissory estoppel,” which asserts that if a party makes a promise and receives benefits as a result, the party is bound to fulfill that promise.
Judge Shelton heard evidence that the township relied on these promises by GM, for why else would the local government give up such ample amounts of property revenue for its school and other budgets. He wrote: “The local governments of this state are placed in a position where they feel they have no choice but to give taxpayers’ resources away under a statute which does not mandate that they receive anything in return for those taxes.”
“There would be a gross inequity and patent unfairness if General Motors, having lulled the people of Ypsilanti into giving up millions of tax dollars which they so desperately need to educate their children and provide basic governmental services, is allowed to simply decide that it will desert 2,500 workers and their families because it thinks it can make the same cars a little cheaper somewhere else,” he said.
General Motors will appeal his decision and may well prevail. Appellate Judges rarely go along with such logistical
determination against large companies and where they operate their plants. But there is a fallback position. Namely, GM should refund all those millions of property taxes that it should have paid. Other towns in Michigan would be receiving refunds if this principle is obtained.
For example, GM promised 6000 jobs in a new automobile plant in eastern Detroit in 1981 in return for the city imposing eminent domain authority over 400 acres full of homes, churches, small businesses and schools. The area was cleared for GM and this giant company was given a $350 million local, state and federal subsidy package. But since only half the jobs were produced, shouldn’t there be a refund of half the subsidy? Yes, if the city of Detroit required a binding contract which it did not.
All over the country, companies are pitting one town against another or one state against another to see which government will give the largest welfare benefits to these firms to attract their plants and stores. New Jersey is now luring businesses away from New York City and forcing the Mayor of New York to offer huge
“incentive” packages to keep financial companies in Manhattan.
Scholars have concluded that no state or locality wins in this race of attrition. Only the corporate welfarist does.
Interstate compacts between states would set some groundrules to prevent this internecine bidding battle for these companies. And reducing any corporate welfare packages to contractual form would make decisions by such judges as Donald Shelton much more likely to be upheld on appeal. Finally, by the way, the small taxpayers who shoulder these burdens of corporate welfare will receive some protective justice.