Michigan offered Amazon $4 billion package to build HQ2 in Detroit

The state of Michigan last year offered Amazon.com Inc. $4 billion in incentives to locate its second North American headquarters in Detroit, according to documents released Friday by the Michigan Economic Development Corp.

The multibillion-dollar package signals just how intense the competition is for blockbuster investment, a free-for-all many states and major cities have concluded they can't ignore. In the big leagues, Michigan recently hasn't fared so well, missing the cut for what Amazon calls its "HQ2" and failing so far to land follow-on investment from Foxconn Technology Group's planned presence in nearby Wisconsin.

State officials had resisted revealing the Amazon incentive package, citing a confidentiality agreement with Quicken Loans Inc. Chairman Dan Gilbert's family of companies. At the request of Mayor Mike Duggan, the mortgage impresario last fall quarterbacked a high-level coalition of business and civic leaders to craft a proposal to lure Amazon. 

MEDC's release of the proposal comes just days after Gilbert's team secured $618 million in incentives toward $2.1 billion in downtown construction projects. A spokesman for the economic development agency said the information was released by Gilbert's Bedrock real estate unit "following" this week's Transformational Brownfield Michigan Strategic Fund board meeting, where Gilbert's financing package received final approval.

"We're only releasing the cover letter," the MEDC's Otie McKinley told The Detroit News, confirming a statement issued by Gilbert saying Bedrock agreed to release the incentive letter. Other documents remain under an "active" non-disclosure agreement and will not be released.

Michigan's incentive bid for Detroit is roughly double the $2 billion offer Grand Rapids assembled for Amazon at three different sites. But it is markedly smaller than the $7.3 billion package the state assembled for Taiwan-based Foxconn, the world's largest contract manufacturer, an indication of the high level of interstate competition for multi-billion investments promising tens of thousands of jobs.

"That's called buying Amazon," George Jackson, retired president of the quasi-public Detroit Economic Development Corp., said in reaction to details of Michigan's Amazon package. "And I'm sure other cities are doing the same thing. We have to make sure these deals are win-win. We are in a competitive environment. There's no doubt about it."

The stakes are growing. At a White House ceremony hosted last July by President Donald Trump, Foxconn Chairman Terry Gou signaled his company planned to invest heavily in the American heartland. The response in North Carolina was swift: the General Assembly passed legislation promising to deliver incentives worth $4 billion to any company prepared to create 5,000 or more jobs.

At the highest levels of Michigan's political leadership, Foxconn's plans already were known. Once last year's Mackinac Policy Conference adjourned, Gov. Rick Snyder and Detroit Mayor Mike Duggan hopped a Delta flight for Tokyo, where they met with Foxconn representatives to press their case for southeast Michigan.

The hunt for Amazon's HQ2 is turbo-charging the competition. In Ohio, according to the Columbus Dispatch and official documents, the state offered the Seattle-based company property-tax abatements and income tax refunds that could be worth $400 million over the next 15 years. In raw dollars, the Columbus bid appears smaller than Detroit's -- but, for now, Ohio's capital city remains in the hunt.

After years of downplaying the effectiveness of incentives, or unwinding programs begun under his predecessor, Snyder devoted part of his second term to rethinking and rebuilding the state's incentive programs. The goal: enabling Michigan to compete for corporate blockbusters, to win and to change the state's economic trajectory.

"In 2017, Michigan created two new innovative tools to support transformational real estate development and job creation, which are tailor-made for HQ2," MEDC CEO Jeff Mason wrote Amazon in the letter dated Oct. 18, 2017. "This proposal combines these new programs with a Renaissance Zone tax abatement ... to support the development of HQ2 and to reduce Amazon's operating cost for the next 30 years."

Specifically, the state offered $3.3 billion in Michigan Renaissance Zone and local tax abatements over 30 years. They include no real and personal property taxes for 10 years, followed by another 20 years at a rate of 1.1 percent, altogether delivering a 30-year average property rate of 0.733 percent. The offer zeroes out city corporate income taxes and city utility users taxes.

The package offered Amazon $364.7 million under its Transformational Brownfield Program. It is designed, Mason wrote, "to support mixed-use development projects that will have a transformational impact on local economic development" and revitalization based on "growth in population, commercial activity and employment opportunities." 

The logic underpinning the tax givebacks, technically known as "Tax Increment Financing," is straightforward, if controversial: under new state programs, companies that create new jobs – either through the construction phases or general operations later – are legally empowered to recoup a portion of their investment by capturing some or all of what would otherwise be new revenue to the state or the city.

Had Amazon decided to proceed with the Detroit bid, according to the letter, it would have been entitled to 50 percent of the "state personal tax generated from residents and 50 percent of the withholding tax generated from new jobs located within the development site for 20 years." All of the income tax generated from the construction work could be captured, and construction materials would have been exempt from state sales and use taxes.

Under its "Good Jobs for Michigan" program, the state offered Amazon $200 million in withholding tax reimbursement. Jobs in the brownfield zone would entitle Amazon to be reimbursed for 50 percent of the withholding tax generated by new jobs; newly created jobs outside the zone would be eligible for reimbursement of up to 100 percent of withholding.

The state also offered the online retailer personal property tax relief totaling $99 million, according to Mason's letter. Also in the package was $40 million in cash, to be disbursed in four equal installments, under the Michigan Business Development Program.

Details of the incentives associated with the Amazon offer, however large, are likely to renew criticism that they amount to little more than corporate giveaways. But they are not unprecedented for a state whose governor the past eight years largely spurned fat incentive programs, including killing Michigan's famed film credits.

The state early last summer offered Foxconn a package valued at $7.3 billion that so far has not closed the deal. Gilbert's incentive package, approved this week, topped $600 million. And the state package backing the Ilitch family's Little Caesars Arena project totaled $329.1 million – a fraction of the Amazon offer.

Last October, the region's Amazon committee submitted a 242-page proposal designed to entice the retailer to invest $5 billion and over time create 50,000 jobs paying more than $100,000 a year. In an accompanying letter, Gilbert wrote: "The road has been paved for Amazon. There is no better place to innovate and continue to improve the delivery of your customer experience."

Detroit failed to make Amazon's first cut. The reasons, according to people briefed by Amazon officials, had more to do with the region's Balkanized public transit systems and whether it could attract the right kind of talent than it did the financial package. That, development experts say, is the price most everyone pays just for the privilege of competing for multi-billion investments.

Still, hometown corporate players who know Detroit best are investing billions in private capital in the city. Ford Motor Co. is perhaps just weeks away from confirming its purchase of the dilapidated Michigan Central Depot from the real estate arm Moroun family's Central Transport International Inc. And Gilbert, who controls nearly 100 buildings downtown, is moving ahead with his next phase of development: namely, going up.

His construction push, quickened this week by the approval of the state incentive package, includes creating Detroit's tallest building on the empty Hudson’s block on Woodward Avenue; developing 3 acres of mostly vacant space on the Monroe Block; renovating the vast interior space of the long-dormant Book Tower and Building on Washington Boulevard; and adding an 11-story annex to the One Campus Martius building.

"The incentives the State of Michigan offered were just one piece of a comprehensive bid from Detroit and Windsor," Gilbert said in a statement. "In the months since Amazon decided to look elsewhere, Microsoft has opened its new office downtown, LinkedIn announced the opening of its first U.S. office in 10 years here in Detroit, and Bedrock has cleared the final hurdle in moving forward with $2.1 billion transformational new developments that will take Detroit and Michigan to new heights."

daniel.howes@detroitnews.com

Staff Writer Sarah Rahal contributed.