With Governor Granholm’s support, both houses of Michigan’s legislature recently approved creation of a tax credit to offset the energy costs of Hemlock Semiconductor, a company seen as key to the state’s high tech future. The tax credit proposal is now attached to state energy policy legislation that is still pending.
Hemlock, a joint venture of Dow Corning and two Japanese firms, manufactures polycrystalline silicon for solar cells and for electronics, and its 30-40% annual sales growth has driven rapid growth in production capacity. Site Selection recently ranked Hemlock’s $1 billion expansion in Saginaw County—the third in three years–as one of 2007’s top ten business deals.
The 12-year tax credit, which the energy-intensive firm wants to defray Michigan’s “uncompetitive” energy costs, is Hemlock’s price for further expansion in the state. It would be expensive, costing the state $357 million, or an estimated $900,000 per job for the 400-500 jobs projected for Hemlock’s next expansion.
The proposed credit is also “fully refundable,” i.e., it becomes an outright payment from the state’s general fund in years when Hemlock’s Michigan tax bill is too low to take the full credit.
Even in Michigan circles favoring lower business tax rates, the company-specific handout has had some critics. The Republican chair of the senate finance committee, Nancy Cassis, fears the credit could “put a hole in the state’s budget” and add to the burden of “all companies not as large as Hemlock Semiconductor that are the backbone of our communities.”
Russ Harding of the Michigan-based Mackinac Center for Public Policy, a free-market think tank, also decried the proposed credits: “We gave them incentives to get them here. Now they’ve got leverage and say they’ll leave without more incentives. Where does it stop?”
It’s hard to say. In fact, the new subsidy would come soon after Governor Jennifer Granholm’s approval of “anchor zone” tax breaks for Hemlock, to be based on jobs created by silicon “wafer” manufacturers that locate in a zone around Hemlock’s Michigan plant.
One blogger noted these incentives are “part of a master plan to turn Michigan into a high-tech nirvana, where a few hundred jobs here and there will supposedly make up the shortfall created by the thousands of manufacturing jobs that have already left the state.”
Meanwhile, the legislation does not require Hemlock to create a definite number of jobs or maintain a specific level of investment in its next Michigan expansion, or to repay state incentives if it does not.
Ironically, the proposal to underwrite Hemlock’s intensive energy consumption is now linked to energy legislation that, while promoting more power plant construction, would also set tougher energy efficiency standards for Michigan business.