The news that an automaker planned to renovate a long-abandoned train station in Detroit was hailed as a milestone for the city.
Now Detroit school leaders are asking what the $208 million tax break given to Ford Motor Co. for the project could eventually cost Detroit students — and why the board didn’t get a say in the process in the first place.
A heated, long-running debate about tax breaks in Detroit has not put the issue to rest. The only thing everyone can agree on about the Ford deal is that there’s a lot of money in play.
Sonya Mays, chair of the board’s finance committee, asked the district’s top financial officer last week to produce a report about the long-term effect of deals that entice developers into the city by offering to waive their taxes.
“These are going to be really big numbers at some point,” Mays said. She added: “Decisions are being made that will have an untold impact 10 years from now. I just want to make sure that we’ve all done the work on our side to make sure that we’re comfortable.”
District leaders asked why they had no say in a process that could affect school funding.
“It’s not logical that another elected body can unilaterally decide how taxes that should be coming to the district can be diverted,” said Superintendent Nikolai Vitti, responding to Mays’ concerns.
He said he’d like to see changes to the state statute that allow for tax breaks.
“We could have some allies in this across the state,” he said.
The Ford project could eventually be worth $1 billion if all goes according to plan, and some of that would normally go to the district in the form of property taxes. And as development booms in some parts of Detroit, Ford is far from the only company getting a pass on tax payments that might have gone to schools. A new hockey arena received a $325 million tax break in 2017.
But does this mean less funding for Detroit schools? There’s a lot of debate on this, and the two sides tend to end up with very different conclusions.
Here’s a guide to the key questions.
Will the tax break impact students in Detroit?
Not directly.
Any losses from the tax breaks would hit the struggling state education budget, not the district.
In Michigan, the state makes sure every district gets a fixed amount of funding per pupil. When tax revenue goes down, the state makes up the difference, and when it goes up, the state pays districts less.
If the Ford tax break means less property tax money for the Detroit district, “that’s a direct hit to the school aid fund,” said Craig Thiel, research director for the Citizens Research Council of Michigan.
And that means less for every school in the state, and could eventually mean lower per pupil funding when lawmakers look at the state budget.
How much money might be at stake?
The short answer: Potentially tens of millions of dollars over the 30-year life of the Ford tax break. Though again, that money would be coming out of the state school budget.
The Ford-owned train station and surrounding buildings could eventually be worth $1 billion. Some of that value could eventually go to schools in the form of property taxes.
Jeremy Vidito, the district’s chief financial officer, says his office is working on a study that would show exactly how much money could be at stake. It’s due out later this year.
But won’t the state pay school districts back if they miss out on funding because of tax breaks?
Partially. The Ford project received several types of tax breaks, and only one — the Renaissance Zone — requires the state to reimburse schools for any tax revenue they miss out on as a result of the arrangement.
Other than that, there is no backstop in place to exempt schools from tax breaks.
Ford would never have tried this project without tax breaks. Right?
Different people tend to disagree on the answer, and it’s hard to say who’s right. This is the crux of the debate.
Cities often argue that major developments wouldn’t happen without tax breaks. Ford officials said explicitly that they wouldn’t renovate the train station unless they got an abatement. To city and state officials, “no project” means lower property values, fewer jobs, lower tax revenue, and a smaller population.
Indeed, city officials estimated that the Detroit district would bring in additional revenue over the 30-year timeline of the Ford project thanks to the increased value of the train station, state reimbursements for some of the tax breaks, and increased value of other property around the station.
Critics say Ford is bluffing. They point out that Ford is valued at $17 billion and allege that a host of other factors — proximity to shipping routes, an educated workforce — can be as important as tax breaks, or more so, in decisions about new development.
“Nothing is free,” said Mike LaFaive, who studies fiscal policy for the libertarian-leaning Mackinac Center for Public Policy. He says tax breaks mean “less money for pensions, for schools, police, and fire.”