Renaissance Zones a New Fashion in Michigan

Article excerpt

If you didn't have to pay taxes would you build a business in a blighted inner city or a remote rural area? If you already had a business there would you expand it and create jobs? Would you move your family there? Would you spend your tax break there?

Michigan is betting the answer is yes to those questions with an aggressive plan that will eliminate property and income taxes not only for established and new businesses, but for the people who live in impoverished areas of the state. Up to eight "renaissance zones" will be approved from local applications under legislation passed in the Senate and backed by the governor (the package is expected to be enacted by May). Residents and businesses of new renaissance zones will pay only federal taxes, local sales taxes and taxes tied to bonds already issued. Loss of existing school taxes will be reimbursed through state general funds.

The legislation (a package of 18 bills) allows eight zones, five in urban areas and three in rural areas. Any city or county can apply for one or more of the tax havens, which can cover up to eight square miles. Supporters say the plan's strength is that the local community decides how and where to use the tax-free zones. It is up to local officials and residents to pick an area -- commercial, industrial or residential, or any combination -- and decide if they wish to apply. Winners will be selected by a state panel later this year. The tax exemptions will start on Jan. 1, 1997, and run for up to 15 years.

Senate Majority Leader Dick Posthumus, a lead sponsor of the far-reaching enterprise legislation, calls the plan "a bold experiment." He says the tax breaks will economically strengthen blighted areas by reducing the cost of doing business and living there. "By injecting the power of the free market into our depressed neighborhoods, renaissance zones will help people in these areas help themselves."

The savings will be significant. A typical family with a home worth $70,000 and annual income of $60,000 would see its tax bill drop by $5,378, according to estimates by the Michigan Department of Treasury. A small business with a plant worth $250,000 and grossing $500,000 could save more than 8,000 a year. A business with 50 million in revenue in a building worth $3 million would save more than 660,000.

Enterprise zones have had mixed results around the country because companies often have set up operations inside the zones to save money on taxes, but bring workers in from other more affluent neighborhoods. Studies have found that as few as 15 percent of the workers in some enterprise zones actually live there.

We're going way beyond what any other enterprise zone has ever done," Posthumus says. "It is not an end-all answer, and it is not going to solve every problem, but I think this is the boldest attempt to reinvigorate our cities that has been tried anywhere in the country.

"If it works, you'll see a number of states begin to adopt it," he predicts.

Michigan Senator Spencer Abraham already has introduced federal legislation that would create a 10-state pilot program to waive federal taxes in similarly constructed renaissance zones.

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