Caterpillar and Jimmy John's may leave Illinois. Should Michigan recruit them?

Posted on April 25, 2011

“I received hundreds of e-mails from people telling us to go contact” Caterpillar and Jimmy John’s and convince them to relocate to Michigan, Finney said this morning at a University of Michigan conference on clean energy manufacturing.

He concluded: “The likelihood that that will result in success is virtually zero because every other state and every other economic developer is going to go do the same thing.”

In the end, Finney says, “What the state of Illinois is going to do is they’re going to create some kind of customized incentive to keep those companies there.”

And we’ll be left staring at Caterpillar’s Feller Bunches and Jimmy John’s Bootlegger Club and wondering what could have been.

Finney, former CEO of Ann Arbor SPARK, said the typical economic development strategy of “hunting” for companies is flawed. He said a simpler and lower overall business tax rate — which Gov. Rick Snyder has pitched as part of his budget proposal— is a more effective strategy of boosting the economy because it benefits all companies.

Among the many criticisms of Snyder’s budget is that the decision to slash most of the state’s business tax credits would disarm Michigan in the economic development race to lure expanding companies.

One of the key sectors that has benefited from Michigan’s previous tax incentive strategy is the battery industry. Companies like Johnson Controls, Dow Chemical, A123Systems and LG Chem are all involved in projects to construct battery plants inside the state’s borders and hire thousands of workers.

Would those battery companies have picked Michigan for their expansions without the hundreds of millions in tax incentives the state handed out?

Hard to say. Perhaps they would have located here because of Michigan’s strong manufacturing base and proximity to the auto companies that are pursuing the electric vehicles that use lithium-ion batteries.

Or maybe they would have picked other states, choosing to chase the best tax incentive package.

Regardless, Finney believes that maintaining an “extreme level” of incentives — such as that Michigan previously favored — is not sustainable.

In the aftermath of Illinois’ decision to raise business taxes and income taxes, at least two major companies — construction equipment manufacturer Caterpillar and sandwich shop chain Jimmy John’s — reportedly threatened to move their headquarters out of Illinois.

Should Michigan try to recruit them?

Michael Finney, CEO of the Michigan Economic Development Corp., says no.

Instead, Snyder has proposed a capped pool of $75 million in annual incentives — including $25 million for the film industry, which has vociferously opposedSnyder’s proposal.

Finney said MEDC would use that capped pool of incentives to be “opportunistic.” But, in general, he said MEDC is focusing more on building programs to provide grassroots services to entrepreneurs, attracting talent to return to Michigan and providing resources to Michigan’s existing companies.

“We will chase companies where it’s strategically important,” he said.

Nonetheless, he decries the “one-upsmanship” that defines the U.S. economic development game, in which states compete to offer the most aggressive tax incentives in an accelerating race to the bottom.

“Everybody seems to be doing the same thing,” Finney said, though “it is effective in some instances.”

But, he added, “I don’t consider that terribly innovative.”

By Nathan Bomey,