Fiat Chrysler must invest an additional $1 billion in Michigan by 2029 to receive the maximum amount of state tax credits it is entitled to under a modified agreement approved by a state board today.
The Michigan Strategic Fund board amended the state’s tax credit agreement with FCA under the Michigan Economic Growth Authority. The amendment limits the value of tax credits issued to FCA through 2014 that it can claim at $1.7 billion. The Michigan Economic Development Corp. estimated FCA’s credits had risen in value from an initial $1.3 billion in 2010 to nearly $2 billion.
"The amended tax credit agreement with the MEDC provides greater economic certainty for all parties, caps the value of tax credits FCA US can claim, and requires the Company to make an additional $1 billion capital investment over the remaining term of the Global MEGA Tax Credit," the company said in a statement today.
"FCA US, which has invested more than $4 billion in Michigan and added nearly 15,000 new jobs since 2009, does not have any future investment plans to announce at this time."
The MEGA tax credits, implemented in 2010, were aimed at keeping FCA, then known as Chrysler Group, along with General Motors and Ford Motor Co. in the state as the economy and auto industry were reeling from the recession. The Detroit automakers were promised tax credits of about $4.5 billion through 2031 if they retained about 86,000 jobs in the state.
Though the automakers stayed put and invested in facilities, Michigan faced a $289 million budget shortfall this year thanks in part to the MEGA tax credits, sending policymakers scrambling to curb costs.
The FCA amendment “does not increase the State’s liability under the MEGA,” a Strategic Fund memo reads. “In fact, the amendment would serve to limit and even reduce the State’s costs and provide more certainty with its long term obligations to FCA under the Global MEGA Tax Credit.”
FCA agreed to reduce the term of the MEGA tax credit agreement by two years, although it will be allowed to collect on the amount of tax credits it would have been eligible to earn in 2030 and 2031.
The maximum number of jobs FCA can count toward the tax credit rises under the amendment from 21,000 this year to 27,000 in 2029.
In return, FCA must invest an additional $1 billion in Michigan through 2029 on top of the $3.3 billion it had promised.
The amendment sets limits on the tax credit value FCA can claim each year and will allow the automaker to “bank up to $25 million in excess tax credits” each year beginning in 2015 that it can claim in the future.
FCA also must agree to provide to the state “periodic forecasts” of the tax credits it estimates it will earn in order to aid Michigan policymakers with budgetary planning.
The FCA amendment is the second major attempt to limit the tax credits’ costs. Ford agreed in June to invest an additional $3.1 billion in Michigan by 2025 to be eligible for the maximum amount of tax credits it was entitled to.
Michigan Gov. Rick Snyder, in a statement, said: “Today’s agreement with Fiat Chrysler is an essential step in helping us better manage our state budget, while finding common ground that will ensure the company will continue to invest and create jobs in our state for years to come.
"We appreciate FCA for their continued partnership and willingness to help us provide greater economic certainty as we work to keep reinventing our state’s economy."