Nov. 22, 2024 | This Week in Government: House Democrats Float Closing Dark Store Tax Break in Waning Days of Trifecta

With House Democratic leadership declaring limitless possibilities for the lame duck session, some House Democrats are hoping to use the final month of the Democratic trifecta to close a tax loophole commonly used by retail corporations.

The tax loophole, known by critics as the dark store loophole, is commonly used by big box stores to lower the amount they pay in property taxes.

The argument stores use is that the sale prices of vacant and shuttered properties, or ‘dark stores’, should be considered in determining the property tax of their fully functional operational stores. Retailers say this tax treatment, which dates to the aftermath of the Great Recession in 2008 that hammered property values, is critical these stores being able to operate.

“Using this theory, a big box store like Costco or Menards, could be a $20 million, brand new investment in the community, ends up being taxed the same as a shuttered Kmart, and pays less per square foot in taxes than every small mom-and-pop shop around the state,” Rep. Julie Brixie (D-Okemos) said. “Retailers all over Michigan are using this loophole to avoid paying billions of dollars in property taxes that directly support our schools, local communities and the services that we rely on every day.”

Brixie also discussed deed restrictions on vacant properties, which prevent empty big box stores from being sold.

“They create blight, ultimately, in all of our communities because these giant stores are designed for big box use,” she said. “In addition to the reduced revenue from municipalities, Michigan law allows, through the tax appeals process, a three year look back. So, local governments are sometimes on the hook for refunding years of taxes to stores like Meijer or Walmart.”

The result is that communities are left with giant holes in their budget, which often must be addressed by slashing public services, Brixie said. The lost revenue due to this loophole is estimated at more than $2 billion.

To combat this, Brixie and Rep. Jenn Hill (D-Marquette) introduced HB 5865 and HB 5868, which would prohibit tax assessors from using vacant stores with deed restrictions as comparable real estate for open and operating stores. It would also prevent the Tax Tribunal from allowing dark stores with deed restrictions as a reason for functional obsolescence and require petitioners who have appeals before the Tax Tribunal to provide appraisals at the time of filing their appeal.

“We’re going to make them put skin in the game,” Hill said.

Neither bill has received a hearing in the House Tax Policy Committee since their introduction in January June. Bills on the same subject (SB 19 and SB 20) also have gone nowhere in the Senate since their introduction in early 2023.

Ashley Winstead, the assessor for Meridian Township, talked about the effect of the dark stores tax treatment on her community. She highlighted a Meijer renovation a few years ago that resulted in a $2 million cut to the township budget.

“Their appeal also cost Okemos schools more than $130,000 to resolve the multi-year appeal,” she said.

Several other local officials provided examples of how the loophole has harmed their communities. Shane Peters, superintendent of Richmond Public Schools, said that due to a settlement with the Indiana-Michigan Power Company, his district has to decide how to cut between $1.2-$1.8 million from its budget. Similarly, Deb Mikula, executive director of the Michigan Library Association, said that libraries across the state have been affected by the dark stores loophole. She highlighted the Peter White Library in Marquette, which has lost $37,500 annually since a 2015 appeal from Lowes, resulting in the library being closed on Sundays.

Hill talked about how the library closure affects her constituents.

“It’s forced our leaders to reallocate and reassess vital funding to ensure that we’re able to stay above water,” she said. “We know these programs and services are critical. They help with job services at the library. It also functions as a shelter from the cold for some of our homeless people during the day. These are entirely unnecessary cuts… that eliminate the supports that allow our families to succeed and thrive.”

Brixie defended the legislation, saying it was different from the tax breaks lawmakers recently passed for data centers.

“Data centers are coming in, and they’re asking for a difference in tax treatment, and you know what you’re giving them at the front end of it,” she said. “The problem with big box stores is that they’re heavy users of services… They call the police on a daily basis to get people that they believe are shoplifting or trying to commit other crime… you have people with health emergencies… so they are using the governmental services in a very heavy way, and yet they are not paying their fair share.”

Hill added that closing this loophole would also prevent energy facilities, such as nuclear plants and wind farms, from doing the same thing.

“This is a new approach that can meet and develop a new legal process for not allowing these corporations to come and literally take tax dollars out of people’s hands,” she said.

Brixie said there are several members of the Democratic Caucus who want to see the legislation passed. There are also several groups, including the Michigan Education Association, school boards and school superintendents, who are supportive.

Similar legislation has been introduced in previous sessions without success. Because of that, Brixie said it’s critical to pass the bills now, while the Democratic trifecta is in place.

“We have a Democratic trifecta for a few more weeks here to help enact legislation that aligns with our ideals,” she said. “We haven’t had that before.”

Michigan Republican Party Chair Pete Hoekstra is President-elect Donald Trump’s nominee for U.S. ambassador to Canada, Trump’s transition team announced Wednesday.

If confirmed by the U.S. Senate, Hoekstra, who served as ambassador to the Netherlands in Trump’s first term, would be the first Michigander appointed to the Canadian position since former President Bill Clinton named former Gov. Jim Blanchard to the post in the mid-1990s.

“Pete is well-respected in the great state of Michigan – a state we won sizably,” Trump said in a statement.

Hoekstra departing his position within the state party for an ambassadorship would mark the end of a short but productive tenure, which began in internal tumult and capped off with a wave of Republican victories in the general election. If he’s confirmed, both major parties in Michigan would see new leadership at the helm beginning in 2025.

Hoekstra initially after becoming chair said he was not intending to seek a full term in 2025 but following a mostly successful 2024 election signaled he was thinking about it but also would serve where Trump thought he could help most.

Prior to becoming chair of the MIGOP, Hoekstra represented a U.S. House district along the Lake Michigan shoreline from 1993-2011 and chaired the House Intelligence Committee.

Trump said Hoekstra would further his agenda of aggressive changes to American trade policies in the pattern of Trump’s first-term replacement of the North American Free Trade Agreement, NAFTA, which he called “the worst trade deal in the history of the United States.”

“I overhauled the disastrous NAFTA Agreement, the worst trade deal in the history of the United States, which was switched to the U.S.-Mexico-Canada Agreement, which no one thought could be done. We brought trade with Mexico and Canada to a level playing field for our wonderful farmers and working families,” Trump said in his announcement of Hoekstra’s nomination. “In my second term, Pete will help me once again put AMERICA FIRST. He did an outstanding job as United States Ambassador to the Netherlands during our first four years, and I am confident that he will continue to represent our country well in this new role.”

Hoekstra did not immediately respond to requests for comment Wednesday evening.

“Honored for the opportunity to serve. Thank you, Mr. President!” Hoekstra said in a post on X, formerly known as Twitter.

Blanchard praised the appointment and noted the importance of the role.

“It’s one of the best public service appointments anywhere,” he said in an email when asked about the appointment. “It’s good that Pete is close to Trump and experienced with Congress and the State Department. It’s one of our busiest embassies. You get to deal with every issue, foreign and domestic and in a beautiful country too.”

Congratulations poured in from Republicans across the state for Hoekstra.

U.S. Rep. Bill Huizenga (R-Zeeland), who succeeded Hoekstra in the U.S. House, said Hoekstra “is an excellent choice to strengthen our relationship with our neighbor to the north,” noting the important ties between Michigan and Canada in manufacturing and the Great Lakes.

Senate Minority Leader Aric Nesbitt (R-Porter Township) called the nomination “a truly deserving appointment for a man who has been continuously dedicated to putting America First and who helped deliver Michigan for President Trump.”

House Minority Leader Matt Hall (R-Richland Township) called the nomination an “excellent choice” in a post to X.

“Pete delivered Michigan, is an America first warrior and he will be a fantastic ambassador for (the U.S.) in this new role,” Hall said in the post. “President Trump and Pete will always fight for our forgotten farmers and working families.”

Economic growth will continue for the next two years but without much improvement in hiring nor on prices, according to a closely watched economic forecast issued Thursday by the University of Michigan’s Research Seminar in Quantitative Economics.

Economic growth will slow from 2.4% in the fourth quarter of 2024 to 1.9% in the fourth quarter of 2025.

Anticipating President-elect Donald Trump and the incoming Republican majorities in Congress will pass tax cuts, the forecast anticipates growth to increase in 2026, reaching 2.5% in the fourth quarter of that year.

But on jobs, prices, housing, and domestic auto production, the news was less rosy, if not alarming.

U-M’s forecast projects the national unemployment rate to rise from 4.2% in the fourth quarter of this year to 4.4% in 2025 and then fall back to 4.2% by the fourth quarter of 2026. It projects the United States will see 1.5 million new jobs in 2025 and another 1.3 million in 2026.

Forecasters said the labor market is looking less worrisome than in early September, when the national unemployment rate had jumped 0.4 percentage points between April and July. The rate has since fallen back to 4.1% as of October, and forecasters said they are “expecting a significant rebound in employment growth in November.”

Nonetheless, there appears to be a slow upward trend in unemployment, U-M economists said.

The news on inflation was also suboptimal. The year-over-year core consumer products index inflation rate has been about 3.3% since June while the three-month annualized core inflation figure, which dropped from 4.5% to 1.6% in July, is back up to 3.6% as of October.

“Progress on bringing trend inflation down, very evident between late spring and mid-summer, has sputtered recently,” the forecast says.

The forecast says the manufacturing sector continues to struggle, with the Institute for Supply Management’s index showing contraction in all but one of the last 24 months.

“We are hopeful that this manufacturing downturn will end soon,” the forecast says. “Most manufacturing outlook surveys conducted by regional Federal Reserve banks show a marked improvement in 6-month ahead expectations.”

One of the reasons for manufacturing weakness is key for Michigan – stagnant light vehicle sales. The average for this year stands at what U-M called “a disappointing 15.6 million units. Forecasters blamed “poor affordability due to high vehicle finance interest rates.”

Overall, forecasters said the state of the economy is difficult to interpret.

“We believe that the dynamics of the labor market support continued solid consumption expenditure growth in the current quarter,” the forecast says. “High interest rates and post-election policy uncertainty could weigh on some sectors. Although we forecast the labor market to continue gradually cooling off through the first half of next year, we believe that the Fed’s pivot to looser near-term monetary policy will filter through the economy over time, helping to sustain the ongoing business expansion over the next two years.”

Supporters of a law to increase the state’s minimum wage and phase out the lower minimum wage for tipped workers said Wednesday they want the Legislature to let the law take effect, while opponents said the group does not represent many workers who opposes their efforts.

Organizers billed the event as a “public rally” but fewer than 10 people attended.

Speaking outside Cadillac Place in Detroit, One Fair Wage interim Michigan organizer Sam Taub told reporters that the Democratic legislative majority should allow the minimum wage law to take effect in February 2025.

“We are urging our legislators to maintain the promise that they made to us through this ballot measure,” Taub said. “We are asking them to keep the promises they’ve already made to us.”

The Michigan Supreme Court in July ruled that two voter-initiated measures were unconstitutionally adopted and amended in 2018, including one involving worker wages and mandated paid sick time (See Gongwer Michigan Report, July 31, 2024).

Under the court ruling, the tip credit will be completely phased out to the full minimum wage by February 2029, while the minimum wage would be $12 per hour plus the inflationary adjustments made by the state in February 2028. Mandated paid sick time for workers is also enacted under the ruling.

The response to the ruling has been divided.

Several unions have urged the Legislature to let both laws take effect (See Gongwer Michigan Report, Sept. 18, 2024). Hospitality workers at multiple events and rallies have said they could lose their jobs or see wage losses under the law change. Republicans have echoed these concerns.

John Sellek, spokesperson for Save MI Tips, a group opposing the minimum wage law changes, said the efforts of One Fair Wage do not have popular backing from workers.

“After seeing yet another sparsely attended press conference, One Fair Wage appears to be nothing more than a dark-money funded PR front with practically no visible support from the workers they claim to speak for,” Sellek said. “Things are so bad for One Fair Wage that more than 700 tipped workers rallied against their policies on Michigan’s Capitol lawn, and then on election day a whopping 64% of voters in deep-blue Massachusetts rejected OFW’s attempt to bring Michigan’s new tipping laws there.”

Dave Woodward, senior adviser for One Fair Wage, said businesses in other states have been able to absorb the changes and continue to successfully operate.

“When they say the sky is going to fall, they’re just wrong,” Woodward said. “It has not been the experience in states where this actually has been in effect.”

Woodward also pushed back on the events and rallies held by opponents.

“The same lobby that schemed with the Republican Legislature to adopt the law and then wait until after the election and then gut the law … they’re the ones that are paying their servers to lobby lawmakers to protect their corporate bottom line,” Woodward said.

Sen. Stephanie Chang (D-Detroit) told reporters she was supportive of the law change.

“This is something that we should let go into effect,” Chang said. “If there are tweaks that can be made later down the line … we can look at that later.”

When asked how united the Senate Democratic Caucus is on the minimum wage issue, Chang said: “there’s a range of opinion.”

Woodward and Chang were asked if potential minimum wage law changes could become a bargaining chip during the lame duck session for other policies such as economic development legislation.

Chang said it was too early to know but she believed there are many Democrats who want the law to take effect. Woodward was against the possibility of a trade-off on policy.

“Democrats cannot be lowering wages of workers in exchange for corporate welfare,” Woodward said.

Legislative leadership since the high court’s ruling have been silent on what, if anything, they plan to do ahead of the implementation of the laws.

Sellek in his statement said there is bipartisan support for changing the law before it takes effect.

“Anyone who says this is a partisan issue is misreading the public,” Sellek said. “It is simply an economic issue and that is why more Democrats every day tell us they want to fix this.”

Taub said food prices and restaurant costs are going up everywhere, but it is not reflected in wages.

“Something has to give,” Taub said. “People aren’t making enough money to survive.”

Not-seasonally adjusted jobless rates rose in 15 of Michigan’s 17 labor markets in October, which the Department of Technology, Management and Budget called modest advances in date released Thursday.

Regional jobless rates in the state ranged from 3.6% to 5.7% last month, with a median rate increase of 0.2 percentage points, data showed. The largest over-the-month increase happened in the Monroe metropolitan statistical area, while unemployment rates were unchanged over the month in the Battle Creek and Upper Peninsula regions.

All 17 regions showed jobless rate gains over the year, with a median rate increase of 0.9 percentage points. The Monroe area had the largest over-the-year rate gain of 1.4 percentage points.

“Michigan regional labor markets exhibited modest jobless rate advances during October,” said Wayne Rourke, labor market information director for the Michigan Center for Data and Analytics, in a statement. “However, payroll jobs and labor force levels rose considerably in most Michigan regions over the year.”

Total employment was down over the month, but up over the year, the data showed.

Fifteen labor markets had employment decreases over the month with a median employment reduction of 0.7%. The Northeast Lower Michigan region had the largest over-the-month employment decrease at 2.6%.

Meanwhile, 10 regions had gains in the number of employed residents over the year, with a median increase of 0.6%. The Lansing metro area had the largest over-the-year employment increase, but six regions had employment reductions over the year. The number of employed residents remained unchanged in the Muskegon MSA since October of last year.

Regional labor force levels were down over the month but up over the year, DTMB reported. Labor force levels fell in 14 regions over the month with a median decrease of 0.6% – the largest reduction in the Northwest Lower Michigan region at 2.2%. Fourteen of Michigan’s regions had labor force gains over the year with a median increase of 1.2% – the largest of which occurring in the Lansing MSA at 2.6%.

Regional payroll employment advanced last month, but county unemployment rates were up over the month and year. A survey of employers showed not-seasonally adjusted jobs rose by 13,000 (0.3%) over the month, and increase in government, private education and health services were partially offset by a seasonal drop in the state’s leisure and hospitality sector. Payroll jobs rose in 10 metro areas over the month leading with the Lansing MSA at 2%.

That said, 71 counties had unemployment rate gains over the month with a median increase of 0.3 percentage points; 82 counties had jobless rate advances when compared to October 2023.