On Wednesday the city of Flint, Mich., will consider renewing a tax exemption for General Motors Co. (NYSE:GM) to build a $124.5 million paint facility at its existing assembly plant.
North America’s largest automaker is expected to bring in $5.6 billion in profit this year but has $60 billion in short-term liabilities and $26 billion in cash on hand as of July. GM is asking the city to issue a new Industrial Facilities Exemption Certificate under the state of Michigan’s program to encourage industrial expansion.
According to local news site mlive.com, Flint granted the certificate, good for three years, in June 2011, but GM delayed the plan to expand its local assembly plant and wants a new certificate because the current one expires by the end of next year. At the time GM said the expansion would create 50 jobs in the city where the company was founded in 1908.
The certificate would reduce GM’s tax burden by 50 percent, reducing the city’s cut to about $2 million. Cities and states routinely issue incentives for corporations to build locally, creating a temporary boost in construction activity and longer-term jobs that help local economies. But Flint’s relationship to General Motors is more profound. It was the subject of the 1989 Michael Moore documentary “Roger & Me” about the devastation left behind when GM closed several Flint-area plants in the 1980s, laying off tens of thousands of people.
Flint, about 70 miles north of Detroit, has never fully recovered from the loss. The city still has an emergency manager and is mulling raising income taxes to help generate $7 million more in revenue to address a projected annual deficit of about $3 million annually by 2015. The city is also paring down its budget to the tune of about $1 million a year from 2014. The city will vote on the tax measure in November.
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Meanwhile, Flint endures an unemployment rate of around 10 percent – so it needs those 50 extra GM jobs as well as the ancillary economic activity a factory expansion would provide. Flint is also seeing its property values continue to fall, and city officials have said they need to invest in projects like blight eradication and improving schools to reverse the long downward trend.
It’s a tough call for Flint. If the city demands GM stick with paying $4 million instead of $2 million, the company could decide to paint its cars elsewhere. GM will release its third-quarter results on Oct. 30. Analysts polled by Thomson Reuters expect GM to report $1.6 billion in profit (93 cents per share) on $39.5 billion in revenue. GM has collected nearly $4.8 billion in profit in the previous four quarters.