CHICAGO - Gov. John Engler of Michigan has signed into law legislation allowing cities to use income tax revenues to back bonds issued for projects to attract U.S. Defense Department jobs.

The legislation was created to increase the chances for Michigan cities to be chosen by the Defense Department as consolidation sites for its finance and accounting operations.

But the only city the law would benefit is Saginaw, which was recently named one of 20 cities around the nation to be considered as one of the sites. Seven Michigan cities, including Detroit, and 120 communities across the nation submitted proposals for consideration.

Joe Turner, Saginaw's economic development specialist, said the law would enhance the city's proposal. "We're glad. It will certainly benefit our access to cash flow," Turner said. He declined to discuss specifics of Saginaw's application until after Jan. 4, when the city's final proposal will be submitted to the Defense Department.

The department is expected to pick a shorter list of finalists in March 1992, according to a Defense Department spokeswoman.

Officials in several Michigan cities estimated that the final list would include between four and six cities.

The Defense Department earlier this year solicited incentive packages from communities across the country hungry for the economic boon that many local officials expect from the centers. Each of the consolidation centers would provide a community with between 4,000 and 7,000 jobs, paying an average salary and benefit package of $35,000 a year, according to the Defense Department.

In exchange for locating thousands of jobs in the chosen communities, the federal government expects to receive office facilities at a low cost, according to the request for proposals.

Sen. Phil Arthurhultz, R-Whitehall, chief sponsor of the legislation, said the law allows local bonding authorities to issue bonds backed by revenues from the state's 4.6% income tax, and if applicable, city income taxes collected from employees at the proposed Defense Department facilities.

The bond proceeds could be used to build local facilities for the Pentagon's finance and accounting operations. Sales tax or property tax proceeds from the community could also be used to back the bonds, Arthurhultz said.

Arthurhultz created the legislation to assist Muskegon, Mich., a city in his district that had submitted a proposal to the Defense Department.

In a related development, Detroit and Wayne County officials said they will try to put Detroit back on the list for consideration as a consolidation site, according to John Gorman, spokesman for U.S. Rep. John Conyers, D-Mich.

Earlier this month, city, county, and congressional officials said the Defense Department's criteria was skewed away from urban areas.

Gorman said the Pentagon's site criteria included quality-of-life measures such as low unemployment and crime, and high percentages of high school and college graduates.

Detroit and Wayne County officials will appeal the decision and lobby President-elect Bill Clinton to get Detroit back on the list, Gorman said.

In addition, Conyers and Rep. Dennis Hertel, D-Mich., sent letters to Defense Secretary Richard Cheney, urging him to stop the site selection process and leave the decision to Clinton and the new defense secretary.

John Truscott, spokesman for Gov. Engler, said the governor has accepted the Defense Department's decision and at this time does not intend to lobby to get Detroit reconsidered.

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