CHICAGO -- Ypsilanti Township in Michigan has filled suit against General Motors Corp. claiming that the gaint automaker cannot close an assembly plant because the township granted personal property tax abatements for the facility.
The lawsuit, filed April 29 in Washtenaw County Circuit Court, charges that General Motors has a contract with the township in which the automaker agreed to retain 4,900 jobs at its Willow Run assembly plant in exchange for a 50% tax abatement.
General Motors announced in February that it was closing five automotive plants in the state employing 9,100 people, including the Willow Run plant in Ypsilanti Township. That action led Standard & Poor's Corp. to place the Ypsilanti Township Building Authority's outstanding debt on Credit Watch with negative implications.
General Motors applied for and was granted abatements on $250 million of capital improvements the company made at the plant in the 1980s, according to Wesley Prater, the township's supervisor. Those abatements are scheduled to expire by 2003, Mr. Prater added.
"We believe that under Michigan law we have a legal and binding contract," he said.
General Motors contends the lawsuit has no merit, according to Nettie Seabrooks, a spokewoman for the company. She said there is nothing in the state's tax abatement statute that "requires or guarantees a certain level of employment for a certain number of years' in exchange for an abatement. She added that the company lived up to its end of the agreement by making the $250 million investment in the plant.
"Only the market can determine how long we keep our facilities open," she added.
But Doug Winters, the township's attorney, pointed out that tax abetments, which were granted under a 1974 Michigan law enacted to encourage investment in older, industrial facilities to retain or create jobs, are binding on governments.
"If [a government] thinks it was a bad deal, too bad," he stated. "If it's binding on us, I don't know why it would not be binding on the other party."
General Motors has moved the case to U.S. District Court in Detroit, claiming the case raises federal issues because it "seeks to interfere with employee benefit plans protected by federal legislation," Ms. Seabrooks said.
She explained that the lawsuit wants the company to keep the plant open and stop offering retirement and buyout packages to employees there. Disagreeing with the company's contention, Mr. Winters said he has filed a motion to move the lawsuit, which he said was the first of its kind to challenge the actions of a recipient of a tax abatement in Michigan, back to the circuit court.
Mr. Prater said the tax abatements have cost the township and all the impacted taxing districts in Washtensaw County, including the county itself, a total of $13.5 million to date.
Curt Hedger, an attorney for the county, said the county board has agreed to intervene in the suit because it also lost money due to the tax abatements and would be impacted financially if the plant is closed. The township has also asked the Michigan Attorney General's office to join the suit. A spokeswoman for the attorney general said yesterday a decision has not been made.
Mr. Winters said the lawsuit is not intended to get General Motors to return the abated tax money, but to keep the plant in operation.
In March, Standard & Poor's placed Ypsilanti Township Building Authority's $1.1 million of A rated general obligation debt and $820'000 of A-minus rated limited tax debt on CreditWatch with negative implications, citing the fact the plant is scheduled to close next year. The rating agency also placed $1.5 million of BBB-plus rated Ypsilanti Community Utilities Authority debt on CreditWatch.
Mr. Prater said if the plant is shut, the township would lose about $580,000 in property tax revenues a year that are used for township police, fire, and library services, as well as for paying "a little bit" of debt service. However, he pointed out that revenues from district court and utilities services for which the bond proceeds were used, as well as anticipated assessment growth in other parts of the township, are sufficient to cover debt service.
"It's a problem," he said, referring to the potential for lost revenue. "But we can do it. We'll be operating lean."