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Flint's fight to the finish; GM was trying to KO Honda and Toyota. It wound up in a courtroom with Flint and Saginaw.

GM was trying to KO Honda and Toyota. It wound

up in a courtroom with Flint and Saginaw.

"They don't want to be raped anymore," says Michael Shapiro, his voice tight with anger"They are saying, 'You raped us before, but you can't do it anymore. There will be no more raping.' "

Shapiro's plan for rape prevention does not include better street lighting, quicker police response, or karate lessons for women. His particular brand of jujitsu is practiced in a courtroom, not on a wrestling mat. And the "rape" victims he's talking about are some of the largest corporations in Americaincluding the giant General Motors Corporation.

For the past six years, Shapiro has been suing Michigan cities and townships on behalf of the nation's number one automaker, demanding dramatic cuts in property tax payments. GM is issuing tax challenges in 20 Michigan communities, protesting the tax on 36 of the 65 manufacturing and warehouse facilities that it operates in the state. In doing so, the company is locking horns with local governments in battles that will cost millions of dollars and involve some of the best legal talent money can buy.

GM isn't the first Michigan company to sue for lower taxes. In 1983, Shapiro won a $32 million judgment for Ford against the city of Dearborn, and he has also sued the city of Portage on behalf of the Upjohn pharmaceutical company. GM itself has filed similar suits against cities in Ohio and New York. But it's unprecedented for a company like GMwhich has long been the anchor of the Michigan economy-to dispute the values of so many properties in so many different parts of a state that has served as its home for 75 years.

The stakes in these cases, which often take years to complete, are enormous. If GM wins, it receives an annual reduction in its property tax bill and a hefty refund-plus interest-for excess taxes paid in years past, dating back to the first year the appeal was filed. The city of Flint, for example, could wind up owing GM as much as $70 million if the company wins in court. The city of Pontiac could get hit with a bill of more than $50 million.

Numbers like those tend to get people's attention, and Michigan Treasurer Robert Bowman has taken the unusual step of providing state funds to local communities to help finance their legal battles. Because GM has vastly superior resources, he says, cities and townships might not have had a fair chance to present their case without some outside help.

"We had a philosophical concern-that money should not buy justice," Bowman says. A former Wall Street whiz kid who served in the Carter Treasury Department and played a key role in rescuing Chrysler from bankruptcy, Bowman is not especially comfortable in the role of corporate critic. Stepping gingerly around GM, he says he has no firsthand information but that he's been told that the company's strategy is "to drag these things out, churn out billable hours, until the commununity cries uncle.

"We do want a fair fight," he says, "and you don't have to be an MBA to see that it wasn't going to be a fair fight."

GM's effort to slash its taxes comes at a particularly bad time in Michigan because the company has also been cutting back its work force due to increased foreign competition and a loss of market share to domestic rivals Ford and Chrysler

In November 1986, GM announced plans to close 11 factories, and six of them were in Michigan. The company laid off a total of 29,000 workers, 17,000 from its home state. Since then, the news from GM has offly gotten worse. Bauered by a 20 percent drop in sales between 1985 and 1987, and an ever-shrinking market share, the company has aggressively pursued a policy of planned shrinkage, announcing more and more layoffs. Exacerbating the resentment of Michigan residents, GM has expanded its overseas operations in South Korea and Mexico. As of April 1987, according to The Detroit News, no fewer than 50,000 Michigan workers had been told that they would no longer be GM people by the end of 1989.

Nearly 30,000 of the GM layoffs announced so far in Michigan have taken place along the so-called "1-75 strip," an industrial belt that stretches from the northern Detroit suburbs, past Pontiac, then Flint, and up to the mid-Michigan cities of Saginaw and Bay City.

Flint used to be GM's flagship city. These days, it is a picwre of urban decline, a city of abandoned homes and boarded-up stores. Its last major development was a theme park called "Autoworld." Envisioned as a celebration of the American automobile, the park opened in 1984 with the help of $25 million in public funds. A million people a year were expected to pay $9 a head to see rides and movies about cars in one of America's great car cities and also to walk along a replica of downtown Flint before all the stores got boarded up. The expected visitors never arrived and it closed six months later. Flint city officials are still racking their brains to find someone to take it off their hands.

As it happens, Flint, Pontiac, and Saginaw-three of the cities hit hardest by GM layoffs-are also three of the biggest targets of GM's property tax appeals. Saying they feared high interest penalties if the city lost, Saginaw officials agreed to give the automaker a 31 percent tax reduction over three years. Flint and Pontiac are still planning to fight GM in court. These industrial cities find themselves in a very unhappy predicament: at the same time that GM layoffs have added to the need for public services, GM's tax appeals raise the prospect of slashed revenues.

Michael Shapiro says that's not his pr"My focus," he is on each individual case, to make sure my client is paying the right amount of tax. . . .That's all I can focus on."

In an ageof corporate belt-tightening and industrial decline, the Michigan tax battle is an important symbol of how corporations and communities too often fight one another instead of working together on issues that might be of mutual benefit.

Delta's bare backside

GM officials argue that local governments have been setting their property taxes too high since as early as the 1960s. The cumulative effect of a series of small overcharges, they say, is a whopping overassessment. But for years, the tax staff in Detroit couldn't convince local plant managers to confront the problem. "People who were operating local plants felt it was more important that they not impair relations with the local community," said Michael Mack, GM's director of state and local taxes, "which would certainly happen when they started filing appeals."

In 1981, however, the company posted a $762 million operating loss-die first time in GM's history it had ever failed to make a profit. The company's internal calculus changed, and the conflict between the need for good relations with the community and the need to cut costs grew sharper. "Corporate management issued a directive," Mack said, "directing all units and operations to look for every possible way to cut costs." The property tax situation, he says, immediately "came to mind to those of us on the tax staff."

Mack said it was hard to convince local managers to go along. "We had to show that the cost savings would be worth the difficulty that this kind of thing poses," he said. Whether or not the local managers are convinced is hard to know, since GM won't allow its local plant managers to talk to the press about tax appeals.

Once Mack and his fellow tax staffers were released from internal constraints, they began to take on the local governments that had been frustrating them for years. In 1982, appeals against seven communities were filed with the Michigan Tax Tribunal and thrown out on technicalities. Seven appeals were filed again in 1983 and 1984, then 13 more were added to the list in 1985. Had GM won all 20 cases, it would have saved about $50 million a year. For a company that made $3.5 billion in 1987, that's the equivalent of a week's profits.

GM's tax battles are part of a national trend, says Rich Alney, director of the Chicago-based International Association of Assessment Officers. In recent years, he says, there has been a fundamental change in the way corporations relate to the communities in which they do business. "It used to be that large corporations were reluctant to vigorously appeal assessments," he says, because they felt the y should support local government to the fullest extent possible. But in the grueling global marketplace of the 1980s, he says, "more and more businesses are looking at their assessments with scrutiny," a trend he sees reaching far beyond GM and Michigan. In fact, he says "I'm not quite sure how the GM cases got so much publicity."

If GM wins, it will almost certainly lead either to higher taxes for other taxpayers or fewer services-or both. City assessors and the public interest groups that have backed them in their fight against GM say the rise in taxes for a typical homeowner could range from $85 a year in Warren to $363 in Pontiac.

Because of the long delays-which the localities say are caused mostly by GM's refusal to provide them with needed information about the disputed properties-only one case has been heard so far. GM dropped one of the appeals, and nine cities or townships have voluntarily agreed to reduce GM's taxes in order to avoid costly legal battles. That leaves nine communities still fighting GM in court. The Comstock case, first on the list for trial, began on June 13 and is still being argued before the Michigan Tax Tribunal.

Fighting GM in court can be a very expensive proposition. City officials in Flint expect to spend between $3 and $4 million to defend their case. The city of Warren will spend more than $2 million, and tiny Comstock Township has already spent more dian $1 million. Genessee Township has put its legal preparations on hold, hoping that the issues in the case will be resolved by the Comstock and Flint trials "It would cost us $2 million to defend against GM," says William Ayre, the supervisor of Genessee Township. "So either way we lose." Town elders say the first court bathe between GM and its tax-levy ing foes made David and Goliath look evenly matched. "At least David had a slingshot," Ayre has quipped,

"You have a responsibility to be correct in your assessment," counters J. David Hudgens, GM's spokesman. "When someone challenges you, it isn't kosher to say you can't afford to defend it. You've made the assessment, and you'd better be prepared."

In the first case that went to trial, Delta Township, which houses a GM warehouse, was not well prepared, and GM won more than $1 million in back taxes. GM's victory came after a withering crossexamination by Shapiro that completely destroyed the credibility of Delta's single expert witness, an appraiser named Donald Treadwell Jr.

The court record is almost painful to read. As soon as he took the witness stand, Treadwell admitted to a number of mathematical errors in his appraisal report, and it was all downhill from there. Shapiro ran circles around the hapless Treadwell, punching so many holes in his logic and arithmetic that his report was rendered utterly useless. In its September 1986 decision, the Tax Tribunal described Treadwell as "misinformed" and "hopelessly confused '"

"I like to think," Shapiro says, "that I had something to do with that."

During the hearing, Leo Goldstein, the attorney hired by Delta Township, complained about GM's legal firepower. "I look over there and I see half a dozen experts standing around," he told the judges. "llook over here and I haven't got anyone even covering my backside."

In looking for a legal champion, GM chose well. Shapiro is an attorney at Honigman, Miller, Schwartz, and Cohn, a partnership with more than 90 attorneys and offices in Detroit, Lansing, West Palm Beach, and Boca Raton. It is widely viewed as one of the most influential firms in Michigan, with a switch-hitting capability that extends into both political parties. Jason Honigman, the 83-year-old founder of the firm, is a leading Republican fundraiser George S. Romney, son of Michigan's forner GOP governor, is a partner. They keep Democrats in their bullpen, too. Avern Cohn was an important fundraiser for Michigan Democrats before he was appointed to the federal bench by Jimmy Carter in 1979.

Shapiro insists that he is not outspending the cities and townships he is fighting in court, but neither he nor GM will disclose actual figures for legal expenses. One attorney familiar with the case, however, says that Shapiro's time costs $250 an hour, while the lawyers hired by localities are charging in the $100 or $150 range. In the Delta Township case, the township spent $75,000 for legal counsel and for Treadwell, the expert decimated by Shapiro. GM had three experts in that case, and one of them testified he spent between 800 and 1,000 hours developing his testimony. If he was paid $50 an hour-a conservative estimate-that represents an expense of between $40,000 and $50,000 for him alone.

Shaggy dogs and gremlins

Shapiro's success in court doesn't depend solely on his ability to outspend his adversaries. He brings to these cases a real estate appraisal theory based on the argument that aging industrial property in rust belt states isn't worth what it used to be. In many cases, he argues, it isn't worth very much at all.

Real estate assessment is less a science than an art. Subjective judgments are involved in determining the value of a large industrial property. This differs from appraising the value of say, a threebedroom house, where appraisers can simply compare the sale values of similar properties. Unlike houses, big automobile plants don't get bought and sold every day. To determine their value, appraisers calculate the cost of replacing them with new facilities. And if the new facilities would be cheaper to operate, Shapiro argues, then the taxes on the old ones should be reduced.

The attorneys opposing Shapiro in court, however, dispute the way he applies the theory. City and township officials agree that industrial plants can become less and less valuable over time, and gradual reductions in assessments are not uncommon. But in its appeals, GM is claiming that its plants are worth anywhere from 30 percent to 85 percent less than the values they have been assigned on the tax rolls. Okay, say local officials, some of these factories may be dogs-but they aren't that damn shaggy. In Genessee Township, where GM owns an auto parts plant, the company has demanded a $1.2 million reduction in its annual tax bill, which is at present $1.5 million.

The most striking example is GM's assembly plant in Orion Township, a small community outside the city of Pontiac. When the plant opened in 1983, GM chairman Roger Smith described it and a sister plant in Missouri as "the two most modem auto assembly plants in the world." Just four months later, GM's lawyers were appearing before city officials in Orion to argue that its value on the tax rolls should be reduced by 40 percent.

"I guess gremlins got in there to make it obsolete," says JoAnn Van Tassel, supervisor of Orion Township. "If you listen to them, they say if we had it to do over again, we wouldn't build it so large. . . They put two additions onto that plant while they were constructing it. How can I have too much space in 1984, but add on to it in 1982 and 1983?"

But Shapiro-whose ideas have brought home $32 million for Ford against Dearborn and $1 million for GM against Delta Township-scoffs at his adversaries. "They haven't won one yet," he says, and predicts victory in the upcoming suit against Flint.

"Flint is an easy case," Shapiro says. "They're assessing at $30 a square foot," a figure he claims is way too high for pre-World War 11 industrial property.

Shapiro is a very precise man, but his figures on tax assessments in Flint are not even close to correct. GM has five pieces of industrial property in Flint, and, according to city assessor Frank Moss, none of them are assessed at anywhere near $30 per square foot. Flint's 30-year-old Buick plant is assessed at $12.70 a square foot. The 40-year-old Chevrolet factory is valued at $7.59. And the recently closed Fisher Body facility, 47 years old, was assessed at $3.31 per square foot.

Hudgens and other GM spokesmen frequently tell the press that its tax appeals are necessary because the company is paying between "$25 and $70" per square foot on "older industrial properties." But a look at a comprehensive list of GM's tax assessments in Michigan, also provided by Frank Moss, shows there are no old buildings-not a single oneassessed at $70 a square foot. Some GM properties under appeal do have some higher assessments, but these properties are not aging, decrepit facilities. In fact, GM's so-called "dinosaurs," its 40- and 50-year-old plants, are typically assessed at between $7 and $18 per square foot-about 25 percent of the figures that Hudgens quotes.

No one in government wants to see his budget cut, and not surprisingly the GM appeals have municipal officials gnashing their teeth at the prospect of sizable cuts in revenues and services. "I'm having sleepless nights over this thing," says Joe Van Bruggen, supervisor of Comstock Township, where GM is seeking a 72 percent reduction of its tax payments. The appeal is now in its fifth year, and if GM wins its case Van Bruggen will have to slash his $1 million a year budget by about $13 6,000-and come up with more than a half million dollars to repay GM for five years of back taxes. If Comstock voters decided to raise their own taxes and keep the services, Van Bruggen estimates it would cost the average homeowner about $161 per year.

Michigan's jilted suitors

That GM and these towns are fighting at all would have seemed shocking a generation ago.

"I'm disappointed," says Ayre, the supervisor of Genessee Township. "We always had a good reladonship '" Over the years, he says, the township spent considerable money to help GM, "on roads, fire, extra police protection, that son of thing." Streets got paved that wouldn't otherwise have been, Ayre said, "so trucks could get into the plant."

The fight has become a Michigan Rashomon story, with each side offering a different eyewitness account. Ayre says he is especially unhappy about GM's method of negotiating a new tax assessment. The company first demanded a 25 percent decrease, he says, and the township, trying to avoid a long legal battle, offered 22.5 percent.

"Then," he says, "they asked for 30 percent." When the township came back with another offer, Ayre says, GM promptly demanded a 50 percent reduction, and by the time the matter wound up before the Tax Tribunal the company was looking for an 85 percent cut. But when presented with that scenario, Hudgens denies it. "We don't do business that way," he said.

Even the Michigan legislature, usually a stronghold of support for the state's largest industry, has entered the fray-not to mediate, but to fuel the legal fire. The state treasurer's decision to allocate funds to two of the communities fighting GM in court had to be approved by the appropriations committees both in the state House of Representatives, which has a Democratic majority, and in the Senate, which is controlled by Republicans.

What's that? Republican senators in Michigan voting to use state funds to fight General Motors? Incredible as it sounds, it's true. The legislature has approved the measure twice, once for Comstock and a second time for Flint. (However, a package of bills that would have made it easier for assessors to get information from large industrial taxpayers has stalled thanks to an aggressive effort by re Michigan Chamber of Commerce.)

Feeling like jilted suitors, many Michigan communities are responding with a new scrutiny of all aspects of GM taxation, looking for new ways to increase GM's tax bill.

In Warren, where GM is challenging the assessment on its sprawling Technical Center complex, the city assessor's staff conducted an extensive survey of the property in order to prepare its case before the Tax Tribunal. Mayor Ronald Bonkowski said They discovered that GM has constructed tens of thousands of square feet of building improvements-walls, tunnels, offices, ceUars-without ever bodiering to apply for city construction permits. Not only does that violate city ordinances but it also means that the new property never showed up on city tax rolls-a situation that Bonkowski plans to remedy very soon.

And there's even a new battleground: further challenge to GM may come over the issue of tax abatements. Michigan has a 1974 law that allows local communities to grant 12-year tax breaks to companies building new plants or rehabilitating old ones. Between 1975 and 1986, GM was granted abatements on about $4 billion worth of property, saving the company more than $115 million on its annual tax bill-more than twice what it set out to save by its current property tax campaign. In order to apply for these abatements, the company has to promise that it would keep or create jobs in the communities that were granting the tax relief.

Between 1976 and 1986, for example, GM was granted abatements on $1.3 billion worth of property in Flint; but during that time the city lost 18,000 GM jobs. Groups the re and elsewhere are considering lawsuits to recover lost tax revenues or enforce job guarantees.

Meanwhile, GM is having a harder time gening new tax abatements. In December 1987, Orion Township became the first Michigan municipality ever to wm down a GM request for a tax abatement. In March of this year, Detroit became the second.

This new get-tough attitude on the part of local governments could cost GM millions of dollars, perhaps more than the giant automaker will ever save as a result of its tax appeals. There once was a time when GM could get whatever it wanted from local officials in Michigan. That eraof innocence is over.
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Title Annotation:General Motors Corp.
Author:Kerson, Roger
Publication:Washington Monthly
Date:Sep 1, 1988
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