Opinion: Founders used tax subsidies to open Detroit taproom. Then it closed its doors.

Last week, Grand Rapids-based Founders Brewing Company unexpectedly and permanently closed its Detroit taproom.

While the company’s initial announcement placed the blame on a “struggle to regain foot traffic after temporary COVID-19 closures,” just hours earlier, a Black former employee had filed suit in federal court alleging “egregious racial harassment” during her time at Founders' Detroit location.

Founders, a brand owned by Spanish conglomerate Mahou San Miguel, arrived in the city to much fanfare in 2017, but faced more than one charge of workplace harassment during its troubled tenure.

It is the second lawsuit Founders has faced over racial discrimination and retaliation since the taproom opened six years ago. After settling the first lawsuit in 2019, the company’s diversity and inclusion director resigned. Last month, the Detroit taproom’s manager resigned, saying in an affidavit that he was frustrated by the lack of progress in addressing discriminatory aspects of the company’s internal culture.

What's received less attention is that the brewer's abrupt closure comes after years of enjoying generous public support.

Founders never actually owned its building at 456 Charlotte Street, west of Woodward Avenue near Little Caesars Arena. Midtown Detroit Inc. and Invest Detroit — nonprofits funded by large foundations, corporate philanthropy, and state and city government — jointly purchased the property for $1.8 million and agreed to cover $1.9 million in improvements, saving Founders millions in in opening costs.

After the deal closed, the title was transferred to Charlotte Innovation Center LLC, an entity registered to Midtown Detroit's executive director that exists solely to act as the building's landlord.

While the brewer did indicate it would cover property taxes in its draft lease agreement, Midtown Inc. and Invest Detroit had already initiated the process of securing a property tax abatement for the renovated building before finalizing the purchase. A week after the taproom opened, the State Tax Commission approved a 12-year property tax abatement for the newly renovated building, which included an additional reduction in the school district operating millage and the State Education Tax through 2023.

The abatement exempted $5.8 million in property improvements from all millages except the reduced public education mills. It's difficult to determine exactly how much the company saved over the last five years, but according to public property tax records, Founders shaved at least $12,000 off its tax bills each year in 2021 and 2022, a 35% tax cut.

As part of the deal, Founders also promised to create dozens new jobs for Detroiters. It seems those never materialized.

When Midtown Inc. and Invest Detroit went before the Detroit City Council in March 2017 to establish the requisite tax abatement district, they indicated that the project would create 15 to 30 new, permanent, full-time jobs at the site.

But in the terms of the abatement agreement between the City of Detroit and Charlotte Innovation Center LLC signed three months later, the company committed its new tenant to the creation of 102 new full-time jobs within two years. The company's plan received conditional approval from Detroit’s Department of Civil Rights, Opportunity, and Inclusion that August after it promised that that 40 or those employees would be Detroiters, including at least four managers or supervisors.

As of last week, Founders is reportedly looking to find roles for 38 workers “displaced” from its Detroit taproom.

Anthony Zander, director of Detroit’s CRIO Department, said the brewer told the agency in 2019 that it had met its aggregate employment goal of creating 102 new positions in two years, but did not report how many — or if any — of those jobs were held by Detroiters. The taproom was temporarily closed in 2020 by the onset of the COVID-19 pandemic, and when Founders resumed reporting in 2022, the business disclosed a total staff of only 44, with 16 positions held by Detroiters, and did not specify whether any of those 16 positions were at the managerial level.

The former employee suing Founders, a Detroit resident hired in June 2021, claims in her lawsuit that she was promoted to a managerial position, as one Founders manager put it, for “optics.” Despite her position, she says, she was the only employee at the taproom with a managerial title receiving the pay of a server, while white servers and bussers were often given opportunities to boost their pay by taking on managerial duties.

Founders' agreement with the city states that for every year the average total number of workers employed at the site is less than what was promised, the company must repay its tax savings in proportion to the size of the shortfall. Because Charlotte Innovation Center LLC owns the building and holds the abatement certificate, it’s unclear whether it or Founders would be on the hook for repayment were this provision invoked. The job creation requirement is not mentioned in a draft lease provided to the Detroit City Council when the abatement request was made, and the final lease terms were not made public.

The abatement agreement does not appear to provide the city any recourse for a shortfall in local hiring. Zander said that CRIO intended to follow up with Founders this month to develop a plan for bringing the company into compliance with its original commitment, but that the “permanent closure of the business at this time makes that a moot point.”

In Detroit and across the country, businesses are rarely held accountable for the promises they make in exchange for tax breaks and subsidies. And when deferential state and local governments allow companies to play fast and loose with their commitments, “economic development” means little more than using public money to boost private profits.

We can demand more from our elected officials and the companies that have the privilege of receivingour support. So long as the subsidy gravy train keeps rolling — whether it should keep rolling is worth asking — beneficiaries should be held to the highest standard, and at a minimum, ensure their workers are treated with the dignity and respect they deserve.

Jacob Whiton is a researcher with Good Jobs First, a watchdog and policy resource center promoting corporate and government accountability in economic development. He lives in Detroit. Contact the Free Press opinion page: letters@freepress.com.

This article originally appeared on Detroit Free Press: Opinion: Tax abatements helped Founders Detroit taproom open