With a new governor set to take office on Jan. 1, the Michigan Economic Development Corp., an embattled state agency charged with doling out special tax favors, is engaged in a public relations offensive and "fighting for its political life," according to Michael LaFaive, director of the Morey Fiscal Policy Initiative at the Mackinac Center for Public Policy and a dogged critic of the MEDC for more than a decade.
"Its leadership knows the mood of state voters and of viable candidates for governor," said LaFaive, who suggests that a similar public relations effort by the MEDC took place during the final year of the Engler administration. "The writing is on the wall, and they don't like what it says."
The MEDC definitely has something to worry about if Oakland County Sheriff Mike Bouchard, one of the Republican candidates, moves into the governor's mansion. None of the other four Republicans running for governor — nor either of the two Democrats — has been as explicit as Bouchard about stating that the agency won't have much of a future in its present form if they are elected. (The policy positions of the other candidates — where known — are summarized below).
Last September, Bouchard issued a news release praising a study by LaFaive and co-author James Hohman that provided strong empirical evidence that the Michigan Economic Growth Authority — the MEDC's primary method of doling out special tax breaks — had failed in its mission of providing economic growth for the state during its 14-year lifespan. LaFaive and Hohman said it should be abolished.
Bouchard also noted that in 1995 he was in the minority of lawmakers who voted against creating the Michigan Economic Growth Authority in the first place, despite the fact that a Republican governor was asking for it.
When government gets into the business of "picking winners and losers" by awarding special breaks to a chosen few companies, "we all lose," said Bouchard. "As governor, I won't hesitate to end it [MEGA] and build a new system where all businesses can compete and grow jobs."
Six months after candidate Bouchard issued this statement, ammunition for critics of the MEDC and MEGA began raining down even harder. Some examples:
- In March, it was revealed that the MEDC had offered a $9.1 million deal to a company run by a parolee who is a convicted embezzler (and who has since been locked up again for another fraud charge). Gov. Jennifer Granholm had held a press conference to praise the deal, with the embezzler on the stage with her.
- In April, the state's Auditor General issued a report on the MEGA, ruling that its procedures for monitoring tax credits were "not effective." One state lawmaker looking into the report concluded that it means the program may have erroneously given out $150 million worth of tax credits. He accused it of "willful neglect."
- In May, at a hearing to discuss the Auditor General's findings, the MEDC chief told the Legislature that the state agency had operated for a decade without even auditing the companies that it was giving special tax favors to.
- Later that month, Michigan Capitol Confidential broke the story that a very high-profile $38 million special tax deal awarded to Google in 2006 was dramatically underperforming its lofty projection of creating 1,000 direct and 1,200 indirect jobs over a five-year period.
Needing to maintain a pace of creating 200 direct jobs per year, the MEDC reported only 163 created in 2007 and just 61 for 2008. And by January 2009, a story in Businessinsider.com reported that Google would lay off 100 people in its human resources department because it needed "fewer people focused on hiring."
As for the 1,200 indirect jobs projected, an MEDC spokeswoman told Michigan Capitol Confidential that the agency does not keep track of indirect jobs.
"Michigan has been Googled," said Gov. Granholm in 2006, at the time of the award and when she was locked in a battle to retain her job as governor. "These are jobs that will keep our young people in Michigan."
Following these revelations and more, the MEDC's executive committee responded with an open letter to media and lawmakers on May 25, warning that a "recent surge of unwarranted criticism" against it would "undermine Michigan's efforts and ability to attract business investment."
LaFaive shot back in the Lansing State Journal on May 31, noting that the MEDC had not yet made any known effort to refute any of the specific criticisms made by him and his co-authors in the 2009 study and another from 2005. According to LaFaive, the 2005 analysis generally concluded that MEGA deals had "no impact on per-capita personal income or job creation" throughout the first nine years of the program, despite offering nearly $2 billion in special business tax breaks.
The real success story of the MEDC, he concluded, was in "creating more job announcements than real jobs."
But while the future of this policy may indeed be endangered if there is a Gov. Bouchard elected to office, most of the other six competitors for the job have yet to match his resolute position.
"The government needs to get out of the business of picking winners and losers and allow the free market to operate," says U.S. Congressman Pete Hoekstra, R-Holland, echoing closest to Bouchard's statements about the MEGA program's future if he is governor. "We need a tax structure that creates a level playing field so entrepreneurs and business owners can grow. The MEDC is a reflection of how uncompetitive we have become as a state."
But where Bouchard would "not hesitate" to do away with such programs, Hoekstra sees room to modify their role: "I would move the MEDC into the governor's office and restructure it to focus on unique opportunities rather than the standard way of doing business in the state."
Attorney General Mike Cox would also move the MEDC into the governor's office. The substantial "Economic Development" portion of his official campaign policy plan notes that there "is no more important official in the Cox administration than the Michigan Economic Development Corporation (MEDC) director."
Cox also appears to believe that the literal physical proximity of the MEDC director to the governor is a primary policy problem with the state agency: "Currently, the MEDC is located in a different building from the Governor's office. This physical distance illustrates the actual disconnect between the Governor and economic development."
He provides no substantive critiques of the ongoing policy of selective government favors for certain companies, and proposes one of his own: The Deal Closing Fund. The purpose is explained as follows:
With other states providing competitive packages to job providers, Michigan needs to create a state economic development fund with current appropriations to the Governor and economic development director with the authority and flexibility to provide competitive packages to potential job providers. The ability of the Governor and the economic development group to be able to offer job training, land acquisition, environmental cleanup, infrastructure enhancements and other incentives are critical to "closing the deal."
With regard to the MEDC and MEGA, businessman Rick Snyder is unique among the seven people seeking the job of governor: When the MEDC was created in 1999, then-Gov. Engler appointed Snyder to be the first chair of the organization. As such, and perhaps not surprisingly, his campaign materials offer the most extensive plans for the agency's future.
Like Cox, Snyder does not denounce the policy of providing selective favors to certain companies. He explicitly states that "state resources should be allocated to assist startup business, grow existing business and attract new businesses."
The problem, according to the Snyder plan, is not so much what the MEDC is supposed to be doing, but how that has been done poorly in recent years.
"Rick quickly put in place a strong business model that became one of the nation's leading public-private development programs," says the Snyder campaign policy paper, explaining his leadership of the MEDC in its early years.
But then the report says trouble began: "After Rick's departure, Lansing politicians created a horrible business climate and used the MEDC as a political tool."
He denounces the "quick-fix approach to economic development" that he says has become the current use of the MEDC and MEGA programs. "The desire to grab headlines by announcing new programs every year is stronger than the maturity of Lansing politicians to allow programs to consistently deliver results."
Snyder seeks to return the MEDC to where it was when he was last in charge of it. He says that politicians should not be in charge of selecting which businesses or industries get special help from the state and proposes plans to put business experts in charge of the process instead. He also advocates stronger accountability and transparency in the process of awarding tax credits.
George, Dillon and Bernero
Republican state Sen. Tom George of Kalamazoo, Democrat House Speaker Andy Dillon of Redford, and Democrat Lansing Mayor Virg Bernero did not respond to e-mail requests for their plans about the future of state economic development planning and do not have significant information regarding this topic readily visible on their campaign websites. However, because Bernero was recently a Michigan state senator, all three of these candidates have served in the state Legislature during the last few years and have cast numerous votes related to the topic. Each has compiled a voting record generally in favor of the current MEDC/MEGA mission.
Few recent votes better illustrate the general commitment of the Michigan Legislature to economic central planning than the decision in 2005 to create a $400 million fund for business subsidies. Known as the "21st Century Jobs Fund," this program borrowed the $400 million from future state revenue streams. It was supported overwhelmingly by both chambers of the Legislature and signed into law by Gov. Granholm.
Bernero, Dillon and George each voted for it.