Legislation needed to address MEGA audit findings

By Senator Nancy Cassis

The confidence of taxpayers is a cornerstone of good government.  A recently released state audit of the state's main economic development program has shaken that trust.

That is why the Senate Finance Committee last week continued its important hearings on the state auditor general's review of the Michigan Economic Growth Authority (MEGA) and Michigan Strategic Fund.   This was the first performance audit of the MEGA credit program in its 15 year existence. 

As a direct result of the audit and the committee's first hearing in May, the Michigan Department of Treasury has already recovered nearly $3.1 million in credits that had been over-claimed. This represents only a small sample of the total credits and illustrates the potential financial impact to the state.

This audit identified serious problems on validation - or lack of validation - by the strategic fund regarding critical information needed to qualify for the MEGA tax credit certificates. As chair of the committee, I led the questioning of Michigan Economic Development Corporation (MEDC) officials - who oversee the fund and MEGA - about the audit's major findings and what actions have been taken to address material issues raised in the report.

I am encouraged that the MEDC has made some corrective actions especially by hiring an outside CPA firm to review all claims.  Without the auditor general's report, the state would be continuing business as usual - potentially putting at risk millions of taxpayer dollars at a time when Michigan faces another billion dollar deficit.

A major finding by the state auditors was that the strategic fund's procedures were not sufficient to validate the summary information detailing job claim and wage data maintained by the companies. Auditors reported 10 of 15 of those sampled, or 67 percent, of companies failed to submit all requested information needed to verify the data for the tax credit and often relied on self-reporting for new jobs and payroll figures.

In the report's material finding, the audit determined "that either the Michigan Strategic Fund or the company inputted formulas or standard amounts for missing data elements rather than actual data."  This was the most alarming finding in the report. 

We cannot lose sight of what is at stake.  Michigan is on track to lose a million jobs this decade.  In 2009, the state awarded the largest number of MEGA credits in the program's history, yet Michigan had a net loss of 233,000 jobs last year alone.  If the MEDC and the governor created 1.4 million jobs as they claim, Michigan's unemployment rate would be less than 4 percent instead of more than 13 percent.

I am extremely concerned about the impression of MEDC inflating job creation numbers in press releases, especially with the strategic fund's failure to verify job and wage numbers before giving out a number of refundable tax credits. These actions over time could significantly erode the public's trust and result in an inability to measure the program's effectiveness to create jobs.

I will soon be introducing several pieces of reform legislation to address the audit's key findings about protecting the state's limited financial resources. I will also be introducing legislation to ensure that wages for these jobs are real and calculated correctly.

Information given to legislators and the public must be substantiated and accurate in order to measure the effectiveness of any economic development program.  Transparency, disclosure, and oversight are critical and will only happen if legislators remain vigilant and exercise their supervision responsibilities.

Follow up hearings will continue on the RASCO scandal, which erupted after the MEDC approved a $9 million MEGA credit to a convicted embezzler.  We will also hear from the Michigan Film Office about the Hangar42 scandal, which resulted in a criminal charge over an apparent attempt to defraud taxpayers of $10 million in refundable film credits.