News Story

“…Funny Numbers They Pull Out of Their Backside”

Critics of special business subsidies say state’s economic planners use shaky data to make decisions

Predicting how many jobs the government will get for the $383 million in subsidies it plans to pour into the Livonia battery facility isn't always an exact science. Even Michigan Governor Jennifer Granholm didn't cite what her own economic experts say when it came to the jobs numbers game.

This week, Granholm wrote the following in a blog post on the Huffington Post: "Best of all, the new facility has already created over 300 new Michigan jobs, and A123 Systems' production plans project another 3,000 clean technology jobs to follow."

Liz Boyd, Granholm's spokeswoman, stated in an e-mail the 3,000 jobs figure was based "conservatively on what company officials have said in the past."

But that 3,300 jobs figure far exceeds what the Michigan Economic Development Corporation is projecting for the A123 Systems plant. The state is paying $133.9 million and the federal government is giving $249 million.

According to a legislative briefing memo from April of 2009, A123 Systems plans to create 844 jobs over the next five years. Those jobs would pay about $29,000 a year. The memo states the facility will create a total of 2,217 jobs in the state by 2024.

But those additional 1,373 jobs are "indirect" jobs. That means they aren't jobs created by the A123 Systems plant, but jobs that will be created in the local economy due to the capital investment, operating expenses and payroll of the operation, according to Mike Shore, spokesman for the MEDC.

In other words, it's the extra waiters, shoe salesmen and convenience store clerks hired by other companies due to the plant locating in Livonia. Those jobs are usually spit out by an economic model and there is no follow-up to see if they were ever created.

"These are nothing but funny numbers they pull out of their back side," said Charlie Owens, director of the Michigan chapter of the National Federation of Independent Businesses. "Nobody keeps track. So it looks good."

But State Representative Tom McMillin, R-Rochester Hills, says what bothers him is how few jobs A123 Systems is required to create to get the $383 million in state and federal subsidies.

McMillin poured through the legal documents on the deal and said that the company only needs to create 300 jobs by Dec. 31, 2016 to get most of the state money and doesn't need to create a single job to get the $249 million in federal aid. A123 Systems would have to create 350 fulltime jobs by August 2012 to have a $4 million loan forgiven.

"We keep hearing all these grandiose plans and claims of thousands of jobs, yet whenever I've tried to put those inflated numbers as requirements for getting our millions of taxpayer dollars, they always say, 'No,' " McMillin wrote in an e-mail.

"The fact is, A123 only has to have 300 new jobs to get over $100 million in checks (subsidies) from Michigan taxpayers. That's over $300,000 per job of our money and over $700,000 per job of federal money (which is debt laid on our kids).  Real, independent studies show that these schemes, while getting some headlines, actually cost Michigan jobs, because existing businesses pay for those subsidies with higher taxes that would have gone to either preventing layoffs or hiring new employees."

The state's record of predicting job creations is questionable, according to the State Auditor general. The audit found that "direct job" projections in MEDC press releases occurred 28 percent of the time. That caused State Senator Nancy Cassis, R-Novi, to tell MEDC CEO Greg Main, "The press releases are an absolute disconnect with reality."


See also:

No Audits for Ten Years on Companies Getting Special Tax Breaks from State

Experts Say State Battery Plant Subsidy Is a "Risky Venture"

Michigan Taxpayers Writing Check to Second Electric Car Battery Maker for $100 Million

Michigan Governor Touts Jobs Costing Taxpayers $113,000 Each

Cost to Revive Economy With Battery Plant Subsidies: $5 Trillion 

Lawmaker Says 'Willful Neglect' Is the Rule at Embattled State Agency

Lawmaker Says Special Tax Favors Are 'Cronyism' 

Small Businesses vs. Big Governments




Michigan Capitol Confidential is the news source produced by the Mackinac Center for Public Policy. Michigan Capitol Confidential reports with a free-market news perspective.