Analysis: State of Embarrassment
Governors often use their official State of the State addresses to do a little bragging, and Gov. Jennifer Granholm's February, 2010 outing was no exception. Unfortunately, what was intended as an "economic development" victory lap - citing companies expected to create jobs thanks to selective tax breaks and subsidies provided by her administration - has become a series of embarrassing blunders including Hangar42 studios (Grand Rapids), GlobalWatt, Inc. (Saginaw), and Unity Studios (Allen Park).
In the first of these, the day after the governor's speech, Hangar42 officially announced the opening of its studio, which allegedly involved an investment of at least $40 million by the promoters. There was only one problem: Unlike the $10 million subsidy taxpayers were expected to kick in, the rest of the "investment" wasn't real. Mackinac Center research led to an Attorney General investigation which ultimately resulted in a felony fraud charge brought against the purported buyer of the "$40 million" studio, Joseph Peters.
The governor also spoke glowingly that wintry February night about GlobalWatt's move from Silicon Valley to Saginaw Valley. Yet, last week the findings of a Mackinac Center investigation were released calling into question the veracity of claims made by the company on its applications for special state tax breaks and subsidies. GlobalWatt claimed it had been offered "upfront cash" incentives to lure it to Corpus Christi, but Texas officials told the Mackinac Center this was not true.
Indeed, Lucy Nashed, spokeswoman for Texas Gov. Rick Perry said in a telephone interview that GlobalWatt was just "not a good fit" for the state's incentive program. Texas had sent the company a rejection letter weeks before GlobalWatt CEO, Sanjeev Chitre, signed Michigan incentive applications on which he claimed that those Lone Star State incentives were real and still available. Using false information to obtain tax credits or refunds is illegal and could result in the loss of credits and a felony fraud charge, a $5,000 fine or both.
Then there is Unity Studios, which had been approved for tax breaks and subsidies. The city of Allen Park and Wayne County were also prepared to approve "renaissance zone" status for the project, exempting its owners from practically all site-specific state and local taxes. Alas, last week the plug was pulled. Allen Park's mayor told the local News Herald, "It is fair and obvious to say Unity Studios has not developed into the project its owners represented some months ago, and that we and Allen Park residents have all been waiting for." Earlier hype had the studio and "adjoining businesses" generating "3,000 new jobs"; an MEDC analysis suggested 379 direct and indirect jobs by the end of 2010.
Like these three examples, every one of the hundreds of special corporate tax break and subsidy deals arranged between this state and particular firms over the past decade has been trumpeted in press releases characterized by similar hype. Yet an analysis of Michigan's "flagship" incentive program (MEGA) revealed that less than 30 percent of the jobs ever come to pass. Even that figure is just a strict accounting. Econometric analyses show MEGA creates no new net jobs.
However, no press releases announce these disappointments, or any of the other failures. The contrast reinforces the reality that these "incentives" are little more than public relations programs financed by taxpayers to benefit politicians. The consensus of economists is that all these discriminatory tax breaks and subsidies don't create jobs so much as job announcements.
The MEDC should be eliminated and its many failed programs repealed in favor of across-the-board reforms.
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.