GlobalWatt: How Corporate Welfare Hurts Real People
The recent news that Michigan corporate welfare “winner” GlobalWatt is being evicted from its Saginaw headquarters for nonpayment of rent is a reminder that even when no taxpayer cash changes hands, government “incentive” programs can hurt real people in a number of ways.
GlobalWatt is (yet another) solar energy company that won a state and local government tax break/subsidy deal and that could have been worth as much as $42 million had the company met performance milestones. The deal was trumpeted by announcements from the company and Michigan corporate welfare officials of “500 potential Saginaw jobs,” at a time when state unemployment was 14.6 percent.
The approval of these incentives by state economic development “experts” misled taxpayers, investors, job seekers and local leaders by lending credibility to a business plan that was apparently deeply flawed on many levels. GlobalWatt itself was well aware of this effect, and exploited it.
For example, a company PowerPoint presentation to investors included two references to state backing. A slide titled “Why Solar, Why Today, Why GlobalWatt?” lists “state and local incentives” as one of its four major themes. Another slide reads, “State of Michigan has offered GlobalWatt significant financial incentives to locate its first plant and is fully supporting the company in its fundraising efforts.”
In an August 2010 interview with the Mackinac Center for Public Policy, Chris Philbrick, a former consultant with GlobalWatt, described for the Center an investor presentation that began with a TV news story including Gov. Jennifer Granholm about Michigan beating out Texas to win the GlobalWatt plant.
It’s the governor’s voice and it’s her on the little video clip that’s being projected onto the big screen … you know, it’s … the governor’s behind this and if you’re an investor … and the governor’s behind this, well shoot! What a great opportunity.
GlobalWatt also sent (at least) one Michigan investor printed news stories about its state incentive deal that included screen shot photos of the company’s CEO with Gov. Granholm from televised news stories.
That investor, Ed Rahe of EAC Investment, led a larger group of investors that initially placed $100,000 in the firm. After being tipped off by Philbrick that the company may not have been what it appeared, Mr. Rahe was able to withdraw his money and avoid a loss.
But Rahe explained to this author how the government incentives were part of his rationale for this investment: “(W)hen I saw Granholm’s picture … my thinking was, golly, $42 million dollars we were getting from the state — we should, we should be taking advantage of that as investors. You know, it’s going to save us $42 million dollars over five years …” [Emphasis added].
In other words, state inducements for GlobalWatt persuaded private investors to risk their dollars on a corporate welfare project that ultimately collapsed; and one in which the Mackinac Center had been an early skeptic. This was not the only time GlobalWatt would use the state’s imprimatur to gull the public.
Other investors do not appear to have been as fortunate as Rahe.
Saginaw attorney Michael Allen represented a group of local GlobalWatt investors. He told me in a phone discussion that some he knows have already “resigned themselves to losing” the money they invested in the firm.
Another local GlobalWatt investor, Dr. K. P. Karu, contacted by this author on Dec. 29, 2011, was still enthusiastic about the firm’s prospects, although until then he was unaware of its upcoming eviction (GlobalWatt must be out of its headquarters by Jan. 9).
When publicly criticized by Philbrick for some allegedly questionable business practices, GlobalWatt CEO Sanjeev Chitre told the Midland Daily News, “The state of Michigan has gone through every investigation they can on us before they allocated us the money. That is a benchmark that already exists.”
The state’s approval of special favors was alternatively used by GlobalWatt as both a sales-pitch lance and a shield against criticism.
It wasn’t just financial investors who were hurt. Jobseekers attracted by the firm’s over-inflated prospects may have taken unnecessary training at taxpayer expense. Delta College’s Solar Manufacturing FAST Start Program” trained eight students for GlobalWatt using a Michigan Works grant.
The training lasted eight hours a day, four days a week for months but only two were ultimately hired by the company — and even then through a temp agency. They did not actually become GlobalWatt employees. The good news, according to Delta College, is that some found work elsewhere in the area.
One local investor, Dr. Debasish Mridha, used a GlobalWatt investment to promote his run for the state Senate. A campaign press release read, “Local Doctor Invests $100,000 in Green Energy Economy, Creates Jobs.”
To this would-be lawmaker’s credit, he invested only his own money in the firm, not dollars taken from his neighbors. Unfortunately, legislators who vote for corporate welfare handouts, and bureaucrats who hand them out, do just the opposite.
Dr. Mridha may have bought the most expensive press release in Michigan political history, but when they can use taxpayer dollars, corporate subsidy and “green job” announcements have generally served politicians well, even if they do nothing for their state and communities. The political class seems to create more job announcements than real jobs with these programs.
Michigan taxpayers can be grateful that the Snyder administration has greatly scaled back Michigan’s entire corporate welfare industrial complex. But until it is eliminated altogether, the special favors and handouts are likely to create more victims, taxpayers among them, who may never even know they’ve been taken for a ride.
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.