News Story

MEGA Credited-Companies Created Only 18.9 Percent Of Projected Jobs Since 1995

Editor's Note: This article is a reprint from MIRS News, a Lansing-based subscription news service.

Less than 19 percent of the projected jobs the Michigan Economic Growth Authority (MEGA) trumpeted as being created by tax credits between 1995 and 2011 ever came about, according to an analysis of data provided by the Michigan Economic Development Corp. (MEDC).

Of the 186,923 new jobs first projected by companies that were awarded MEGA incentives, 35,369 jobs were reported back to the MEDC as being created, according to the latest MEDC reports. Just 3.9 percent of the 659 individual projects met or exceeded their job projection totals.

Since 1997, the state has issued MEGA tax credit certificates worth $1.1 billion to companies qualified for them, according to the MEDC. In 2013, $275 million was issued to qualified companies, and so far this year $154 million has been made available.

It's not clear from the MEDC figures if companies cash in all of the tax credits the state qualifies them for. MEGA credits were first awarded beginning in 1995, with the last new ones awarded in 2011.

But the MEDC said companies couldn't collect on MEGA credits for jobs they didn't create. Those jobs also must meet certain wage standards for them to qualify under MEGA. And those companies also must meet a minimum job total, which has changed throughout the years and varies on the type of MEGA awarded.

"The credit is based on the number of jobs they created actually, not the projected job amount. So if it was projected they were going to create 1,000, but they only created 200, the credit is on 200 jobs," said Mark Morante, the Michigan Strategic Fund (MSF) Fund Administrator for the MEDC. "There is no cost to the state for the 800 jobs not created."

Morante said the job projections made by the company — and announced by the MEDC publicly — were "optimistic to begin with," but when asked if he thought the figures were misleading he said, "that I'd guess you'd have to ask prior administration folks if that was misleading."

He added that the job projection totals are considered the maximum the company could create to receive credits.

MIRS requested data from the MEDC about the MEGA program after a similar Michigan Capitol Confidential analysis first looked at how often companies awarded MEGA incentives met their job projections. Capitol Confidential examined the years 2005 to 2011 and found 2.3 percent of projects met or exceeded their job totals.

In the MIRS analysis, there were 379 projects, or 57.5 percent, that reported no qualified new jobs were created in the companies' latest reports to MEDC. But those companies didn't all just flop, Morante said.

"It's literally a mixed bag of the projects simply (failing) to materialize, though that would be in the rare instance where they didn't even get started. It's very much more likely that they did not create the minimum number of jobs they were supposed to in the time frame they were given," he said.

Morante said if companies didn't reach the minimum number of jobs, often it would just report zero new jobs in reports to MEDC. The minimum job thresholds vary, but in 1995 for example, the minimum was 150 for a new company to Michigan and 75 for an existing company, Morante said.

For the 280 companies that did add new jobs, most fell well short of their job projections, sometimes by large margins. The average differential between jobs projected and jobs added was 183 for MEGA-credited companies that reported new added jobs.

Morante said companies awarded credits in 2010 and 2011, the last two years of the program, are still in the beginning stages of their projects and were likely not collecting on credits just yet.

"The last two years of that program are not realistically in the mix yet for consideration," he said.

But looking at the data for just 1995 to 2009, only 21.4 percent of projected jobs were actually created, similar to the 18.9 percent from the full set. Of the 519 projects awarded credits between 1995 and 2009, 4.6 percent met or exceeded their individual job projections, similar to the 3.9 percent from the full set.

A major difference between MEGA and the new Michigan Business Development Program is that MEGA credits extended for several years out, sometimes as much as 10 to 20 years, said Doug Rothwell, president and CEO of Business Leaders for Michigan and a former chair of the MEDC.

"You're looking at projections that were made over a long period of time, 10 to 20 years, which was the life of the MEGA program ... in many cases you're still in the middle of what those projection periods were," he said, adding that it'd better to look at the companies awarded credits in 1995 to see how they're doing now.

There were 12 such companies awarded credits in the first year of MEGA, and their job-adding performance was better, at 45 percent of the projected jobs being realized. In terms of individual projects, just one of the 12 met its jobs projection.

Rothwell also said the recession, which he said really started around 2000 in Michigan, likely disrupted many of those companies' plans for growth and job creation.

While MEGA credits continue to be collected on, the program ended in 2012 and was replaced by the MBDP. But there are still lessons to be learned about MEGA, said James Hohman, assistant director of fiscal policy for the Mackinac Center. Hohman said tax credits create a delayed hit on the state funds depending on when they're collected.

"It's not until 5, 10, 15 years later the budget has the impact on them," he said. "So you're getting all of your political pay-offs as job announcements immediately, but leaving it to taxpayers years later to foot the bill."

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.