News Story

Now is the Time to Demand Transparency from State's Corporate Welfare Agency

Tax credits issued through the Michigan Economic Development Corporation while Jennifer Granholm was governor are beginning to scoop dollars out of state coffers by the bucketful. The total cost of businesses claiming these credits against taxes due or cashing them in has been tagged at $9.38 billion.

This isn’t happening all at once, but is expected to continue into the future with significant budgetary impacts for years to come.

With all that’s taking place, it is not surprising that the MEDC, Michigan’s corporate welfare arm, is now probably about as popular with many lawmakers and state officials as the measles.

Nonetheless, it seems likely that agency will survive the current crisis. That’s why it is now – while so many are fuming over the way it operates – that the issue of transparency should be addressed.

In 2011, Gov. Rick Snyder ended the sort of taxpayer-bankrolled deals that are causing the current headaches. That’s an important fact as regards to assigning blame for the situation, but shouldn’t put anyone’s mind at rest regarding the MEDC.

Although the concept behind job creation incentives is flawed, the reason they persist is no secret. Such programs are based on giving special favors to certain businesses in exchange for them agreeing to locate, stay or expand in Michigan. These incentives are served up to the public as anecdotal evidence that a government’s policies are succeeding. In contrast, broad-based policies featuring low taxes and sensible regulation to spur job growth are typically served up as substantive but dull economic data with a few accompanying charts.

Or put another way: Flashy headlines proclaiming certain companies are promising to create or maintain X number of jobs as the result of lawmakers and officials taking “positive” action are the stuff of which politicians’ dreams are made. Policies that provide an overall positive business climate that encourages all businesses to locate, stay or expand aren’t nearly as politically attractive.

Considering its continuing interaction with private businesses, transparency requirements for the MEDC should be more stringent, not less so, than those of other governmental agencies. However, the opposite has been the case; the MEDC has long been one of the least transparent entities in state government. In fact, if the voters had any conception of how nontransparent the agency is, they would be outraged.

Ultimately the MEDC’s lack of transparency is the result of neglect by the Legislature and the executive branch. Elected officials can force all deals to be as transparent as they desire. The question is – do they really want the agency and its activities to be transparent?

What’s needed first is the Legislature to determine what information must be disclosed. It seems obvious that this would include how much money a business receives as “an incentive” from MEDC. Another piece of data should be how many people the business employs at the time it receives state money. The number of employees should then be reported monthly – not just at certain intervals of peak employment – and for an extended period of time. It makes a big difference whether the company hires 1,000 people for just a few months or provides them steady employment for a long time.

The reason to require this information is to measure the real job creation value (success or lack of success) of the deal. In other words, if public dollars are being spent to supposedly create or maintain jobs, the public has a right to know what they’re getting for their money.

As one can easily ascertain, keeping track of this kind of basic information wouldn’t necessarily be rocket science. It’s really just the sort of data reporters would expect to be available when looking into the details of any transaction involving public dollars. But our elected officials have never required the MEDC to track and publicly report actual job creation performance that closely or clearly. This is probably because some businesses might balk at being subjected to this degree of public scrutiny. But that’s the whole point: If a business wants public money, it should be willing to be subjected to the requirements of public transparency.

Once the Legislature has taken that first step – deciding what information is needed to satisfy the needs of transparency - the next step would be to pass legislation requiring it. That would force the agency to tell businesses up front that they must agree to allow the required information to be disclosed to the public or forget about making the deal. It seems likely a majority of Michigan voters would consider such an arrangement as meeting a minimum standard of fairness.

Requiring that disclosure agreements be part of every deal would be most effective if the disclosed information was reported to an unbiased entity other than the MEDC. This entity (possibly an independent auditor) would be responsible for organizing the information and disseminating it to the public.

As stated in previous columns, the MEDC is essentially an advertising and promotional outfit. As such, it is only natural that it would treat issues of transparency concerning the deals it makes as a burden that often conflicts with it primary purpose. It should be relieved of that burden.

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.