State Gives Billions in Dollars to Corporations – But Keeps Secret How Much They Get

Nothing prohibits Legislature from opening the books

The state of Michigan gives tens of millions of taxpayer dollars to private companies each year. Yet remarkably, the public is kept in the dark about how much each corporate beneficiary receives — or even who receives the money.

That's because the subsidies — most of which are likely delivered in the form of cash payments — are styled as "refundable tax credits." The Department of Treasury claims that revealing details about these credits would violate a law that makes tax return information confidential.

It's a scheme that until 2011 let politicians authorize billions in corporate welfare extending years into the future and never be held accountable for which firms get how much. What remains unclear is precisely how basic government transparency principles were avoided.

The roots of the situation are found in the 1995 law that created the Michigan Economic Growth Authority and authorized it to give selective tax credits to firms chosen by a board of political appointees. The law required this entity to annually report the following:

(a) The total amount of capital investment attracted by the program.
(b) The total number of new jobs it generated.
(c) The total number of new tax break agreements.
(d) The name and location of businesses granted the selective benefits.
(e) The amount and duration of the tax credit for each corporate beneficiary.

Four years later, management of MEGA operations was assumed by a new entity, the Michigan Economic Development Corporation. For roughly a decade after that, the MEDC kept filing the annual reports as prescribed by the MEGA law, including the amount of benefits each business received. Then, sometime around late 2008 or early 2009, the agency stopped disclosing how much each business was given.

The current communications director of the MEDC told Michigan Capitol Confidential last spring that someone in the agency asked the attorney general's office if it should continue to disclose this information. Someone in the office responded that it should not. But this exchange was all verbal.

Was the "stop disclosing the numbers" advice based on a new interpretation of the State Revenue Act (which makes tax return information confidential)? Or was it in response to an outside change that had some bearing upon that law, or fear of prospective litigation, or something else altogether? No explanation has been offered.

When MEGA was enacted in 1995, its authors specifically prescribed company-level reporting requirements. At that time, the Revenue Act's tax confidentiality provision was already on the books, so presumably it was not regarded as a stumbling block.

If it had been a stumbling block, though, nothing prohibited the Legislature then and nothing prohibits it now from changing this taxpayer confidentiality provision to exclude selective business subsidies delivered through the tax system. Alternatively, MEGA's creators could have made full public knowledge just part of the deal for corporate beneficiaries.

About the same time those verbal exchanges were occurring, the Legislature and former Gov. Jennifer Granholm were in a frenzy of handing out new MEGA tax credits. Earlier this year it was disclosed that Michigan taxpayers are on the hook for $9.38 billion worth of these benefits, most of which will probably be paid out in cash (how much is part of the secret), representing an unfunded liability that won't be extinguished for nearly 20 years.

Ironically, at the same time the Legislature was trying to extract additional information from the agency, it enacted two bills (Public Acts 124 and 125 of 2009) which required the MEDC to disclose information, including the amount received by individual MEGA beneficiaries. But it is required only to report this to the chairmen of the House and Senate appropriations and tax committees, and to the Senate and House fiscal agencies.

Another provision prohibited any of these players from disclosing company-level information, subject to five years in prison and a $5,000 fine. In other words, just a handful of individuals could see the data and none of them dared share it with others, presumably not even fellow lawmakers.

This is not real transparency, and it also appears to contradict the intent and language of the original reporting requirements. It may just be that with the public increasingly skeptical of corporate welfare, such contortions have become an inherent byproduct of the exercise.

Whether willfully or unwittingly, the Legislature created this situation, and nothing prohibits lawmakers from reforming it now. All that's required is the political will to pass a bill with 56 votes in the House, 20 in the Senate and the governor's signature.

“That’s never been in doubt; it could be done through statutory changes,” said Rep. Jeff Irwin, D-Ann Arbor. “As things are now, lawmakers don’t get enough information to assess the value of MEDC projects. We can’t tell whether what they’re doing is maximizing opportunities for economic impact when we can’t even see the data. It really bothers me that those who criticize MEDC could be cherry-picking the projects they focus on to make everything look like another Solyndra. But without having the basic information, we really can’t even begin to engage in the argument.”

Rep. Martin Howrylak, R-Troy, said it is the Legislature’s job to make sure the MEDC meets transparency standards.

“As currently constituted the MEDC process lacks proper oversight and is not transparent,” Howrylak said. “I look at it from the public’s standpoint. Regardless of what else may be said, when the Legislature is allocating public funds we have a responsibility to the taxpayers to provide accountability.”

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.