Analysis

Corporate Subsidy Formula: Big Promises In Headlines, Failures Invisible

Take those job promises with a grain of salt

Government programs that authorize substantial grants of state taxpayer subsidy dollars for select corporations operate according to a certain formula.

The state agency that awards these subsidies notifies legislators and other elected officials in the area near the company or developer getting the money. The politicians put out a press release praising the program. They applaud the grant and the agency that made it, the Michigan Economic Development Corporation. Local newspapers and TV stations frequently repeat the claims found in the press releases.

But after the dollars are handed over and the news stories written, the effectiveness of the business subsidies are rarely examined.

State Sen. Kim LaSata sent out a press release this week, applauding the Michigan Economic Development Corporation for giving $80,000 in state taxpayer money to three Niles businesses. The release said the companies are projected to create 12 full-time jobs and 10 part-time jobs with the $80,000.

“This is an exciting announcement that will help make Niles that much more of an attractive place for business, residents and visitors alike,” said LaSata, R-Bainbridge Township. “I appreciate the MEDC’s continued support of Southwest Michigan.” LaSata is hardly alone in issuing such notices. Like most state legislators over the past 20 years, she has also voted to authorize corporate and developer subsidies.

Some of the subsidy deals the state makes each year, like the ones in Niles, are small. Others involve much larger firms — and payments. But even when combined, they are so dwarfed by the size of Michigan’s dynamic job market that they barely warrant an asterisk.

The Michigan economy created 213,435 new jobs in the final quarter of 2018, and 196,541 other Michigan jobs disappeared in that period, according to the U.S. Bureau of Labor Statistics. The magnitude of these quarterly figures is typical, according to Mackinac Center for Public Policy fiscal analyst James Hohman. In good times, the number of jobs created outnumber those of jobs lost, and overall statewide employment grows. In recessions, the opposite happens.

Historically, most of the job promises made by subsidy programs under the MEDC umbrella are not fulfilled, and there is very little accountability for the lack of results.

A 2013 analysis by the state’s Auditor General found that just 19% of the jobs projected by the MEDC’s 21st Century Jobs Trust Fund came to fruition. And one of its 2019 reports stated that just 51% of the jobs initially projected by the MEDC were actually created in the Michigan Strategic Fund.