News Story

Lawmakers Poised To Continue Corporate Welfare Fund

Program track record includes inaccurate job creation claims, little transparency

The state Legislature is considering giving more funding to a program that only delivers 19 percent of the jobs it claims to have created.

Legislation is on the House floor that would increase the 21st Century Jobs Fund, a corporate welfare program created under former Gov. Jennifer Granholm. Many House Republicans and Democrats oppose the seven-bill package, or aspects of it. Getting enough votes to pass the bills and send them to the Senate could be tough, but the thread of opposition preventing that from happening could soon prove very thin.

If the legislation reaches the Senate, passage seems highly likely since most of the measures have already been approved by that chamber in their original form.

The key bill in the package is Senate Bill 269, which would allow the 21st Century Jobs Fund to go forward until 2019 and increase funding for it from $75 million to $100 million. Without enactment of the legislation, the 21st Century Jobs Fund would cease to exist as of Oct. 1, 2015.

The fund is what Gov. Granholm referred to when she said in her 2006 State of the State address that the state would be "blown away." The program has had numerous subsidy failures and audit and reporting problems.

In the House Commerce Committee, Senate Bill 269 passed during the December session on a 12-7 bipartisan vote. Republicans on the panel who voted "yes" were: Reps. Frank Foster, R-Pellston; Jeff Farrington, R-Utica; Ben Glardon, R-Owosso; Gail Haines, R-Waterford; Rick Outman, R-Six Lakes; Wayne Schmidt, R-Traverse City; and Dale Zorn, R-Ida. Democrats on the committee who voted against the bill were: Reps. Jon Switalski, D-Warren and Henry Yanez, D-Sterling Heights.

Rep. Foster, who chairs the committee, said the bill package represents an improved program for the future; not a continuation of the current program.

"As chairman of the committee, I think different people may have voted for the bill and parts of the package for various reasons," Rep. Foster said. "For me, I was happy to support the legislation, with the caveat that it does provide additional transparency. We will continue to work for clawback (returning misspent dollars) provisions. No one wants to see any more of the kinds of audits that we've seen in the past. We need to move forward under Republican leadership to continue to add jobs to the private sector."

None of the other Republicans on the committee who voted "yes" responded to a request for comment.

Senate Bill 270 would allow the Michigan Economic Development Corp.'s deliberative panel, called the Michigan Strategic Fund, to use the 21st Century Jobs Fund money for whatever programs it desires. Senate Bill 271 broadens the grant limitations for the program.

When the package was first introduced in early 2013, it was presented to some lawmakers as a trade-off that would keep the 21st Century Jobs Fund going but with greater transparency. That part of the legislation is House Bill 4480, which has the potential to provide greater transparency, although in its initial draft phase it was criticized as being weak. At the time, lawmakers said House Bill 4480 was a "work in progress" and they were interested in changing the bill so that it would provide greater transparency.

In the fall of 2013, about six months after the legislation was introduced, the Auditor General released a performance audit of the 21st Century Jobs Fund that found that only 19 percent of the jobs the program originally claimed to have created actually materialized. That was in contrast to the 75 percent that those who operate the program had reported to the Legislature.

In spite of the Auditor General's report, the legislative package seemed on the verge moving out of committee in November. However, its progress was slowed somewhat when House Democrats started to publically criticize the bills on several counts, including the idea of expanding the program without establishing overall accountability.

When the legislation moved out of the House Commerce Committee House Bill 4480, the so-called transparency bill in the package, was the only bill to receive unanimous support. Some committee members who opposed Senate Bill 269 said they voted for House Bill 4480 because it would improve transparency a little bit over the status quo, not because they thought it provided enough transparency.

"I voted for that bill because when you compare it to what they're reporting now it would be a small improvement," Rep. Switalski said. "But it doesn't come close to providing the transparency that's needed. We should have real transparency and then hold them accountable based on their performance. If it turns out that they're not using the money efficiently that money should be paid back to the taxpayers."

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.