News Story

Despite Costly Previous Failures, Michigan Governor Wants ‘Venture Capital’ Corporate Subsidies

Taxpayers would backstop favored firms’ losses

In 2003 state legislators in Michigan enacted a law authorizing what they called venture capital subsidies for certain business owners. The scheme ultimately cost the state $613,000 for every job it created, which in this case meant taxpayer dollars collected to pay for other state priorities went instead to repay lenders to failed companies.

In 2021, Gov. Gretchen Whitmer wants lawmakers to try it again with a similar program.

Before it was suspended by the Legislature and Gov. Rick Snyder in 2015, the state’s Venture Michigan Fund spent $450 million in funds repaying loans made by third parties to 52 companies, all to create what turned out to be 734 jobs, according to a 2018 Auditor General report.

But in 2003 the concept received praise from voices inside and outside government. Business reporter Rick Haglund wrote a story for Booth News promoting the concept. It downplayed concerns state taxpayers would be stuck with the bill when its beneficiaries fell short of their promises.

Haglund wrote: “Supporters of the state-backed fund say big losses are unlikely. Oklahoma, which has had a similar program for 10 years, hasn’t had to hand out any tax credits to make good on its guarantee, according to Jason Burr, an Ann Arbor venture capitalist who has studied the Oklahoma fund. Burr is treasurer of the Michigan Venture Capital Association.”

The 2003 story continued: “If state-backed funds don't meet their guaranteed rate of return, the state must make up the difference in tax credits.”

Only if investments went belly up would investors tap into money, dubbed “tax vouchers,” authorized to secure the funds. The program that became law used regular state revenue to cover the eventual losers, not pension fund dollars.

Eighteen years later, investors had claimed every one of the $450 million in tax voucher bailouts that had been authorized – exactly what the program’s corporate, government and media boosters insisted would not happen back in 2003.

Now, Crain’s Detroit Business is reporting that officials want to resuscitate the concept, this time funded by federal COVID-19 relief dollars collected by the state. The new plan is to dedicate $200 million from this source to very similar scheme with a new title, the “Startup Resilience Initiative.”

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.