Firm Gets $220,000 State Subsidy Deal, Files For Bankruptcy
Records show $100,000 was spent; what happens next up to state corporate welfare officials
In April 2016, a Michigan Business Development Program that gives state subsidies to select businesses approved a $220,000 grant for a Van Buren county produce wholesaler to expand a production facility in Paw Paw. The firm produces and packages blueberries, asparagus and grapes for sale to large grocery store brands like Meijer and Kroger, and the grant was contingent on it meeting certain employment milestones by specified dates.
State records indicate that $100,000 was disbursed in 2016, but whether there will be any more is uncertain because Spiech Farms filed for Chapter 11 bankruptcy in 2017, reportedly due to crop losses experienced with Georgia blueberries and Michigan grapes. This constitutes a default on its subsidy deal, and the state officials who manage MBDP have broad discretion over what happens next.
Spiech Farms isn’t the only private company to default on conditions attached to grants from the Michigan Business Development Program, or MBDP. According to a new study by Mackinac Center fiscal analyst Michael LaFaive and Ball State economics professor Michael Hicks, more than 33 percent of MBDP subsidy agreements signed between March 2012 and September 2016 were in some degree of default, and some had been revoked. Some of these deals were later reworked under new terms.
According to LaFaive, the Spiech Farms default is one of many in this program that suggest government economic development officials are unable to effectively distinguish whether potential taxpayer subsidy recipients will be winners or losers.
“If officials could truly decide who the next real commercial success will be they would be hedge fund managers on Wall Street not state bureaucrats,” LaFaive said.
Michigan Economic Development Corporation spokesperson Otie McKinley said the agency is still confident in the program.
“I have seen the report, but we remain confident that the MBDP is an important economic development staple in the arsenal of tools that aims directly at growing the economy through private investment and job creation around the state,” McKinley said.
In 2011 Gov. Rick Snyder signed the law authorizing MBDP grants. When running for office in 2010 Snyder had promised to end a business tax break and subsidy-granting program called the Michigan Economic Growth Authority. That program was suspended in 2011.
The MBDP distributes money in the form of low-interest loans, cash subsidies and “other incentives.” Between March 2012 and September 2016, 319 MBDP deals were approved, representing subsidies worth $300 million. At the time the Mackinac Center study was released, only $157 million had been awarded to companies.
The largest single MBDP deal was a $10 million loan to what is now called the QLine in Detroit. The average subsidy awarded by the MBDP during the period studied was $950,000. Through September 2016, 55 percent of all MBDP subsidies were for projects in Kent, Oakland, Washtenaw and Wayne counties.
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.