Michigan House package creates be accountability requirements for taxpayer-funded incentives

A bipartisan group of Michigan House lawmakers rolled out an eight-bill package that focuses on the state’s economic development programs. The bills aim to increase transparency and accountability when public money is used to subsidize private businesses.

The legislation, House bills 5411-5418, would address how the Michigan Strategic Fund and related programs approve, monitor and report on incentive deals.

Sponsors of the package of bills include Republican Reps. Bryan Posthumus of Rockford, Jay DeBoyer of Clay Township, Mike Harris of Waterford and Mike Hoadley of Au Gres.

“Corporate handouts are a black eye to the democratic process that erodes trust in our institutions,” Posthumus, who is the House majority floor leader, wrote in an email to Michigan Capitol Confidential.

The four Democratic legislators who also sponsored legislation in the package are Dylan Wegela from Garden City, Jimmie Wilson of Ypsilanti, Laurie Pohutsky of Livonia and Mike McFall of Hazel Park.

The package, Posthumus wrote, is a step toward ending the corporate subsidies altogether and restoring faith in government.

A key piece of legislation, the Access Before Approval bill, would require the Michigan Strategic Fund to post detailed information about proposed economic assistance at least 10 business days before final approval.

The required documents would include draft contracts, briefing memoranda and term sheets related to grants, tax credits or loans.

“It is our responsibility as legislators to spend public dollars responsibly,” Wegela wrote in an email to CapCon.

Public funds, he added, should be spent on public projects, and over the past several decades, billions in taxpayer money have gone to corporations.

Wegela told CapCon that the people of Michigan deserve better.

“I don't believe that we should be giving private business any tax breaks, but this package ensures that if it's done, there is some accountability and transparency,” said Wegela.

Public disclosure requirements would offer taxpayers an opportunity to voice their opposition or support for the subsidies.

“There are some egregious problems in the way the state operates its business subsidy programs, and this package fixes them,” James Hohman, fiscal policy director at the Mackinac Center for Public Policy, told CapCon in an email.

Another bill in the package, the Failure Notice proposal, would require public disclosure when companies that receive state assistance don’t meet contract terms or shut down operations.

Notices would include the amount and type of assistance awarded, how much money was disbursed, estimates of how much the state expects to recover, and data on job creation or retention, when applicable.

The bill package also includes a measure addressing transparency for the Michigan Economic Growth Authority’s tax credits.

MEGA tax credits total about $9.3 billion in subsidies that have largely remained shielded from public view since 2009.

The Legislature codified the secrecy of the agreements in state law. One statute protects the confidentiality of financial and proprietary information of subsidy recipients.

A treasury statute stipulates that information about MEGA credits is confidential under tax laws.

Additional bills put forth by the bipartisan coalition of legislators would impose reporting consequences for the Michigan Strategic Fund and the Brownfield Redevelopment Fund if they do not make the required disclosures.

The bill package also aims to strengthen enforcement mechanisms within the state’s economic development framework.

The Mackinac Center for Public Policy’s most recent report on taxpayer subsidies shows that most promised jobs tied to economic development subsidies in the state never materialize. Only one out of every 11 jobs pledged under state incentive agreements is created, a failure rate of roughly 91%.

The Mackinac Center has for decades recommended ending taxpayer-funded corporate handouts, and it supported similar transparency legislation introduced in 2020.

The legislation will likely be taken up by House committees in the coming weeks.