Commentary

The Corporate Welfare Lady Protests Too Much

Evidence shows subsidy efforts are ineffective

Some lawmakers intend to extend a scheduled sunset on a state program of corporate fiscal favors that proponents presumptuously call “Good Jobs for Michigan.” That is a misnomer. It should instead be called “MEGA 2: Subsidies for Large Conglomerates.” That’s because the program is modeled on the state’s failed Michigan Economic Growth Authority, and supporters cannot prove that ‘good jobs’ wouldn’t have been created without the program.

Proponents of the Good Jobs program are sensitive to comparisons between it and the now-defunct Michigan Economic Growth Authority, and they have good reason to distance it from MEGA. That program has and continues to cost taxpayers billions and has failed to perform as advertised. The proposed legislative wording for Good Jobs in 2017, though, was cribbed directly from MEGA law in at least 12 instances. (See each instance appended after this essay.) There are other parallels between the programs, too.

In 2017 proponents of the Good Jobs program tried to assure state officials that their new offering was not MEGA reborn. Their efforts included a brochure explaining how the program was not MEGA and House testimony that recalled the classic literary phrase, “The Lady Protests Too Much, Me Thinks.”

“The lady protests too much” is a line from Shakespeare’s “Hamlet,” where the title character’s mother questions the true motivations of another character’s dramatic protestations. Several individuals who testified in favor of Good Jobs, then just a proposal, had apparently been part of past MEGA deals. But they strenuously swore that their new corporate welfare tool was not the failed MEGA program with which they had associated in the past.

Unfortunately for Good Jobs, the past is prologue. Corporate welfare programs can be structured in many ways, but they often end up being ineffective and costly.

Scholarly research into corporate welfare programs routinely demonstrates their shortcomings. One academic review of research literature on economic development programs run by state and local governments found them to be ineffective. That paper, “The Failures of Economic Development Incentives,” concluded: “The most fundamental problem is that many public officials appear to believe that they can influence the course of their state or local economies through incentives and subsidies to a degree far beyond anything supported by even the most optimistic evidence.”

That was 15 years ago, and no scholarship I’ve seen since then contradicts that finding. And MEGA, just one such program, has been the subject of five published scholarly articles since 2005. Four of them show a zero to negative impact from the program. A sixth analysis involving MEGA is expected to be published this year, and it too will be unflattering.

Despite MEGA’s poor performance, Michigan taxpayers may be on the hook for another $6.4 billion the program offered to corporations before it was shuttered. The parallels with Good Jobs are troubling. MEGA, like Good Jobs, was first sold with a sunset clause and a strict limit on its usage — and then freed from its sunset provision and expanded dramatically. As for Good Jobs, recent legislation introduced in the state Senate would likewise extend its sunset indefinitely and remove the limit on how much the state can hand out, which had been set at $200 million.

It would not strain credulity in the next recession to see legislators and the governor abuse Good Jobs just as Gov. Jennifer Granholm and the Legislature did with MEGA and other programs during Michigan’s lost decade. The state handed out incentive deals like candy on Halloween during that era.

Then as now, lawmakers in both major parties want to create at least the illusion that they were doing something to help create and save jobs in and for Michigan. But the evidence shows these efforts are not effective. Instead, they cost us billions that might be better spent on roads, or even on a personal income tax cut.

Despite all the academic and other evidence against the Good Jobs for Michigan program, it has its champions. An earnest reader may wonder if those champions have even tried to refute the evidence against their program with their own evidence. The answer, so far anyway, is “no.” They simply point to corporations which have agreed to take the incentives, or argue that it is successful because they say it is.

They have also argued that Good Jobs is different from the failed MEGA program in that companies are only receiving dollars generated by new employees. The state, they say, isn’t paying out for the jobs. The payments, instead are “performance-based.” There are two problems with this assertion.

MEGA was also sold as a “performance-based” economic development incentive. “If the companies don’t perform, they don’t get the credit” was the mantra. Despite that claim, it was an expensive debacle, and for a very good reason.

Proponents can’t prove that the jobs cited as evidence for incentive programs weren’t going to be created without them, and so it is with Good Jobs for Michigan program. Findings from a literature review on incentive programs, published by the W.E. Upjohn Institute, suggests that between 75% and 98% of relocations or expansions or retention projects would have happened anyway.

The Good Jobs program is likely to be no more effective than many other failed corporate welfare programs. It’s time to let it go into the sunset.


MEGA Statute: “An eligible business may apply to the authority to enter into a written agreement which authorizes a tax credit under section 9.”

GJFM: “An eligible business may apply to the fund to enter into a written agreement which authorizes the payment of withholding tax capture revenues under this chapter.”


MEGA Statute: “The authority may request such information, in addition to that contained in an application, as may be needed to permit the authority to discharge its responsibilities under section 8.”

GJFM: “The fund may request information, in addition to that contained in an application, as may be needed to permit the fund to discharge its responsibilities under this chapter.”


MEGA Statute: “After receipt of an application, the authority may enter into an agreement with an eligible business for a tax credit under section 9 if the authority determines that all of the following are met:

GJFM: “After receipt of an application, the fund may enter into an agreement with an eligible business for withholding tax capture revenues under this chapter if the fund determines that all of the following are met:


MEGA Statute: “The expansion or location of the eligible business will benefit the people of this state by increasing opportunities for employment and by strengthening the economy of this state.”

GJFM: “The expansion or location of the eligible business will benefit the people of this state by increasing opportunities for employment and by strengthening the economy of this state.”


MEGA Statute: “The plans for the expansion, retention, or location are economically sound.”

GJFM: “The plans for the expansion or location are economically sound.”


MEGA Statute: “The expansion or location of the eligible business will not occur in this state without the tax credits offered under this act.”

GJFM: “The eligible business would not have added certified new jobs without the withholding tax capture revenue payments authorized under this chapter.”


MEGA Statute: “A cost/benefit analysis reveals that authorizing the eligible business to receive tax credits under this act will result in an overall positive fiscal impact to the state.

GJFM: “An industry-recognized regional economic model cost-benefit analysis reveals that the payment of withholding tax capture … will result in an overall positive fiscal impact to the state.

(Note: The links above refer to articles related to the subject matter, not the statute or proposal, respectively.)


MEGA Statute: “The local governmental unit in which the eligible business will expand or be located, or a local economic development corporation or similar entity, will make a staff, financial, or economic commitment to the eligible business for the expansion or location.”

GJFM: “The eligible business has received a letter of support for the expansion or new location from the chief executive official, or his or her designee, of the municipality with jurisdiction over the location of that facility.”


MEGA Statute: “If the authority determines that the requirements of subsection (1) have been met, the authority shall determine the amount and duration of tax credits to be authorized under section 9, and shall enter into a written agreement as provided in this section. The duration of the tax credits shall not exceed 20 years.

GJFM: “If the fund determines that the eligible business satisfies all of the requirements of subsection (4), subject to subsection (6), the fund shall determine the amount and duration of the withholding tax capture revenues to be authorized under this chapter and shall enter into a written agreement as provided in this section. The duration of the withholding tax capture revenues must not exceed 5 or 10 years …”


MEGA Statute: “In determining the amount and duration of tax credits authorized, the authority shall consider the following factors: (A) The number of qualified new jobs to be created; (B) The average wage level of the qualified new jobs relative to the average wage paid by private entities in the county in which the facility is located. (C) The total capital investment the eligible business will make. (D) The cost differential to the business between expanding or locating in Michigan and a site outside of Michigan. (E) The potential impact of the expansion or location on the economy of Michigan. (F) The cost of the credit under section 9, the staff, financial, or economic assistance provided by the local government unit, or local economic development corporation or similar entity, and the value of assistance otherwise provided by this state.

GJFM: “In determining the maximum amount and minimum duration of the withholding tax capture revenues authorized, the fund shall consider the following factors, if applicable: (A) The number of certified new jobs to be created. (B) The degree to which the average annual wage of the certified new jobs exceeds the prosperity region average wage. (C) Whether there is a disadvantage to the eligible business if it were to expand or locate in this state versus a site outside this state. (D) The potential impact of the expansion or location on the economy of this state. (E) The estimated cost of the reimbursement of withholding tax capture revenues under this chapter, the staff, financial, or economic assistance provided by the municipality, or local economic development corporation or similar entity, and the value of assistance otherwise provided by this state.


MEGA Statute: “The expansion or location of the eligible business will not occur in this state without the tax credits offered under this act.”

GJFM: “Whether the expansion or location will occur in this state without the payment of withholding tax capture revenues offered under this chapter.”


MEGA Statute: “A written agreement between an eligible business and the authority shall include, but need not be limited to, all of the following:”

(A) A description of the business expansion or location that is the subject of the agreement. (B) Conditions upon which authorized business designation is made. (C) A statement by the eligible business that a violation of the written agreement may result in the revocation of the designation as an authorized business and the loss or reduction of future credits. (D) A statement by the eligible business that a misrepresentation in the application may result in the revocation of the designation as an authorized business and the refund of credits received under section 9. (E) A method for measuring full-time jobs before and after an expansion or location of an authorized business in this state.

GJFM: “A written agreement between an eligible business and the fund must include, but need not be limited to, all of the following:

(A) A description of the business expansion or location that is the subject of the written agreement. (B) Conditions upon which the authorized business designation is made. (C) A statement from the eligible business that the eligible business would not have added certified new jobs without the withholding tax capture revenue payments authorized under this chapter.” “(E) A statement by the eligible business that a violation of the written agreement may result in the revocation of the designation as an authorized business, the loss or reduction of future withholding tax capture revenue payments under this chapter, or a repayment of withholding tax capture revenues received pursuant to this chapter. (F) A statement by the eligible business that a misrepresentation in the application may result in the revocation of the designation as an authorized business and the repayment of withholding tax capture revenues received under this chapter … (G) A method for measuring and verifying full-time jobs before and after an expansion or location of an authorized business in this state.