The Michigan Economic Growth Authority is the "flagship" program in Michigan's economic development complex. It was created in 1995 and is today administered by the Michigan Economic Development Corp. It had been administered by the MEDC's predecessor agency, the Michigan Jobs Commission. In the following pages, we describe MEGA and provide a new analysis of the program.
MEGA was meant to facilitate job creation and retention in Michigan by offering business tax credits to select firms willing to expand in or relocate to the Great Lakes State. MEGA also typically arranges for businesses offered MEGA tax credits to receive other tax breaks and subsidies. The original authorizing statue for MEGA, Public Act 24 of 1995, mandated that local units provide an incentive as part of the overall deal (this mandate was removed from the statute in 2008). Many municipalities offered local property tax abatements, but other local incentives included such things as discounted parking and subsidized golf.
The authority consists of an eight-member board. Jobs qualifying for a MEGA credit must pay at least 150 percent of the federal minimum wage. The requirements for claiming a MEGA credit depend on a business's current and planned locations. Originally, the minimum job creation criteria were as follows:
- A business expanding within the state needed to create 75 qualified new jobs at its proposed facility;
- A business locating in Michigan from outside the state needed to create 150 qualified new jobs at its proposed facility; and
- A business locating its proposed facility within a state neighborhood enterprise zone or a "federal empowerment zone, rural enterprise community or enterprise community" needed to create 25 qualified new jobs.
These minimum job requirements have since been lowered, and some new tax credit types have been added:
- A business expanding within the state must create 50 qualified new jobs at its proposed facility;
- A businesses locating in Michigan from outside the state must create 50 qualified new jobs at its proposed facility;
- A business locating its proposed facility within a state neighborhood enterprise zone or a federal empowerment zone, rural enterprise community or enterprise community still must create 25 qualified new jobs, but the same requirement now applies to businesses locating their proposed facility in state "renaissance zones";
- A business seeking a "high-technology" MEGA tax credit must create five qualified new jobs at its proposed facility and within five years create 25;
- A business seeking a "rural" MEGA tax credit must create five qualified new jobs at its proposed facility and within five years create 25;
- A business seeking a "job retention" MEGA tax credit must:
- maintain 100 to 500 jobs depending on extremely specific requirements laid out in the MEGA statute;
- maintain its current job count if it has recently shed jobs at a rate that qualifies it as a "distressed business" under the law;
- be located in this state and maintain 675 jobs, create 400 new jobs and agree to commit to $45 million in capital investment by Dec. 31, 2007; or
- be "located in this state on the date of the application, [make] new capital investment of $250,000,000.00 or more in this state, and [make] that capital investment at a facility located north of the 45th parallel."[*],
Once the MEGA board approves a credit, representatives of the parties to the transaction effectively cement the deal when each signs a "MEGA Tax Credit Agreement" prepared by the MEDC and listing the expectations and responsibilities of the company and the state.
The early years of the program were stricter than they are today — at least technically. Although the law officially set a relatively high bar, the agreements themselves were subject to amendment which could provide companies with greater latitude. For instance, in 1998, MEGA gave Alsons Corp. a deal that mandated the company reach its 75 qualified new jobs threshold by July 2000. The company fell just short of its goal and cited as its reason a tight labor market, meaning that the marketplace for employees was so competitive that Alsons could not find workers to fill their jobs. The MEGA board amended its agreement with Alsons to extend by one month the time frame in which the company had to add new employees.
Similarly, AGC America Inc. received approval of a MEGA grant in July 2000 and formalized the agreement in September. In early 2004, MEGA voted to amend the agreement — which mandated average weekly wages of $1,899 — to allow AGC to pay average wages of just $1,442. The lower wage scale was allowed on grounds that the firm was replacing its Japanese labor force in Michigan with American workers "with the same skill set," something the board viewed as "a positive development." Apparently the foreign-born employees of the company had demanded and received above-local market wages in exchange for working outside their home country. The MEDC staff stated they would have approved this deal even if the original proposal carried a wage of just $1,442 per week.
The leadership of the MEGA recipient companies also needs to certify that the expansion or location in Michigan would not have otherwise occurred without the MEGA deal. Each executive signs an agreement saying that without these incentives, their company would not have expanded in Michigan.
Not all of the burdens of this program rest with the company. MEGA's authorizing statute once mandated that the local unit of government participate in some way in each MEGA deal by offering incentives of its own. This component was struck from the MEGA statute in 2008.
The authorizing statute has been amended 20 times to make the program much more expansive. Changes have also made it far easier for recipients to qualify for the program and claim the targeted tax relief.
Assume for a moment some Michigan-based corporation — Kmart Corp., for instance — wanted to expand its operations and began looking for the ideal location to do just that. The leadership of this company could approach MEGA and request tax credits against future business activity and employment (under the original MEGA law with the old Single Business Tax).
As part of the process for obtaining MEGA deals, Kmart officials would need to inform state officials of what competing location might be the recipient of that corporation's expansion. Kmart officials also would need to explain exactly why the alternative location made better business sense in order to illustrate why MEGA was necessary to reduce some perceived cost differential between the competing locations. A 2006 MEGA deal, for instance, read, "When comparing the Michigan and Tijuana locations, the company estimates that wage rates in Tijuana are significantly lower."[†],
The MEDC and its predecessor agency maintain a small contingent of bureaucrats to ensure such estimates seem reasonable and, at some point in the process, they would order an economic impact analysis of the proposed MEGA deal. This economic impact analysis will take the business's projection of the investments it will make and the jobs it will create — known as "direct jobs" — and project what kind of additional "spin-off" employment, taxes and income might be expected as a result.[‡]
Officially, a vote of the MEGA board is required to approve the deals, but history suggests these approvals are largely formalities. By the time a MEGA application reaches the board, it is likely to be accepted. The board's official meeting minutes reveal that a few simple questions are raised with each deal, and that applicants are rarely refused once they have reached this stage in the process.
Recall that the MEGA tax credit is not the only part of the deal. The MEDC may also arrange for a MEGA recipient to benefit in many other ways. For instance, the state can arrange for the company to receive a property tax abatement against the education portion of its state property taxes; job-training subsidies to improve the skills of the workers; Community Development Block Grants to improve the business's location if it is a low-income area;[§]or even transportation-related work from the Michigan Department of Transportation.
From April 1995 through December 2008, MEGA offered more than $3.3 billion in business tax breaks in some 455 deals, extending as long as 20 years into the future. As part of the overall MEGA packages, another $58 million was offered in job training subsidies; an additional $221 million was granted in abatements against the 6 mill state education property tax; and another $1.6 billion was provided through other state and local incentives, including state transportation infrastructure improvements and local property tax abatements.[¶]
In other words, a conservative estimate of the total value of incentives offered to corporations and other private entities involved in the MEGA program tops $5.2 billion through 2008. The estimate is conservative because complete local incentive data has become all but impossible to ascertain from MEDC publications.
[*] The 45th parallel runs through Alpena, Montmorency, Otsego, Antrim and Leelanau Counties.
[†] This dry understatement shows that even public policy provides moments of unexpected humor.
[‡] See, for instance, the "Economic Effects" memo produced by economists under contract with the MEDC at http://www.mackinac.org/archives/fpi/mega/Meridian_Automotive_Systems-9-14-04-EE.pdf.
[§] One MEGA deal involving CDBG revenues appeared to violate the spirit of CDBG proscriptions. In a January 21, 1999, telephone interview conducted by author Michael LaFaive of Jim Donaldson (then with the Michigan Jobs Commission) Donaldson explained that the first MEGA deal enjoyed by the Dow Chemical Company included a CDBG "swap." As a relatively wealthy community, the city of Midland, in which Dow is located, could not qualify for CDBG monies. To overcome this problem, the state arranged for Midland County to receive the CDBG grant; in exchange, the county agreed to do drainage work for Dow Chemical.
[¶] Mackinac Center for Public Policy incentive totals differ from those detailed in the MEDC's "All MEGA Projects" spreadsheet. When a MEGA project fails the MEDC typically zeroes out the row containing that particular company. The Mackinac Center retains the data in its master spreadsheet of MEGA deals.
 "Michigan Economic Growth Authority Act," (Michigan Legislature, 1995), http://www.legislature.mi.gov/(S(zfs54hjkxruhrn55b5th3q55))/documents/mcl/pdf/mcl-Act-24-of-1995.pdf (accessed August 6, 2009).
 "Public Act 24 of 1995," (Michigan Legislature, 1995).
 "Michigan Economic Growth Authority Act."
 "Adopted Meeting Minutes, February 13, 2001," (Michigan Economic Growth Authority, 2001).
 "Adopted Meeting Minutes, January 20, 2004," (Michigan Economic Growth Authority, 2004).
 See, for instance, "MEGA Tax Credit Agreement: Standard Credit, Kelly Services, Inc.," (Mackinac Center for Public Policy (from Michigan Economic Development Corp.), 2008), 3, http://www.mackinac.org/archives/fpi/mega/Kelly_Services-8-19-08-CA.pdf (accessed August 27, 2009).
 "Public Act 110 of 2008," (Michigan Legislature, 2008), http://legislature.mi.gov/documents/2007-2008/publicact/pdf/2008-PA-0110.pdf (accessed August 6, 2009).
 Mark Morante and Toni Brownfield, "Briefing Memo - Eaton Aeroquip Inc," (Michigan Economic Growth Authority, 2007).
 "All MEGA Projects" spreadsheets provided by the Michigan Economic Development Corp. and its predecessor agency, the Michigan Jobs Commission, to the Mackinac Center for Public Policy since 1999.