In 2011 Gov. Rick Snyder signed into law an economic incentive program known as the Michigan Business Development Program. It was designed to replace the Michigan Economic Growth Authority, a tax credit program created in 1995. The MBDP offers grants and other financial assistance to a small number of companies that make investments, create jobs or do some combination of both in the Great Lake State.

From March 2012 through September 2016 the program approved some 319 deals with a subsidy value exceeding $300 million, according to our count. Of that amount, $157 million had been disbursed to companies.

The program has been in existence long enough now to merit a robust examination. We built a statistical model designed to isolate the impact that MBDP projects may have in the counties in which they are located. We used publicly available quarterly workforce data from the Census Bureau and data from the state agencies that operate the MBDP. We found the MBDP program to be no more effective than the MEGA program it replaced. Specifically, we found that for every $500,000 disbursed through the first 10 quarters of the program — or 2.5 years — there was a corresponding cumulative loss of about 600 jobs in a county.

This was not a great surprise to the authors, who have conducted several economic development-related literature reviews, including a new one for this study. Many academic studies find state tax credit and subsidy programs to have little or no positive impact. Some of those studies involve programs in other states that share some characteristics with the MBDP. In addition, a close review of information available in legislative reports raises questions about the program’s performance.

One-third of MBDP deals approved during the nearly four years we studied either have been or are in some stage of default or dismissal. Not every default or dismissal was problematic, and some deals were later reconstituted. But too many of them suggests the state struggles to effectively pick winners from losers in the marketplace.

When he was first running for governor, Gov. Rick Snyder’s campaign literature stated, “Incentive programs that do not add value to economic development or aren’t worth the cost should be discontinued.” We agree, which is why our first recommendation for reform to the Michigan Legislature is to end the Michigan Business Development Program.

Here are our full recommendations:

  • Eliminate the Michigan Business Development Program. It has not shown itself to be a worthwhile, cost-effective investment.

  • Prohibit amendments that relax milestones. When job or investment levels are promised they should be kept or deals revoked.

  • Prohibit unqualified claims of high returns on investment by the MSF and MEDC. The state makes projections about the MBDP’s success based on assumptions that projects will work as advertised when many do not.

  • Mandate counterfactual analyses. If the state is going to make projections about the future success of the MBDP, it should also project the jobs that would be created by some alternative action, such as an across-the-board tax cut or perhaps spending more improving infrastructure.

  • Improve the annual report published by the MSF and MEDC for the Michigan Legislature. It should maintain an ongoing list of all revoked deals throughout the program. The current practice is to report revocations when they happen but then omit any mention of the revoked deal in successive reports.