The failures of the state to effectively subsidize individual companies or industries are numerous.
The film studios of Hangar 42 in West Michigan and Unity Studios in Allen Park both ended in scandal. A123 Systems and LG Chem were subsidized battery companies that went bankrupt. Renewable energy projects featuring the old Ford Wixom Plant, GlobalWatt, Dow Kokam and Suniva all flopped.
More recently, under the current Michigan Business Development Program, Cherry Growers, a company near Traverse City, was approved for millions of subsidies through the state’s Michigan Business Development Program and projected to create 72 jobs. Instead, it went bankrupt and is being liquidated.
Spiech Farms, another MBDP recipient in West Michigan, was approved for $220,000; it filed for bankruptcy less than a year later.
RNFL Acquisition, Inc. also received a MBDP subsidy and was expected to create 27 new jobs. It ultimately laid off its employees in 2016 and its assets were sold off in a proceeding similar to a Chapter 7 bankruptcy. An MEDC spokeswoman told the Mackinac Center that the company’s subsidy would not be paid back, despite its failure. “We have not received any repayment, and at this point don’t expect that we will. The asset sale was not sufficient to cover all of the creditors, including MSF,” she said via email. And these are just a few of the examples of the state’s failure to invest taxpayer dollars wisely, and from just one program.
These stories underscore the inability of state employees to accurately place bets on the right horses. But even when companies that get state aid add jobs and expand, this may very well have happened without state support. There is just no direct, real way to tell, so state bureaucrats get to claim that they were responsible for this new economic activity even if they were simply doling out favors to a company that was going to expand anyway. One analysis of state and local incentives suggests that as few as 6 percent of deals “might tip the location decision” of businesses.
The list is long of companies that the state has given incentives to that have failed to create the jobs they promised. This is true for many different economic development programs. Indeed, the list of promises made but not kept goes beyond the scope of this document, but many — from the Michigan Pre-Seed Capital Fund to the Brownfield Redevelopment Financing Program and Michigan Economic Growth Authority — can be found on the Mackinac Center’s website at www.mackinac.org.
Even when state programs and the companies they incentivize perform as good as or better than projected, they remain an unfair use of state resources. One egregious example of this that the Mackinac Center profiled in 2000 involves Koegel Meats. This family-owned business has been in Flint for more than a century — through good times and very bad ones — and without incentive deals. Imagine the owners’ surprise then when they learned that the state offered a competitor — Boar’s Head Meat Provision — a $5.1 million incentive package to expand its operations into Michigan. It is fundamentally unfair of state bureaucrats to effectively take money from Koegel Meats and give it Boar’s Head, but that was the practical effect.
The government has nothing to offer these companies that it doesn’t first take from someone else. This is an expensive transfer from the many to the few. There are more than 200,000 business establishments in Michigan. Lansing bureaucrats simply do not have the ability to pick winners from losers in the marketplace and subsidize the winners, particularly in a way that creates more wealth than would otherwise occur without their interference.