Among the most notable features of the deal struck between the Michigan Legislature and the Granholm administration for balancing the state budget in 2004 is a drastic reduction in the gross appropriation to the Michigan Economic Development Corporation (MEDC), the state’s quasi-public “department of jobs.”
Former Gov. John Engler’s last official budget appropriated more than $155 million for fiscal year (FY) 2003 to operate the MEDC. In FY 2004 the department will likely receive only $104.5 million, a 32 percent reduction from the previous year. While a component of total funding, the General Fund, will register a tiny increase in its MEDC appropriation for 2004, this pales in comparison to the drastic cut in this superfluous state program.
Interestingly, although since its creation in 1999 total MEDC funding has dropped 53.7 percent (assuming budget and employment numbers released yesterday become law), employment at the agency has been reduced by only 17 percent. It is not beyond the bounds of credulity to suggest that the MEDC is sacrificing funds that would otherwise go to programs that allegedly “create” jobs to protect the taxpayer-funded jobs in its own bureaucracy.
The next step for the Legislature is to zero out General Fund appropriations completely, as Mackinac Center scholars have recommended since the inception of the jobs bureaucracy. The MEDC is arguably the least necessary entity in state government.
In early July a paper entitled “Does the MEDC Even Matter” explained that there was no significant correlation between spending on economic development programs and per-capita Gross State Product (GSP). Economists generally consider GSP to be one of the best indicators of a state’s overall economic health. If economic development programs don’t correlate to the health of a state’s economy, why does Michigan continue to fund them?
The budget agreement being hammered out in Lansing underscores many bright spots for Michigan and the Granholm administration. Relative to other states Michigan is balancing its budget without major tax increases and is making real spending cuts.
Officials could do more to ensure a balanced budget. They should go the distance and eliminate the remaining $40.6 million in General Fund spending appropriated to operate the MEDC.
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Michael LaFaive is director of fiscal policy for the Mackinac Center for Public Policy, and senior managing editor of Michigan Privatization Report, published by the Mackinac Center. More information is available on economic development.