MEDC Ineffective, Nontransparent and Should Be Eliminated, According to New Mackinac Center Study

In Michigan counties, every $1 million in MEGA tax credits awarded for manufacturing was associated with loss of 95 manufacturing jobs, report finds

For Immediate Release
Contact: Michael LaFaive
Director of the Morey Fiscal Policy Initiative
989-631-0900
989-430-8669

MIDLAND — As the Legislature debates the transparency and scope of the Michigan Economic Development Corp. — the state’s chief “jobs” department — the Mackinac Center has released a new study that addresses both of these topics and calls into question the organization’s efficacy. “The Michigan Economic Development Corporation: A Review and Analysis,” authored by Mackinac Center Fiscal Policy Director Michael LaFaive and Center Fiscal Policy Analyst James Hohman, enumerates the MEDC’s numerous programs and reviews the performance of some of its high-profile initiatives.

For example, the authors explore the economic development “flagship,” the Michigan Economic Growth Authority, to see whether actual job creation meets the MEDC’s estimates. They inspected credits awarded from 1995 to the end of 2004 and found that while MEGA deals were expected to generate 61,043 new jobs, only 17,971 were ultimately created.  Hence, the actual job count was just 29 percent of the expected total — less than one-third. In practice, an announcement that 1,000 direct jobs were expected at a MEGA facility translated into 294 actual jobs on average.

“The MEDC and its work can be intimidating to anyone trying to understand the incredible disconnect between the many jobs MEDC claims to create and Michigan’s 15 percent unemployment rate, falling economic output and shrinking personal incomes,” said LaFaive. “The MEDC is a sprawling, expensive bureaucracy whose true size and political influence are masked by just a handful of line items in the state budget.”

The authors focus first on MEGA. “MEGA is crucial to our understanding of every other program administered by the MEDC,” said Hohman. “MEGA has offered up some $3.3 billion in tax credits alone during its 14 years of existence. If this program can’t win new or save old jobs for the state, it is unlikely any other MEDC program could do so.”

An empirical analysis of the program was conducted by Michael Hicks, director of the Bureau of Business Research at Ball State University, at the request of the authors. Hicks found that in Michigan counties, there was an association between every $1 million in MEGA tax credits actually claimed by manufacturing companies and a reduction of 95 manufacturing jobs. These findings confirm a 2005 analysis of the MEGA program performed by Hicks and LaFaive that proved empirically that MEGA failed to create jobs or increase per-capita personal income.         

“To our knowledge, the MEDC has not refuted a single point of fact in our 2005 study, and yet the program rolls on,” said LaFaive. “Now this study reaches the same conclusion — that at best MEGA has no impact on job creation. In addition, the program is unfair, frequently providing tax and subsidy favors to a handful of corporations while in-state competitors typically receive nothing.”

The study also examines the Michigan Film Office, its film incentive program, one component of the 21st Century Jobs Fund and the Broadband Development Authority, a program the MEDC claimed would create 500,000 new jobs through 2009 but ended up being eliminated in 2007. The authors also detail the increasing lack of transparency at the MEDC.

The study offers specific recommendations for the Michigan Legislature regarding the MEDC and its programs, some of which are mentioned below:

  • End the MEDC outright and the programs it administers. This would conceivably save tens of millions of dollars annually to help balance the budget, stave off tax hikes or even reduce tax burdens while likely improving economic efficiency and job creation in the state.

Short of eliminating the entire MEDC, the authors recommend several alternative steps:

  • Eliminate the Michigan Economic Growth Authority.  
  • Eliminate the Michigan Film Incentive.

If the Legislature insists on keeping these programs, rein them in and make them more transparent.

  • Mandate a full performance audit of each MEDC program.  
  • Prohibit the MEDC from using hypothetical assertions of spin-off jobs associated with various government “investments” in companies.  
  • Prevent the use of the Michigan Film Incentive’s refundable tax credit until another, more accurate analysis of the program’s impact has been done.

“Critics often argue that reducing these programs would result in ‘unilateral disarmament’ in Michigan’s war for jobs with other states,” LaFaive said. “But the programs, for all their sound and fury, don’t work. You might as well argue that the state shouldn’t unilaterally disarm in the war between witch doctors.”

The study is available at www.mackinac.org/10896.

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