Michigan’s Economic Performance

For much of the new millennium, Michigan has been an economic laggard, while the national economy has expanded. From 2002 to 2007, Michigan's real state gross domestic product declined by 1.7 percent, while the average U.S. state's real gross domestic product expanded by 14.4 percent.[20]

Michigan was ranked 16th among the 50 states in per-capita state GDP in 1999,[21] the year the MEDC was formed; ironically, it has since tumbled to 41st.[22] During that time, the state has lost a staggering 728,100 jobs — though to be fair, many of these were lost in recent months, during the general national economic decline.[23]

Against this backdrop, the priorities of the MEDC have sometimes seemed as questionable as its approach. In 2002, the MEDC explicitly stated in a published brochure that its first goal that year was its own survival — specifically, to "Ensure the Continuity of the MEDC."[24] This goal effectively elevated the retention of MEDC jobs above the retention of jobs for state taxpayers.[*]

The possibility that the MEDC might pursue political goals, rather than economic gains, is one reason why good public policy requires that the MEDC become more transparent. Another is simply determining whether MEGA and other MEDC programs work.

These concerns lead to a number of policy recommendations.

  1. MEGA should be required to do the following:

    1. Restore to its "All MEGA Projects" spreadsheet (or any equivalent report) the three columns of incentive data that disappeared after 2001 — specifically, state education-tax credits, the value of any state job-training subsidies and community development block grant infrastructure improvements — and add a column for the value of any other state incentives associated with each MEGA deal.

      The recent loss of MEGA summary spreadsheet information increases the risk that MEDC and MEGA officials will not exercise care in handing out MEGA tax credits. With the current lack of transparency, MEGA officials face the perverse incentive of being able to publicize their successes and hide their failures. If a company receiving a MEGA credit should become successful, MEGA officials will be able to issue news releases about MEGA's economic benefits, but if the company or the plant should later close down, MEGA officials can make it difficult for anyone to determine what the state's treasury has forgone from tax credits granted to the firms.

    2. Publish the value of local government incentives offered to each MEGA project for each year of its life, distinguishing local property tax abatements from other local government incentives.

    3. Publish the restored spreadsheet and the local incentives on the MEDC Web site after each month's official MEGA meeting, providing easy access to the public, media and legislators.

    4. Publish each month the MEGA jobs tally by year by project for companies that have actually provided jobs and earned MEGA tax credits (as opposed to simply promising jobs and signing conditional MEGA tax-credit contracts).

    5. Publish briefing memoranda with project details that are in a consistent format, and ensure that the memoranda include both the value of all incentives offered by state and local governments and the company's quantified cost differential between Michigan and the best competing state.

    6. Publish detailed annual reports to the Legislature, similar to those of the late 1990s. Specifically, the reports should include:

      1. A narrative of the company history and the MEGA deal;

      2. An executive summary of the report;

      3. The project location (including the city and county);

      4. The location of the company's headquarters;

      5. The expected total jobs — distinguishing both direct and indirect — to be created over the life of the deal;

      6. The average weekly wage, including the benefit package value as percent of total;

      7. The capital investment expected;

      8. The estimated net positive state government revenue impact over the life of the MEGA project, showing both the estimated state revenue forgone and the estimated state revenue gained;

      9. The projected state personal income generated over the life of each MEGA deal; and

      10. The explicit value of the local government's contribution to the MEGA deal through various local government business incentives.

      11. A sample page from a 1998 MEGA annual report that provided such data can be found in Graphic 2.

    7. Publish in each annual report a list of companies that formally applied for MEGA consideration but either withdrew or were rejected by the MEGA at any point in the application and approval process.
      This final point is vital for assessing the program. When signing a MEGA tax-credit agreement, company executives are explicitly stating that the MEGA credits are needed to address the cost disadvantages they face in expanding in, or moving to, Michigan. By surveying the ultimate expansion and location decisions of companies that were rejected by MEGA, it should be easier to determine the degree to which MEGA tax credits truly affect business calculations.

  2. The Michigan Office of the Auditor General should provide annual audits of MEDC job claims. The OAG's findings, described above, on a small MEDC job-training program suggest a full-scale audit of MEGA, the state's highest-profile jobs program, is appropriate.

  3. The MEDC should be required to publish its general ledger on the Web each year so that legislators and the public alike can get a more detailed understanding about where state and other MEDC monies flow.

[*] This grim outlook stands in stark contrast to the MEDC's optimistic beginnings and its mission of keeping "good jobs in Michigan and attracting more of them." Indeed, on the MEDC's first day of operations, new Board Vice President Beth Chapelle was quoted in the Michigan Information & Research Service's MIRS Capitol Capsule as saying, "This new structure will enable us to have an even quicker, more flexible economic development focus." She added, "Ultimately, that means more jobs." ("Michigan Economic Development Corp Begins Operations," Michigan Information & Research Service, April 5, 1999.)