From Performance to Effectiveness

While these performance failures call into question the MEGA board's ability to make projections about the job potential at specific companies, it does not in itself show that MEGA is failing to stimulate the economy. As mentioned above, when MEGA officials approve a MEGA tax credit package, they hope not only to create jobs at the plant that receives a MEGA deal (called "direct" jobs), but also to generate "spin-off" or "indirect" jobs. These jobs might be created at other Michigan businesses — such as a major supplier — that sell items to the plant, or at local businesses — perhaps nearby restaurants and retail stores — that sell items to the plant's workers. In addition, such "spin-off" jobs might be created at Michigan distributors or retailers that buy and resell the plant's products.

MEGA officials therefore hope to target industries and locations that will yield particularly high spin-off benefits. For instance, they may try to encourage the growth of high-tech industries in the belief that such facilities will generate higher-paying jobs with greater spin-off spending than, for instance, retail shoe stores will. In particular, MEGA officials would note that the credits are not awarded unless the jobs or investment actually appear, reducing the possibility that any poor choice they might make in awarding tax credits will ultimately damage the economy or state tax revenues. As Greg Main, CEO of the MEDC, recently told a columnist at, "The reality is the amount of the credit is always tied to the number of jobs that are created and the value of the income taxes that will be generated by those employees. ... If there is no job created, then there is no benefit paid out because there is no tax revenue." [*], [111]

Hence, to determine whether MEGA has had a significant positive impact, it's necessary to perform a more complex analysis of Michigan's economy. Such an analysis would attempt to isolate MEGA's potential impact and separate it from other factors that may be driving the state's economy, such as general trends in the national economy.

In 2005, such an analysis was performed by Michael LaFaive (one of the authors of this study) and Michael D. Hicks, then a research professor at the Center for Business and Economic Research at Marshall University and now director of the Bureau of Business Research at Ball State University. The analysis, which was recently accepted for publication in the academic journal Economic Development Quarterly, involved a peer-reviewed statistical study of the MEGA tax credits awarded in each Michigan county and extensive county-level data in Michigan from 1990, five years before MEGA's inception, to 2002, the most recent data available at the time. By including pre-MEGA data, the analysis helped ensure that MEGA's impact post-1995 could be better discerned from existing county-level economic trends. The resulting model allowed an examination of state and county per-capita personal income, employment and unemployment rates.

The results, published in the 2005 Mackinac Center study mentioned earlier, showed that MEGA did not improve the per-capita personal income, employment or unemployment rate of the state or of any Michigan county. It also found that Michigan counties that hosted companies receiving MEGA deals fared no better economically than counties that did not. Further, the study indicated that MEGA did not affect aggregate income or employment in manufacturing and warehousing, and that while MEGA credits did temporarily increase construction employment, the jobs disappeared within two years and were generated at the cost of $123,000 each in MEGA credits. [112]

[*] As we note below, the same cannot be said of the other business incentives that MEGA arranges when it arranges a MEGA agreement. Other state and local subsidies that are part of a MEGA deal are often awarded to the company right away, prior to a company's job creation or investment .

[111] Nathan Bomey, "Expiring Tax Credits Threaten Ann Arbor's Economic Development Strategy, Officials Say,", August 16, 2009.

[112] LaFaive and Hicks, "MEGA: A Retrospective Assessment," 4.