Program Reductions and Improved Transparency

Regardless of whether the Legislature eliminates MEGA or the Michigan Film Incentive, it should take steps to rein in — rather than expand — each of the programs. Specifically, the Legislature should consider:

  • Requiring the MEDC 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.
  • Mandating a full performance audit of each MEDC program. The audit should include a tally of total revenues by source and a detailed list of expenses dedicated to each program, as well as the number of full-time equivalent employees dedicated to each program. In addition, the Office of the Auditor General should provide a tally of "direct jobs promised" versus "direct jobs delivered" by year, using independent sources wherever possible, for each program reviewed.

    This audit should be conducted by an independent entity, such as the state Office of the Auditor General, and the results should be posted on the OAG Web site.
  • Requiring that MEGA use only direct jobs "created" as a measure of a program's success or failure. The MEDC and other state agencies should be prohibited from using hypothetical assertions of spin-off jobs associated with various government "investments" in companies or industries. These hypothetical counts encourage counterproductive political gamesmanship.
  • Mandating that MEGA publish complete and consistent data like that described in this study under "A Summary of the Loss of Available MEGA Data." A specific set of recommendations can also be found in the Mackinac Center Policy Brief "MEGA, the MEDC and the Loss of Sunshine."
  • Preventing the use of the Michigan Film Incentive's refundable tax credit until another, more accurate analysis of the program's impact has been done — and ensure that all of the costs associated with the program are included. Specifically, the modeler should treat any money needed to finance the refundable credits as revenues from Michigan business tax surcharge, which was raised just months before the MFI was expanded to its current form.
  • Completely eliminating the "refundable" part of the film incentive tax credit. Tax credits against actual business tax liability is a better tack than disbursing cash subsidies from the state Treasury.
  • Mandating that any company wishing to participate in the Film Incentive program agree to have the amount of tax credit and tax refund received published by the Michigan Film Office in its required annual report to the Legislature.
  • Short of eliminating the 21st Century Jobs Fund's Competitive Edge Technology Grants and Loans, requiring greater transparency in the operations of the program. Currently, the annual reports to the Legislature lack the actual draws on the grants and loans made to the companies; details on the repayment histories for loans; and a statement of which loans have been converted into equity, as well the market value of that equity. Independent verification of jobs numbers is also warranted.

These lesser reforms could conceivably shed light on the performance of some MEDC programs and stimulate helpful debate on their effectiveness. But policymakers should reflect that it is unlikely many Michigan individuals and businesses would look at the MEDC's track record and choose to finance the corporation's operations with their own money if they were given the choice. Indeed, faced with arguments that the state's economy makes the MEDC more important than ever, they might well agree with Adam Smith, the father of modern economics, who wrote in 1776:

"But though it can very seldom be reasonable to tax the industry of the great body of the people in order to support that of some particular class of manufacturers, yet in the wantonness of great prosperity, when the public enjoys a greater revenue than it knows well what to do with, to give such bounties to favourite manufactures may, perhaps, be as natural as to incur any other idle expense. In public as well as in private expenses, great wealth may, perhaps, frequently be admitted as an apology for great folly. But there must surely be something more than ordinary absurdity in continuing such profusion in times of general difficulty and distress."[211]

[211] Adam Smith, An Inquiry into the Nature and Causes of the Wealth of Nations, ed. Edwin Cannan (Library of Economics and Liberty, 1776), IV.5.37.