State MEGA Audit Finds MEGA Problems

The Michigan Auditor General yesterday released a 72-page audit of the Michigan Economic Growth Authority program, finding that it is poorly administered. MEGA is the state's flagship "jobs" program, granting selective tax breaks and subsidies to particular firms selected to be "winners" by its staff.

The Auditor General's examination focused on reviews conducted by the agency that oversees MEGA. In other words, this was a review conducted to determine whether or not MEGA companies granted selective tax breaks have used proper "job count and salary information." Among the findings:

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  • About one-third of wages to be paid out by MEGA companies, and reported by them to the state in specific tax credit claims, did not actually meet the requirements laid out to qualify for the MEGA credits.
  • Of 15 specific MEGA deals examined by the Auditor General, some 1,229 (26 percent) included "employees and their wages" that may not actually be eligible for tax credits granted. It is possible that 34 percent of the wages reported by companies failed to meet the "criteria to qualify for a tax credit," and that MEGA's parent agency, the Michigan Strategic Fund, "approved $2.6 million in tax credits related to these potentially ineligible employees."

In a 2005 report documenting the program's ineffectiveness in improving Michigan's failing economy, the Mackinac Center called for an Auditor General review of MEGA. Accepting this recommendation immediately potentially could have saved the state millions of dollars in foregone revenue.

Our report read in part: "The state could consider conducting regular, expanded audits of MEGA's direct job counts. Such oversight might not only clarify the success and failure the authority has achieved, but could encourage more efficient accounting procedures at the authority."

Two subsequent studies (one by the Mackinac Center in 2009) have confirmed our original finding of program ineffectiveness, and a third found that MEGA had produced a negligible number of jobs in its 15-year history, when compared to all the resources and energy it consumed and the magnitude of the state's decline in overall employment.

Perhaps in response to these criticisms, in recent years, MEGA and its parent agencies have become increasingly secretive and less transparent.