Policymakers have constantly tinkered with the 21st Century Jobs Fund program. It has changed drastically since its inception: The statutory guidance for the program has been amended 19 times since it was introduced. Because money for the program must be appropriated each year, boilerplate requirements and earmarks were routinely added to the program, and, especially in times when state tax revenues were not keeping pace with state expenditures, the planned amount originally designed to fund the effort was not always appropriated. And from the very beginning of the program, lawmakers had a difficult time agreeing to and sticking with a consistent investment strategy.
Gov. Granholm’s initial idea for this economic development program was to expand an existing program, which provided grants and loans to select industries — the Technology TriCorridor Initiative. This program used securitized tobacco settlement money in 2004 and 2005 to make grants and loans to business projects in the life sciences, advanced automotive and homeland security industries. In addition to expanding the Technology TriCorridor Initiative, the Governor’s initial plan also included targeting the alternative energy technology industry for state investment.
The bills introduced in the Legislature in response to the governor’s proposal followed fairly closely the governor’s original intent, albeit with some structure changes. For instance, instead of an immediate expenditure of $2 billion, the bills proposed spending $1 billion initially and then creating an annual expenditures for the program each year from 2006 to 2015. The bills also expanded the industries that the program could fund to include “medical informatics” and “bioterials.” Finally, the original legislative bills did not include talent attraction and retention or matching grants.
More substantial changes to the legislative bills occurred after the House bill was introduced on July 6, 2005. About seven weeks after its introduction, an amendment was offered to give the Michigan Forest Finance Authority $25 million from the new program.[*]
This authority’s statutorily defined purpose is to “preserve existing jobs, create new jobs, and alleviate and prevent unemployment through the retention, promotion, and development of forestry and forest industries and to protect the health and vigor of forest resources.”
The Legislature discussed numerous other changes and amendments to the House bill. Loans for “WiMax” internet connection services were added and then later removed. There were earmarks for the tourism industry, military contractors, nonprofit medical research and a Southeast Michigan business association for the automobile industry. In addition, it proposed giving $16 million (4 percent of initial $400 million authorized to be spent in 2006) to the Michigan Economic Development Corporation for administering the program.
Legislators also later proposed substantial changes to the program’s functions. They devoted a significant amount of the money for investment funds in private equity, venture capital and mezzanine financing. They also sought to make the program operate as a guarantor to businesses seeking loans and to expand its use for loans to small businesses.
Finally, the plan for financing the program was changed once again. Funding was shifted more into the future and cut in half: The state would make an initial allocation of only $400 million and pledged an additional $75 million for each fiscal year starting in 2008 and running until 2015, for a total of $1 billion.
The bills had bipartisan support and easily passed both legislative houses.[†] However, after signing the bills, Gov. Granholm made reductions in appropriations with an executive order that lowered the Michigan Forest Finance Authority spending by $20 million — to just $6 million. And a subsequent bill decreased the 21st Century Jobs Fund spending by an additional $50 million, which was transferred to the state’s general fund. The state was anticipating overspending that year and needed additional money in the general fund to cover its costs.
When all was said and done, the final bill spent only $350 million of the initially proposed $2 billion in the upcoming fiscal year, with another $600 million pledged in the future, for a total of $950 million. Of the $350 million to be spent immediately, $57.5 million was earmarked for a variety of specific projects: The Defense Contract Coordination Center ($10 million), the Van Andel Research Institute in Grand Rapids ($4 million), an automotive technology business “accelerator” ($6 million), the Michigan Film Office ($2 million), a Michigan promotion program ($15 million), the Agricultural Development Fund ($10 million), the Michigan Forest Finance Authority ($6 million), the Small Business Capital Access Program ($3.5 million) and the “Wet Lab Redevelopment” ($1 million). Other spending included business development marketing ($20 million), Pfizer Asset Retention Projects ($12 million), a “Life Science Pipeline” ($1.4 million), and administrative costs ($16 million). A further $7.8 million was unallocated but subject to approval by a board organized under this package. About $235 million of the initial $350 million — 67 percent — was allocated to grants and loans for targeted industries and businesses or to the state’s investment programs.
This $121 million funded the Competitive Edge Technology Grants and Loans program, which was an extension of the Technology TriCorridor Initiative, which itself was an extension of the Health and Aging Research and Development Initiative, later called the Life Science Corridor Initiative, which was instituted in 1999 by former governor, John Engler. Grants and loans from this program are overseen by a 19-member Strategic Economic Investment and Commercialization Board, whose members are appointed by the governor.[‡]
To help score applicants for grants and loans, the SEIC Board contracted with the American Association for the Advancement of Science to review project ideas and interview top candidates. AAAS is an international science advocacy organization that also works with private industry and governments in providing expert advice. Recommended candidates were then either accepted or rejected by the SEIC Board, subject to funding availability.
After the first round of applicants, the SEIC Board approved $101.2 million worth of grants and loans to select businesses and organizations in September 2006. The SEIC Board requested an additional $35 million from the Michigan Strategic Fund Board, which is responsible for allocating money from the 21st Century Jobs Fund. This request was approved, and in the end, the SEIC Board made 85 loans and grants worth about $137 million for the 2006 fiscal year.
The 21st Century Jobs Fund also made allocations to the investment program in 2006 that was part of its statutorily defined functions. The MSF Board was responsible for running this operation and selected Credit Suisse as the fund manager for its venture capital, mezzanine lending and private-equity programs. But it would be years before these funds were actually invested in companies At the end of fiscal year 2007, the state had committed itself to $57.5 million of its $114 million allocation and only $3.3 million had been called for investment.
What originated as a gubernatorial call for $2 billion worth of investment in target industries at the beginning of the legislative session amounted to just a $137 million investment in grants to universities and loans to firms, $109 million to partner in high-risk investments and a significant number of funding for earmarked programs.
[*] “Journal of the House of Representatives: No. 71” (State of Michigan, Aug. 31, 2005), 1257, https://perma.cc/RV36-BJZW. The amount granted to the Michigan Forest Finance Authority was increased to $26 million in the version of the bill that passed the House. “Substitute for House Bill No. 5047” (State of Michigan, Sept. 28, 2005), 32, https://perma.cc/R63K-7Q35.
[†] “Securitization In, Tax Plan Out,” MIRS Capital Capsule (Michigan Information & Research Service, Nov. 21, 2005); “2005 House Bill 5047: Create ‘21st Century Jobs Fund’” (MichiganVotes.org, 2005), https://perma.cc/2L3F-86GJ. The bills were taken up in conjunction with a business tax adjustment that changed some credits, exemptions and deductions and had a small rate reduction. The bills included “tie-bar” language that said that it would not go into effect unless other bills in the package went into effect. The 21st Century Jobs Fund bill was also tie-barred to pieces of legislation in the business tax bills. However, not all of the pieces were tied together and the governor vetoed two pieces of the business tax legislation while approving the others. The vetoes caused the ten bills that were tied to the vetoed legislation to stay out of effect, while allowing the 21st Century Jobs Fund bills to go into effect.
[‡] “Public Act 215 of 2005” (State of Michigan, Nov. 21, 2005), https://perma.cc/L29U-7B86. To be considered for an award by the fund, companies, private or public project managers, and entrepreneurs would send a letter of intent and complete an electronic application. The proposals were judged based on four criteria, equally weighted: scientific and technical merit, personnel expertise, commercialization merit, and the participants’ ability to leverage other resources.