Dec. 13 marks the sixth anniversary of the Gov. Rick Snyder era in corporate welfare. This is the date he signed into law the Michigan Business Development Program, a new subsidy program that replaces the repealed Michigan Economic Growth Authority. It is high time it gets additional scrutiny.
The MEGA program was a miserable failure on economic grounds and early in his time in office, Snyder repeatedly referred to these refundable tax credits (read: subsidies) as the heroin drip of government. He was not completely opposed to corporate handouts, but criticized the large ones that made state budgeting difficult. He favored instead a smaller program based on annual appropriations, the MBDP.
The partnership gives cash subsidies as well as loans to businesses that promise to create jobs in Michigan. The state pays only after the companies meet certain milestones called out in agreements.
By our count, the state approved 370-plus deals with incentives valued at nearly $350 million between March 2012 and June 2017. I qualify the totals with the words “by our count” because the agency that runs this program makes it hard to get a quick, full tally, especially on its failures.
Once the state office overseeing these sorts of deals revokes an agreement, it makes an announcement in an annual report to the Legislature. But all information about the deal then vanishes from future annual reports. As a result, official documents often includes words such as “monitoring,” but not “revoked.” This practice makes the program that much less transparent, especially for lawmakers looking to get a quick review of its performance.
More than thirty percent of all business partnership deals either have been or are in some form of default as defined by the jobs agency overseeing the program. Default usually comes because the company failed to meet a milestone or some other requirement. A company may also withdraw based on some change in their plans.
Even then, the state seems to take steps to allow reported defaults to remain temporary. The report for fiscal year 2016 shows the state offering 38 amendments to previous deals, most of which loosened the original milestones or standards set in subsidy deals.
The agency that runs these programs claimed in its 2016 report that for every $1 in subsidies, the program would generate $10 in new state revenue. This claim should be viewed skeptically if for no other reason than that state officials can’t prove the company wouldn’t have been created without subsidies. Scholarly evidence for state development programs is not flattering; it frequently shows few, if any, net positive gains from them.
The business development program is a relatively small subsidy program that replaced a larger one. The state claims it is successful. But there are compelling reasons — theoretical, practical, historical and empirical — to suggest otherwise.
The program’s sixth anniversary may be a good time to perform a deeper review of its purported return on investment.