The state of Michigan runs many programs designed to boost economic growth and development that might not otherwise occur without government intervention. These programs use targeted tax credits, tax abatements, low-interest loans or cash subsidies, among other things, for particular industries, corporations and businesses in an attempt to promote economic development.
Michigan is not alone. By one measure there are more than 1,000 economic development programs operating in the United States, most of which are at the state and local level. The Kalamazoo-based W.E. Upjohn Institute for Employment Research pegged the cost of local and state business incentives in 2015 at $45 billion nationwide. According to its report, the size of incentives offered by Michigan are 45 percent above the national average.
There are myriad mechanisms for financing these programs, but ultimately taxpayers cover the majority of the bill. Some claim certain programs are essentially costless because jobs and the related wealth creation would not have occurred without this spending. This assertion is virtually impossible to prove and, likewise, very difficult to disprove too.
Nationwide, the modern economic “war-between-the-states” dates back to the era of the Great Depression, when Mississippi established an incentive program designed to lure northern manufacturers to invest in the state. Michigan has a long history of using public dollars to finance economic development programs too, ramping up particularly after World War II.
Michigan Gov. Kim Sigler created the Department of Economic Development in 1947. Sigler argued that the state’s economy needed diversification and that this department would lead the effort. Economic diversification has been a common theme in arguments for similar programs ever since. And each subsequent governor has put his or her own stamp on Michigan’s economic development programs.
More recently, Govs. John Engler and Jennifer Granholm championed new and expanded existing economic development programs and related spending. The largest of these include the Michigan Economic Growth Authority, a refundable tax credit program, the Michigan Film Incentive Program and the 21st Century Jobs Fund.
The first of these programs, MEGA, was created by Gov. Engler, expanded dramatically under Gov. Granholm and then shuttered by Gov. Rick Snyder. Gov. Granholm created the latter two initiatives, but in 2015 the film incentive program was also ended by Gov. Snyder. The 21st Century Jobs Fund spending still continues, but its form and function have changed significantly since its inception.
According to the Michigan Office of the Auditor General, MEGA had offered up more than $14 billion in economic incentives during its lifetime. The original MEGA law also mandated that local units of government contribute some financial or other incentive to projects MEGA funded. During the first nine years of the program, those additional incentives were cumulatively worth nearly $1 billion.
Gov. Rick Snyder introduced reforms to the state’s fiscal landscape in his first year as governor, 2011. Although MEGA was closed, the Snyder administration also created a new program called the Michigan Business Development Program. Designed to replace MEGA, the MBDP was similar insofar that it provided outright cash subsidies, in addition to some loans and other incentives.[*] An important difference with the MBDP compared to MEGA was that awards are not passed out through the tax code, but instead appropriated annually during normal state budget processes. This improved the transparency of this spending.
The MBDP turned six years old in December 2017 and is the focus of this study. Our purpose is to evaluate the economic impact of the program in its entirety, looking at both investments the state has reported as being successful and those that have not been. In other words, this analysis weighs both the benefits and the costs of the MBDP.
This is an apt time to examine the MBDP’s structure and intent. After approving hundreds of special deals worth hundreds of millions of dollars, some economic impact from the program should be observable. We attempt to observe these impacts with this analysis.
[*] Technically, MEGA was a tax credit program, but it allowed for refundable tax credits which ultimately provided cash subsidies to companies. “Public Act 250 of 2011” (State of Michigan, Dec. 13, 2011), 2, https://perma.cc/S578-HCKH; “Snyder Signs New Business, Community Revitalization Programs into Law” (State of Michigan, Dec. 13, 2011), https://perma.cc/3X6S-N4XG.