By our count, there have been 319 deals approved between March 2012 and Sept. 29, 2016, valued at more than $300 million. Only $157 million of that total has actually been disbursed through Sept. 29, 2016.
The largest, single deal involved a $10 million loan to M1 Rail in Wayne County; the smallest, just a $100,000 subsidy to both Avon Protection Systems, Inc. in Wexford County and Neogen Corporation in Ingham County.
The average deal was worth more than $950,000; the median, $500,000.
Although 43 Michigan counties are home to at least one MBDP approved project through September 2016, 55 percent of all deals occurred in just four counties: Oakland, Wayne, Kent and Washtenaw. The vast majority of these were subsidies in the form of grants.
Graphic 1: MBDP Deals by County, 2012-2016
The fiscal year 2016 MSF-MEDC annual report to the Legislature indicates that only four deals were identified as “loans.”[*] Two of these loans went to companies that also received outright grants. Another 11 deals were labeled “other” (one of which included a grant) but the legislative report doesn’t offer details on exactly what “other” type of financial assistance means. One can discover those details in different state documents, however. As one example, Cosworth, LLC was offered a loan at 1 percent interest that may also be forgivable depending on how many new jobs it creates in excess of 50 by a certain date.
The value of incentives approved for all deals through the MBDP in the fiscal 2016 report totals $277.6 million. These totals include most deals struck in previous years, but revoked deals are removed from tallies listed in the annual legislative reports. Of the 274 MBDP projects identified in the 2016 report with executed agreements, 81 percent involved an expansion of an existing company and location as opposed to creation of a new facility or relocation of production from elsewhere, such as from another state.
Of all approved MBDP projects tallied by us between March 2012 and September 2016, more than 33 percent are in or have been in some stage of default or have been dismissed and terminated.[†] It appears from the annual reports that “default” means that the companies have failed to meet some type of agreed upon stipulation or milestone. It is not unreasonable to assume that the number of revoked deals would be much higher if administrators were not quick to accommodate some failure by the company to live up to the original the terms of an agreement.[‡]
As evidence, the 2016 MSF-MEDC report indicates that the state offered 38 amendments for MBDP agreements in that fiscal year. Of those 38, 28 appear to explicitly lower some previously agreed upon performance threshold or milestone. For instance, the entry for SL American Corporation says, “extended minimum [qualified new jobs] date from [Jan. 1, 2016, to Sept. 30, 2016] and extended remaining milestone due dates.”
In other words, the MSF mandates a certain level of performance in its agreement with companies but then later lowers the bar. To the MSF’s credit, in many cases they also reduced the size of the grant offered to the companies that benefited from amended agreements.
Two deals in the fiscal 2016 report contain a mixture of lowered and raised thresholds, extending the time a company had to create qualified new jobs, in one example, but also raising the number of new jobs that the company agreed to create. Another seven we can only categorize as an “amendment” due to the vague nature of the language in the annual report. For instance, the Shepherd Caster Corporation had its “local support requirement” amended, but the MSF-MEDC annual report does not detail the change.[§]
The 33 percent rate at which MBDP companies might be in default or dismissed from the program outright might actually be higher for another reason. Our totals include MBDP deals through September 2016 only, but deals struck by the state with companies typically give some length of time — such as six months or a full calendar year — to reach some type of milestone, such as new job creation. In other words, the most recent MBDP companies in our totals have not yet had a chance to fail and be officially reported as such.
An MEDC spokeswoman last October informed one author, LaFaive, that at least eight more companies have had their incentive approvals revoked and which will be announced in the 2017 fiscal year report to the Legislature and released in 2018.
All of these items are important considerations for assessing the effectiveness of the MBDP.
[*] The reader should note that the annual report produced by the Michigan Strategic Fund and Michigan Economic Development Corporation for the Legislature only covers MBDP data from inception through September of 2016 in its master spreadsheet of deals. Other documents published by the agencies allow us to measure the value of MBDP offers further out. “MSF/MEDC Annual Report to the Legislature, FY 2016” (Michigan Economic Development Corporation, March 15, 2017), https://perma.cc/RR37-R6D9.
[†] We choose to truncate our totals to fiscal 2016 for this narrative for two reasons. First, doing so provides us with more consistent data from the agencies themselves as to the status of their program. Second, our own statistical analysis employs public data from the federal government that is only available through calendar-year 2016.
[‡] Our count of approved projects differs slightly from the fiscal 2016 report to the Legislature because we still include those projects that have been revoked. The MSF-MEDC fiscal report removes these deals from its master spreadsheet. Four annual reports (fiscal 2013 through fiscal 2016) suggest a total of 40 approved projects were revoked and often for nonperformance. The fiscal 2016 report lists nine revocations and seven say the “company was unable to meet milestone requirements.” There is one exception. We omit Covisint, LLC, from our count of dismissed deals. We learned late in the production of this study that the deal was approved, but then later “mutually terminated.” Emily Guerrant, senior vice president of marketing and communications, Michigan Economic Development Corporation, email corresponce with Michael D. LaFaive, senior director of fiscal policy, Mackinac Center for Public Policy, Jan. 30, 2018.
[§] “MSF/MEDC Annual Report to the Legislature, FY 2016” (Michigan Economic Development Corporation, March 15, 2017), 13, https://perma.cc/RR37-R6D9. Documents we obtained through an open records request indicate the amendment was that the company provide evidence that the Cornerstone Alliance, a local economic development agency, “provided staff time and resources in support of the Project.” “Case 165901: Amendment One to the Michigan Strategic Fund Michigan Business Development Program Grant Agreement with Shepherd Caster, LLC” (State of Michigan, 2016).