The dataset we used was of companies offered incentives by the state of Michigan, and it was built by the Mackinac Center for Public Policy, from 49 separate reports. They include early reports directly from Michigan Strategic Fund and others delivered to the Legislature by the Michigan Economic Development Corporation. Some reports focused directly on specific incentive programs, such as 21st Century Jobs Fund or Michigan Renaissance Zone Act legislative reports. These were acquired at the Library of Michigan, from the MEDC’s website and through Freedom of Information Act requests.
Other sources of data include a 1989 Senate Fiscal Agency report and a 2017 state performance audit of the Michigan Economic Growth Authority tax credit program. Also used was a database created by the Mackinac Center for its 2018 study, “An Assessment of the Michigan Business Development Program.” Finally, we also drew on a 1994 fax sent from the Michigan Jobs Commission to a state lawmaker regarding the “Vixen Motors Company.”[*]
No research dataset is without limitations. This one does not contain specifics for every company awarded incentives by the state. Over time, reporting styles, word choice and requirements of these state reports changed. Some reports were very explicit about which company got what incentive on what day and month, while others excluded the names of companies benefiting from some financial incentive. Some reports duplicated the efforts of others. We eliminated easy-to-identify duplications from the dataset.
In all, the database of companies offered incentives by the state of Michigan — from 1983 through 2015 — included 7,352 deals. These data contained the city and usually the county location of a project or firm plus the program and value of incentives offered. Not all offered incentives were earned and paid out, however.
Some companies were offered many incentives over time; others received many at the same time. For example, the Michigan Economic Growth Authority approved tax credit deals while the state also approved a host of other incentives (from job training to infrastructure) in conjunction with the MEGA tax credit. A local incentive was mandated as part of MEGA deals, but we did not include these local incentive contributions in this database. The impact of these local incentives remains a viable option for future research.
The database built by the Mackinac Center catalogued the recipients of incentive deals. We then organized these into nine major incentive programs or categories that comprise most of the incentive deals. The programs analyzed include the Michigan Economic Growth Authority; the 21st Century Jobs Fund; Community Development Block Grants; the Michigan Business Development Program; Private Activity Bonds; Renaissance Zones, the Seed Capital Program; various state loan programs; and various other business tax credits offered.
Michigan Economic Growth Authority: This was a state business tax incentive program created during the administration of Gov. John Engler. It was arguably the highest profile, and potentially the most expensive, state economic development program in recent decades, having offered up refundable state tax credits worth more than $14 billion in state tax credits during its life. The refundable tax credits were often offered in conjunction with other state and local business support programs. Administrators began signing deals in 1995 and stopped signing new ones in 2012. Despite its closure, it is still paying out on legacy credits to corporations statewide, worth as much as $6.1 billion.
21st Century Jobs Fund: Gov. Jennifer Granholm launched a series of programs in 2005. Her administration described them as “multiple individual programs each designed to support different parts of the entrepreneurial ecosystem in different ways.” Those include, but are not limited to, the Centers of Energy Excellence, Competitive Edge Technology Grants and Loans and Michigan Supplier Diversification Fund programs.
The Centers of Energy Excellence program was started to help create jobs in alternative and advanced energy by creating partnerships between academia and business. These partnerships would be facilitated by state subsidies. According to one state report, the COEE program would target four clean energy areas: storage, solar manufacturing, wind manufacturing and bioenergy. The COEE program approved $67 million in awards and disbursed $64.1 million of it.
The Competitive Edge Technology Grants and Loans was designed to assist organizations in “competitive edge” arenas such as life science, high-technology manufacturing, the defense industry, materials and alternative energy. Administrators targeted early stage companies for support in 2006 and 2008.
The Michigan Supplier Diversification Fund was a loan program for manufacturers. The state’s description of the program has morphed over time from the “transition and diversify into growing markets such as alternative energy” (and specifically automobile manufacturers) to “help traditional manufacturers capitalize on growth opportunities and add new customers.”
Community Development Block Grants: This federal program provides grants to states and local units of government to help improve housing, infrastructure and economic opportunities. It is targeted to lower- and middle-income areas of the country. The grants have often been used to spend money on roads or other infrastructure near sites that had been offered an incentive by the state.
During the life of the Michigan Economic Growth Authority tax incentive program, these grants were frequently coupled to MEGA deals to help sweeten the incentive pot. For example, Howmet International’s 1998 MEGA incentive apparently came with up to $3 million in CDBG dollars “for an improved water system and extensive road improvements.”
Other Grants or Loans: This category covers several initiatives — and 101 deals — found throughout state reports. Together, they include incentives offered to private business that don’t clearly fit into other categories. For example, the Michigan Strategic Fund, created in 1984, inherited the loan portfolio of the Michigan Economic Development Authority. “Certified Development Corporation” loans show up in a state report in 1991 but without any explanation of what these are. Other incentive efforts under this heading include Michigan Strategic Fund Minority Direct Loans, State Research Fund grants, Michigan Strategic Fund Inducement, Center for Michigan’s Renaissance, Follow-On Fund loans, and Small Business Innovation Research grants.
Michigan Business Development Program: The MBDP was created in 2011 to replace the Michigan Economic Growth Authority. It was smaller and more transparent than its predecessor and typically provides cash grants and loans to private, for-profit firms. The program is overseen by the Michigan Strategic Fund with administrative assistance provided by the Michigan Economic Development Corportation. State documents indicate that the program provides aid to firms who may create jobs in Michigan and “preference may be given to businesses in need of additional assistance for out-of-state competition, deal closing and second stage company gap financing.” The program is not used to help retain jobs that might otherwise be eliminated, nor is it for businesses in the retail sector.
This study looks at the MBDP from two unique angles. The first involves the use of the NETS data and our tracking of state subsidized MBDP grant and loan recipients. The second involves a different dataset that the authors constructed based on information about companies interested in the MBDP program.
Some firms may contact the MEDC with a general interest in subsidies and get directed from there toward an MBDP incentive. Others companies, though, may have a specific interest in the MBDP. Regardless, those who end up working toward obtaining an MBDP grant and either dropped out or were denied early, or who were ultimately approved but did not accept or earn their incentive, are part of our second database. This more narrowly focused performance measurement should add additional insight into the efficacy of the program.
If the MEDC thought candidates offered projects worthy of assistance and steered them toward an MBDP subsidy, how did those who ultimately did not get approved, or who were approved but failed to collect or win subsidies perform compared to those who actually received an MBDP subsidy?
Other Michigan Business Tax Credits: This category of incentives involves business tax credits that were approved by the same board that authorized the MEGA credits. They were “designed to advance new industries with the potential for significant growth,” according to the MEDC.
These included refundable tax credits against the Michigan Business Tax for such things as research and development of batteries, defense contracting and technology for “photovoltaic energy, photovoltaic systems, and other photovoltaic technology.” There was also an Anchor Jobs Credit targeted at high technology companies “to influence their suppliers and customers to move to Michigan.” All of these credits were refundable, which permits a company to receive a cash subsidy if the size of the credit exceeds its actual tax liability.
Private Activity Bonds: This is the current name for state efforts to encourage financing for large economic development projects, through bonds offered to private, for-profit firms. Past state reports referred to these as tax-exempt bonds, industrial revenue bonds or industrial development revenue bonds.
Renaissance Zones: Renaissance Zones are typically geographic areas selected for special tax treatment. The first zones were created in 1996 and provided “nearly tax-free zones within regions for any business or resident presently in or moving into a zone for a period of 15 years. There are today different types of RZs in Michigan, and some — such as agricultural processing renaissance zones — are drawn around a single enterprise. There are also other zones for forest products processing, renewable energy and a “Tool and Die Renaissance Recovery Zone.”
Seed Capital Program: The state’s Seed Capital Program was a creature of the 1980s and was designed “to finance the business pre-start-up stage that exists after having a good idea for a product and before producing the product.” According to the Senate Fiscal Agency’s 1989 report on Michigan Strategic Fund activities, $8 million was approved for the program. It invested in funds that then took equity stakes in private, for-profit firms.
[*] Fax from Mark Morante of the Michigan Jobs Commission to State Rep. Greg Kaza regarding a $1 million state loan to the now-defunct Vixen Motor Company.