The Michigan Economic Growth Authority was created by the Engler administration and Michigan Legislature in 1995. It was a refundable business tax credit. In addition to receiving tax credits, companies were often offered additional state-level incentives, such as property tax abatements or job training subsidies. Moreover, state law mandated that local units of government contributed something to the deal, which often involved local property tax abatements.
This study is now the sixth rigorous study of the MEGA program and the fifth to find negative results. Three of the studies have been published by the Mackinac Center for Public Policy. The first looked at MEGA’s impact on the state’s economy and three sectors and was published in 2005. It found that for every $123,000 in tax credits offered, the program created just two construction jobs and these added jobs disappeared within two years. Employment and income in the manufacturing and warehousing sectors were essentially unaffected by the MEGA program. The second study, published in 2009, estimated that for every $1 million in tax credits earned by manufacturing firms, there was an associated decline of 95 jobs in the county in which the MEGA project was located.
A third study, also published in 2009 by the Anderson Economic Group, found that the MEGA program came with an opportunity cost of at least 8,000 jobs. That is, if instead of providing tax incentives to companies state bureaucrats thought would be winners, policymakers reduced business taxes by an equal amount, thousands more jobs would have been created.
The fourth study of the MEGA program was published in the American Review of Public Administration in 2013. It was authored by Michigan State University scholar Laura Reese and titled, “If All You Have Is a Hammer: Finding Economic Development Policies that Matter.” This review looked at the contributions of different economic development policies in Michigan, including MEGA, to local economic health, or performance. Reese found “no significant relationships between the number of MEGAs granted and residential health or health change over any period of time.”
The fifth study to look at MEGA was published in 2014 and remains the only study to find a positive impact. It was written by Timothy Bartik and George Erickcek and published in the journal Economic Development Quarterly. It is titled, “Simulating the Effects of Michigan's MEGA Tax Credit Program on Job Creation and Fiscal Benefits.” This paper used a software program called REMI to estimate the effects of the program. Specifically, it indirectly estimates the impact of the MEGA incentive program by simulating the likelihood that an incentive would actually be decisive, and it uses that figure to help generate employment and fiscal effects. According to the authors, “[T]he simulated probabilities are based on the incentive’s impacts on costs and on previous estimates of how business location and expansion decisions respond to costs.”
They find a range in which MEGA may have been a deciding factor in a business location decision: between 2.06% and 24.74% of MEGA incentive deals.
The five studies above use different techniques compared to this sixth analysis of the MEGA program. Perhaps the chief difference is that our analysis of MEGA is performed with actual employment measured at MEGA recipient firms using the NETS database over a long span of time.
In addition, the new analysis performed for this study examined the incentive database, using both single incentives to firms and multiple incentives to the same firms, and the results were effectively the same. This is important with respect to MEGA because a single tax credit deal may have been married to a host of other state incentives.