The MBDP was created by the administration of Gov. Rick Snyder to replace MEGA, which he had shuttered. It is a grant and loan subsidy program to assist businesses. Most of the grants and loans are associated with promises by firms to reach certain goals, such as creating jobs.
We have studied this program in depth and in 2018 published “An Evaluation of the Michigan Business Development Program.” Our study was built around a statistical model using program data from between 2012 and through 2016. It was designed to tease out the employment impact of the program from other economic phenomena. We found that for every $500,000 in incentives the program disbursed, there was a corresponding loss of about 600 jobs in the county in which the project was located. Separately, we found that one-third of all MBDP deals during the study time frame either had been or were in some stage of default or dismissal.
The Mackinac Center for Public Policy is not the only institution to have analyzed the MBDP. In January 2019, the W.E. Upjohn Institute for Employment Research and Center for Regional Economic Competitiveness published the “Michigan Business Development Program Effectiveness Study.” The thorough analysis — spanning 121 pages plus appendices — was commissioned by the Michigan Economic Development Corporation, the state administrative arm that runs the program.
After analyzing 239 deals, the study found a net positive ROI from the program of $3.86. In other words, for every dollar spent on the MBDP, the authors estimate that there is a $3.86 gain in per-capita income for residents of the Great Lake State. A second analysis within the study, involving just 32 projects that had been “formally completed and terminated,” reported a ROI of just over three dollars as well.
The Upjohn-CREC report estimated several possible impacts from the program, most of which were positive. The authors took pains to measure the effects while accounting for both “but for” and opportunity cost calculations. “But for” represents the percentage of business expansions that would not have occurred without the incentive. According to the authors, the MEDC’s own calculations have assumed that no business expansions would have occurred without the incentive. But the Upjohn-CREC study argues for significantly lower but-for percentages. It does, however, say that the ROI for the MBDP is so large that it would still yield a net positive result even if the incentive had no impact on the decision of businesses more than 99% of the time.
It is only in the category of opportunity costs where the study finds a possible impact from the MBDP that is negligible, if not negative. According to the study, the program’s ROI drops to a puny $0.25 under the assumption that all 239 MBDP projects in the study’s database are funded by cuts to K-12 public education spending. The ROI comes out negative ($-0.86) when considering just the 32 MBDP projects identified as being completed and terminated. The authors write, “[B]ased on returns from [sic] for the completed/terminated projects, the ROI to the state from K-12 spending is higher than the ROI achieved from the program. Cutting K-12 spending to pay for MBDP would result in net reductions in state residents’ per-capita income levels.”[*]
We examined the MBDP with our NETS dataset by using another smaller group of 39 deals, which created a different type of treatment group. This database was built in part by obtaining a list of award-eligible firms that had been steered toward an MBDP incentive by state employees, but who ultimately did not receive them. Their performance was then compared to other MBDP eligible firms that had received an incentive award.
There were several reasons why a firm did not receive an incentive. They ranged from a firm withdrawing its application prior to being approved by the state, to not meeting initial performance goals, to rejecting the award after it was approved.
This last approach to analyzing the MBDP allows us to search for causal effects on the program and its outcomes. The results of our modeling effort, which included controls for establishment category and size, random and fixed effects, time trends and more, found that the MBDP incentives did not influence employment when compared to the control group.
[*] The authors also recognized that cutting other areas of the state budget “might have considerable supply side effects in retarding the state economy, such as with cuts to infrastructure spending, but note that “such effects are likely to vary enormously with the particular infrastructure spending that is cut, so it would be speculative to include any such effects in the model.” Tim Bartik et al., “Michigan Business Development Program Effectiveness Study” (W.E. Upjohn Institute for Employment Research, 2019), 43, 71–72, https://perma.cc/VVJ3-5MM4.