A Policy Guide to Corporate Handouts

Summary

In Michigan, the state government operates a variety of select business subsidy programs that intend to create jobs and economic growth. Research shows, however, that most corporate welfare programs are ineffective. And they come at a cost: The next best alternatives for that money — cutting personal income taxes, reforming occupational licensure and fixing roads, for instance — are far more likely to create jobs and a positive return on investment for taxpayers. In addition, it’s just unfair to take money from everyone and hand it out to a favored few through the force of government.

Michigan’s corporate handouts have repeatedly failed. A 2020 study by the Mackinac Center for Public Policy examined up to 2,300 incentive deals the state has struck, going back to 1983. The study compared the number of jobs created at establishments that were incentivized through nine program or program areas and compared them to the record of like establishments in Michigan that were not. In five cases, we found no employment impact from incentive programs. In a sixth, the impact was negative. That is, incentivized firms underperformed similar establishments that had not received incentives.

In three programs, the Mackinac Center found a positive association between subsidies and added employment, but at a huge cost of incentives offered per job.

• The Michigan Business Development Program offered $29,400 in incentives per job created per year.

The MBDP is a grant and loan program that the Rick Snyder administration advanced to replace the state’s shuttered Michigan Economic Growth Authority program.

• The 21st Century Jobs Fund offered from $274,800 to $330,600 per job created per year.
• The Michigan Economic Growth Authority offered $125,000 per year per job created.

The MEGA was advanced by the administration of Gov. John Engler, but it expanded in size and scope during the 2000s, a time when Michigan suffered significant losses in employment, income and tax collections.

The state offered more than $14 billion to select companies through MEGA between 1995 and 2011. Five of six scholarly studies of the program found it had no effect or even a negative effect on the economy. Though the program is now shuttered, the state will still pay out $600 million in the 2022 fiscal year for tax credits promised through it. A seventh study of MEGA, published in 2019 in the peer-reviewed journal Growth and Change and titled: “Did Incentives Help Municipalities Recover from the Great Recession: Evidence from Midwestern Cities?” called the program a debacle.

From 2008 to 2015, the state also dished out $500 million for a separate film incentives program but could show little in the way of job creation as a result. A consultant hired by the state found the program was a net negative for the state treasury, though the research was not widely reported. The state also continues to appropriate large sums of money for tourism marketing efforts known as Pure Michigan, despite evidence they are ineffective.

For the 2022 fiscal year, the state appropriated $184 million to the Michigan Strategic Fund for staff and program support. The fund is in charge of most of the state’s economic development programs, with an assist from the Michigan Economic Development Corporation. In addition to receiving money from legislative appropriations, the Michigan Strategic Fund receives Indian gaming revenues, which bypass legislative review. In 2020 that figure totaled $28.9 million.

Even if all the spending done by the state in the name of economic development were as effective as officials claim, it would barely make a dent in the state’s vast economy. Data from the U.S. Bureau of Labor Statistics showed, for example, that in the first quarter of 2021, Michigan’s economy created 297,237 jobs. During that same time, another 172,427 jobs were lost. The number of jobs the state hopes will be created during that same quarter thanks to subsidies is, by comparison, minuscule.