In August, Michigan’s Auditor General released a
performance audit of selected job-training programs funded through the Michigan
Economic Development Corporation (MEDC). The MEDC is the semi-public agency
charged with the task of helping "create" or keep jobs here in Michigan. Our
organization, the Mackinac Center for Public Policy, has called the agency
Michigan’s "department of corporate welfare and discriminatory tax policy."
Among its activities is the distribution of grants to subsidize job training.
The audit showed that the MEDC handed out 1,350 Economic
Development Job Training grants between October 1998 and July 2002, which
together totaled some $120 million. The Auditor General
attempted to review the job-creation performance of 68 out of the 493 grants,
which have, as their stated goal, to increase employment throughout the state.
Grantees are required to "provide the MEDC with ongoing
reports gauging compliance." Out of the 68 grants audited, only 12 of their
recipients had completed the training and job-placement activities required as a
condition of receiving the grant money. Of those, the Auditor General was able
to examine records of only seven against the records of the Michigan Employment
Service Agency (MESA), to see whether claims of increased employment were
The original goal of these seven grantees was to increase
employment by 775 workers, a goal that was revised downward by the MEDC, due to
the downturn in the economy, to 458. The final report of these seven grantees
stated that there had been a combined increase of 635 employees, beating the
goal by 177.
Yet, when compared to the records of MESA, the Auditor
General discovered that there was actually a net loss of 222 jobs at
these seven firms.
The MEDC disagrees with the Auditor General’s
recommendation that it also use MESA’s data to monitor grants, contending that
policy-makers should instead rely on the agency’s own figures. But it is
difficult to avoid the conclusion that, at best, the MEDC is not using all the
data available for purposes of evaluating job creation claims. At worst, this
incident bolsters the argument of those who say that nobody should accept MEDC’s
job-creation claims at face value.
The MEDC issues a steady stream of press releases claiming
that its economic handouts are responsible for 225 jobs created here, and 700
jobs created there. We believe that because of incidents such as the
improprieties uncovered by the Auditor General’ report, these claims should be
taken with a large grain of salt. News media, whose objectivity demands that
they not be used as mouthpieces by self-interested government agencies, should
be extremely wary of uncritically repeating these MEDC claims, whether they come
directly from the agency, or from press releases issued by legislators to whom
the agency has fed the information.
this isn’t the first time the MEDC’s employment-creation claims have come into
question. In May of 1998 and again in August of 2000, the Michigan Economic
Growth Authority (MEGA), an MEDC program, arranged for K-Mart to receive a total
of $19 million in state and local incentives. For both projects combined, MEGA
officials promised more than 1,470 new jobs for Michigan by the year 2019, 925
of which were to be created by the company directly by the year 2002.
But a funny
thing happened on the way to economic nirvana: K-mart declared bankruptcy. This
is what happens when government bureaucrats in Lansing think they can pick
economic winners and losers and forecast the future economy. The state has
forgone more than $6 million in single-business-tax revenue to K-mart since 1998
for jobs that no longer exist. In addition, the city of Troy provided K-Mart
with approximately $3.2 million-worth of incentives in the form of landscaping,
road improvements, and waived permit fees. These are financial incentives that
clearly might have been put to better use elsewhere.
Neither is it the first time a state audit has raised
questions about how job-training funds are used (or misused). In 1988, the
Detroit News reported that state auditors found more than $400,000 in
’"questionable, unallowable and undocumented’ spending in a tax-funded job
training program." The 1988 article did not say whether or not the state
auditors recommended changes to guard against future problems.
What is clear, however, is that re-distributive programs
such as this — either corporate or human welfare — are subject to abuse. Rather
than continuing to invent and reinvent state job-training programs, maybe
government should get out of these programs entirely and let people and
businesses make job-training decisions based on their own calculus, their own
funds, or those of charitable organizations. All of these parties have a much
bigger stake in ensuring a positive economic outcome.
The Mackinac Center for Public Policy has been a frequent
critic of the MEDC and the programs it oversees, and maintains a web module
dedicated exclusively to its analyses of government economic development
initiatives. It can be found on the World Wide Web at
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Note: Michael LaFaive is fiscal policy director and Jack
McHugh is legislative analyst for the Mackinac Center for Public Policy, a
research and educational institute headquartered in Midland, Mich.