History

As we recount in "Appendix E: A Brief History of State Economic Development," there have been at least eight major institutional vehicles created since 1947 to carry out Michigan’s government economic development policies. These policies generally aim to improve the state’s economy by creating or retaining jobs either with specific companies or with specific kinds of companies, typically in order to promote diversification of the state’s economy away from the automobile industry. MEGA is currently the most prominent of the state’s economic development programs.

MEGA is currently the most prominent of the state’s economic development programs.

The creation of MEGA was particularly notable because of its primary champion, former Gov. John Engler. In the 1980s, Engler, then Michigan senate majority leader, had often criticized central economic "planning," chiding Gov. James Blanchard for such programs as the Michigan Strategic Fund, which was an earlier tool of state economic development planning. Engler argued that such programs were unfair because they failed to "treat everyone in the marketplace … equitably by dealing with Michigan’s oppressive tax burdens," and because such programs benefit a firm "if you are a friend of government, if you’re a friend of the current administration, if you know somebody … or any other number of keys that sort of unlock the magic door that controls these funds."[4]

When he came to office, Gov. Engler initially called for an end to state economic incentives. In February 1992, according to the Detroit Free Press, he and Gov. Jim Edgar of Illinois began trying to persuade their counterparts in other states to stop trying to lure each others’ commercial enterprises with targeted tax incentives. Engler reiterated his views at the August 1992 National Governors Association conference in Princeton, N.J., leading the Free Press to observe:

Engler believes — and he is backed by some economists — that such competition is bad in the long run because it creates an unfair tax system that often produces fewer jobs than promised. States, Engler said, should lure new businesses with good schools, low taxes and skilled workers — things that benefit all types of commerce.[5]

In keeping with these observations, Gov. Engler did implement a number of general policy changes meant to improve Michigan’s services and business climate, including tax cuts, privatization and public school choice measures. Nevertheless, following his unsuccessful attempts to persuade other governors to forgo targeted tax incentives and business subsidies, he chose to increase Michigan’s own targeted economic incentives — first, with his 1993 reorganization[6] of the state’s existing economic development programs, and second, with the introduction of MEGA, which offered targeted tax relief and other incentives to businesses to encourage them to invest or locate in Michigan.

Structure and Procedure

The original MEGA law, passed in 1995, established the Michigan Economic Growth Authority as an eight-member state board that was directed by the chief executive officer of the then-Michigan Jobs Commission. This board administered the MEGA program, which provided Single Business Tax credits to corporations it chose following certain general criteria described below.[7]

MEGA’s agreements with targeted businesses required (and continue to require) a contribution to the overall MEGA incentive package from the local government or local economic development unit in the area hosting the new or expanded business facility.[8] These local business incentives usually take the form of tax abatements on real or personal property, though they sometimes include such items as permit waivers, road improvements and even discounted access to the local municipal golf course for the business’s employees.

The MEGA incentive package also can include state incentives other than Single Business Tax credits. The incentives, such as job training subsidies, were originally arranged by the Michigan Jobs Commission; later, they were provided by the Michigan Economic Development Corporation, an offshoot of the Jobs Commission that was established in 1999 to oversee the state’s primary economic development programs — including, in effect, MEGA as well.

The original law was relatively strict about who could qualify for MEGA credits. A business pursuing MEGA credits had to assure the state that it would in fact create new jobs at the specified Michigan site after the company’s executives signed the MEGA agreement. These jobs, in turn, had to involve such industries as manufacturing, research and development, or office operations. Retailing operations, such as a local Home Depot store, and tourist-related industries, such as hotels or restaurants, were excluded from assistance in the program.

The original law also required a MEGA recipient to meet relatively strict qualifications (most of these original qualifications remain despite subsequent amendments to MEGA law). As outlined in the Mackinac Center for Public Policy’s study "MEGA Industrial Policy: An Analysis of the Proposed Michigan Economic Growth Authority," the requirements included the following:

  1. The business must create a minimum of 75 "qualified new jobs" if expanding in Michigan, or 150 qualified new jobs if locating in Michigan, within 12 months of opening the facility. A "qualified new job" means a full time job in excess of the number of jobs existing in the year before the new facility opens.

  2. The business must agree to maintain the 75 (or 150) new jobs each year that a credit is received.

  3. The business must agree to maintain a number of employees greater than the number employed in the year before the new facility is opened.

  4. The average wage paid for the new jobs must be greater than the average wage paid by private-sector firms in that county.

  5. The business must certify that the expansion or location would not have occurred in Michigan without the tax credit.

  6. Local government must make a financial or economic commitment to the business for the facility.

  7. The business must not have begun construction or announced the specific location of the facility.

It is the MEGA board’s job to determine if the proposed business facility or expansion meets the criteria above, as well as the following:

  1. The expansion or location will "benefit the people of this state by increasing opportunities for employment and by strengthening the economy of this state."

  2. The tax credit is needed due to a significant cost disparity — including economic incentives offered by a competing state — between this state and the competing state.

  3. The business has a sound financial record based on the financial statements of the last three years.

The final step is for the MEGA board and the business to execute a written agreement that officially makes the business an "authorized business" (that is) able to receive an SBT credit. The MEGA board determines the length of the credits (not to exceed 20 years). This agreement must provide that a misrepresentation in the application or a violation of the agreement may result in revocation of the "authorized business" status and loss of the tax credit.[9]

Since 1995, the MEGA law has been substantively amended five times. Three major aspects of these changes follow, and they remain in effect today:

  1. The MEGA program’s "flexibility"[10] was enhanced, allowing additional kinds of businesses to participate with lower job and capital investment thresholds. Such changes increased the number of MEGA deals.

  2. MEGA law now allows the board to hand out targeted relief to a business for retaining jobs that already exist, instead of creating new ones. It also allowed MEGA credits for "high tech," "rural," and "distressed" businesses, which do not have to create as many new jobs as were originally required under MEGA law.

  3. MEGA law now allows certain approved companies to meet their job goals by counting the total number of jobs at multiple company sites, rather than just a single facility. The state also loosened minimum capital investment and aggregate job counts for multi-site facilities.

MEGA LAW

The following is a list of amendments that made substantive changes to the original Michigan Economic Growth Authority Act of 1995. This summary highlights the major modifications; not every change to the law appears in the text below.

Public Act 144 of 2000

This legislation expanded the MEGA law to include "high-technology" businesses. Authorized high-technology businesses were required to create both a minimum of five new qualified jobs at a particular facility and 25 more within five years — a departure from the original law’s requirement that 75 new jobs be created if the business was expanding in the state. High-technology businesses receiving MEGA packages also had to agree that "not less than 25 percent of the total operating expenses of the business will be maintained for research and development for the first 3 years of the written agreement."[11] No more than 50 high-technology MEGA deals were permitted in any given year.

The act also expanded to "make the retention of jobs and businesses a goal of MEGA SBT credits,"[12] meaning the MEGA program was no longer limited simply to the creation of new jobs. Companies qualified for "retention credits" by keeping at least 500 existing jobs in the state and making at least a $250 million capital investment in Michigan.[13]

Public Act 428 of 2000

Effective Jan. 9, 2001, this legislation changed the definition of the kind of "qualified new job" that could qualify for MEGA incentives. The original law’s definition required that jobs created by the authorized business be counted as a new job only after the expansion or location occurred in Michigan. The liberalization of MEGA’s "qualified new job" definition meant that a qualified new job also included a "full-time job at a facility created by an eligible business that is in excess of the number of full-time jobs maintained by that eligible business in the state 120 days before the business becomes an authorized business, as determined by (MEGA)."[14]

Public Act 248 of 2003

This legislation dramatically expanded the number and types of businesses that could qualify for MEGA deals. For instance, the bill allowed a retention credit for businesses that "made a capital investment of $100 million between three years before and two years after becoming an authorized business and agreed to maintain at least (1,500) jobs at the facility. …" The new law also stipulated that "the (retention) credit available under this provision could be granted only as part of a package of incentives that addressed international competition and included a negotiated labor contribution," such as a wage concession.[15]

Public Act 248 also expanded MEGA to include two new types of businesses, according to the following guidelines:

  • Distressed businesses. A business was deemed distressed if all three of the following criteria were met:

  • "four years immediately preceding the application to the authority under this act, the business had 150 or more full-time jobs in this state";

  • "within the immediately preceding 4 years, there has been a reduction of not less than 30 percent of the number of full-time jobs in this state during the three-year period"; and

  • the business "is not a seasonal employer." The law also limited MEGA to executing no more than 20 new deals or less for distressed businesses each year.[16]

  • Rural businesses. If a business were located in an area considered "rural" — a county of 75,000 people or fewer — it could qualify for MEGA deals provided it could create five qualified new jobs at an expanded or relocated facility and maintain 25 jobs within 5 years after the expansion or relocation. This requirement was similar to those for high-technology firms. Under the law, only five new rural deals could be approved annually.[17]

Public Act 81 of 2004

This legislation expanded MEGA law to allow businesses with multiple sites in the state to receive tax credits for retained or new jobs using employment totals from more than one facility. The legislation mandated that a company with multi-site authorization not only maintain 150 retained jobs at a particular location, but maintain 1,000 or more full-time jobs across Michigan and make new capital investment in the state.[18] The legislation also included four other ways for firms to qualify for MEGA approval.

Public Act 398 of 2004

This legislation again expanded MEGA law, providing more opportunities for companies to become an authorized business. For example, the law allowed a company to qualify for MEGA deals if it retained just 100 jobs at a single facility and agreed to make a capital investment of either $10 million or $100,000 per job retained at a particular facility, whichever was greater.[19]