In November and December 2009, a
corporation called GlobalWatt Inc. applied to the Michigan Economic Growth
Authority for two different types of state incentives for a new solar module
plant in Saginaw. As a result of these and other incentives, worth as much as
$42 million, 500 new direct jobs were promised for the Saginaw area. Both deals
were granted by MEGA.
We have produced evidence, however, suggesting that on
two MEGA applications GlobalWatt misrepresented information critical to
clinching the incentive deal. The misinformation relates to a competing
incentive offer from Corpus Christi, Texas, and an alleged offer from the state
of Texas. The first application was for a MEGA "high technology business tax
credit," and was signed by GlobalWatt chairman and CEO Sanjeev Chitre on Nov.
Empirical studies and other evidence highlight the futility of offering special favors to a privileged handful of investors.
To apply for these credits,
companies must describe the "competitive disadvantage" that makes locating in
Michigan unattractive save for state incentives. GlobalWatt's submission
explained they were "considering Texas" as a location for the new manufacturing
facility, where "both the state and local government have offered substantial
upfront cash incentives sufficient to fund a module lines [sic] in the first
year, and, recruit and train employees." (Emphasis added.)
Local and state economic
development officials in Texas, however, have informed the Mackinac Center that
no upfront cash was offered to the company. GlobalWatt did request incentives
from both, apparently including upfront cash from the state at least.
In addition, the local government
referred to was Corpus Christi, whose Regional Economic Development Corp.
offered a $2.8 million incentive package in June 2009. However, this offer was
contingent on GlobalWatt meeting a series of performance deadlines, including
buying or leasing a building by the end of October 2009. The company missed
that deadline, perhaps because it had decided on Michigan.
GlobalWatt had therefore in effect
forfeited the Corpus Christi offer about six weeks before signing the Nov. 12,
2009, MEGA "high technology" credit application, which suggested that this
offer was still on the table.
On Dec. 8, 2009, GlobalWatt signed
a second application for a different type of incentive, a Brownfield
Redevelopment Michigan Business Tax Credit. In this application, the company
also made claims about Texas incentive offers that "included up-front cash for
assistance in purchasing and installing machinery and equipment and
recruitment, training, and hiring of employees." Once again, according to the officials
involved, no upfront cash had been offered by Texas.
Moreover, in a Nov. 17, 2009,
letter to Chitre — almost three weeks before he signed the Michigan Brownfield
credit application — Roberto De Hoyos, director of the Texas Business
Development Fund, wrote, "[Y]our application has been reviewed and at this time
the decision was made to decline request for use of Texas Enterprise Fund
assets." Texas officials assure the Mackinac Center that GlobalWatt was denied
because they were just "not a good fit" for the state fund.
These misrepresentations are not
simply administrative details. Michigan law prohibits making a "false claim for
credit or refund, either in whole or in part." Violations are a felony
punishable by up to five years in prison and a $5,000 fine.
As in the recent RASCO and Hangar42
scandals, the possible impropriety here could very easily have been detected
had MEDC staff exercised due diligence. The RASCO embarrassment is strong
evidence for this conclusion: A refundable tax subsidy worth $9.1 million was
granted to what may have been the fictional construct of a convicted embezzler
on parole. Richard Short stood proudly with the governor at a press conference
where she touted his alleged new jobs for Michigan.
The Hangar42 film subsidy deal
provides more evidence: Last February, Gov. Jennifer Granholm announced with
great fanfare the opening of a major film studio thanks to an "assignable" tax
credit worth as much as $10 million. A Mackinac Center investigation led to the
arrest of the alleged buyer on a fraud charge, now pending in Kent County.
Empirical studies and other
evidence highlight the futility of offering special favors to a privileged
handful of investors, rather than creating an attractive climate for all job
providers through fundamental reforms of Michigan's tax, spending, regulatory
and labor law environments.
At a minimum, the state should put
its grossly obese corporate welfare bureaucracy on a strict diet that includes
plenty of fresh transparency.
Michael D. LaFaive is director of the Morey Fiscal Policy Initiative and
Kathy Hoekstra is Communications Specialist at the Mackinac Center for Public
Policy, a research and educational institute headquartered in Midland, Mich. Permission to
reprint in whole or in part is hereby granted, provided that the author and the
Center are properly cited.