The Michigan Economic Growth Authority, which
awards refundable tax credits to selected businesses, came under much scrutiny
this year with audits that showed missed expectations, studies that indicated
it was responsible for little-to-negative economic activity, and scandals
indicating that bureaucrats fail to vet applicants thoroughly. Yet it
continues. It’s hard for politicians to recognize that a program is a failure
when they have not defined success. Governor-elect Rick Snyder and the new
Legislature should review the state’s economic development programs and clearly
state what they expect the program to accomplish.
Bureaucrats cannot be expected to be objective judges of the success of the programs they create.
It’s no secret that Michigan has struggled
this decade — unemployment rates increased from 3.7 percent to in 2000 to just
under 13 percent today, and production levels have been stagnant. The state’s
economic problems have been deep and impacted nearly all of Michigan’s
industries, not just the state’s auto companies.
Public policy responses have yet to improve
Michigan’s situation. Broad problems in the economy are being addressed by
targeted programs: incentives for specific industries, businesses and
locations. Legislators believe these programs will improve Michigan, but rarely
discuss whether they are capable of turning the state around, how to tell if
they are working or expectations on when these will have succeeded.
Policymakers should explain their criteria for measuring success and insist on
objective analyses of the programs’ costs and benefits.
Recent discussions on Michigan film subsidies
highlight the importance of performance measurements. A report from the Senate
Fiscal Agency showed that the program costs the state $10 in taxes for every $1
in taxes generated by film activity, deflating a hope of film incentive
supporters that the program would be a financial winner for the state. This
information, however, was irrelevant to the administration, as Gov. Jennifer
Granholm responded that she never expected the incentive to make the state
Policymakers should voice what their
expectations are. Legislators stated that they expect a Michigan-based film
industry, but two years after the incentive was passed, a studio has yet to be
operational, let alone self-sustaining. While industry supporters argue that
given enough time, film producers will stay in the state without the incentive,
policymakers have not discussed when they think this will occur or how many of
these permanent jobs are expected, even though they boast that they will be
coming. Lansing has not even broached the subject of whether the incentive will
be eliminated if the jobs fail to arrive.
The state bureaucracy shrugs when presented
with these issues. The Michigan Economic Development Corp., which administers
the state’s business incentives, has never declared any of its programs less
than a stellar success and admonishes the Legislature and others any time there
are threats to those programs.
When asked to talk about the successes of the
programs, MEDC officials largely point to the activities — the number of companies
attracted to the state, the millions of dollars pledged in investments, the
number of jobs anticipated. They are also fond of economic impact studies that
estimate secondary economic impacts while ignoring costs.
But they’ve failed to define success in
meaningful terms. Economic growth is not hidden — there are monthly employment
reports, annual production figures, personal income measures and poverty rates.
Programs that fail to have measurable, obvious positive effects should be
It may take a long time for economic programs
to have measurable effects, but those expectations should be explicit. Only
once has an official put an expected time frame on a program’s economic
impacts: the famous “blown away” statement where Gov. Jennifer Granholm
expected obvious results from the 21st Century Jobs Fund programs in five
years. Despite its failure, the state will spend $75 million on the program in
Bureaucrats cannot be expected to be
objective judges of the success of the programs they create, but they should be
expected at least to administer them well. Expectations are needed, and the new
Legislature and governor have an opportunity to set them.
James Hohman is a fiscal policy analyst 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.