Economic Development 'Chicanery'

The recent news that the state's Michigan Economic Growth Authority offered a convicted embezzler's company a $9.1 million tax credit has caused quite a stir in Lansing. Last week, legislators held hearings on how the Michigan Economic Development Corp., MEGA's parent agency, could have let someone with the embezzler's background be part of a multi-million-dollar selective tax break deal.

The MEDC's work is so carefully insulated from proper oversight it's an open question whether such sloppy lack of due diligence is standard procedure. One issue that should be on the docket is whether the MEDC's "compliance officer" or other agency employees should lose their jobs for such a spectacular misstep. More importantly, is this the only foul-up, or are their other embarrassing examples just waiting for a careful investigator to lift the rocks and see what scuttles out?

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There is so much money sloshing around economic development programs around the nation — up to $50 billion or so as late as 2004 — that it would be surprising if there were not many questionable deals brokered by similar agencies across the nation.

Consider news reports out of Indiana that have exposed a yawning gap between some of that state's "economic development" agency's celebrated job announcements and the jobs actually created by the underlying corporate welfare favors. Tad DeHaven characterized the Daniels Administration as being engaged in "press-release economics":

The administration's political chicanery, however, has now come back to bite it. A recent WTHR Eyewitness News investigation into IEDC shined a light on the job-creation claims. When reporters tried to visit some of the companies celebrated in IEDC press releases, they found empty fields, vacant lots and deserted factories. According to the investigation, "as many as 40 percent of statewide jobs listed as so-called economic successes have not happened-and most of them never will." The governor told reporters that the IEDC's numbers were audited.

Independently? That would be news to me. When I was a deputy director at OMB, the governor's chief advisers ignored internal suggestions that the state pursue the creation of an independent auditing agency along the lines of the U.S. Government Accountability Office. The position of the IEDC director is that no taxpayer money is being lost because his agency audits the companies to make sure they fulfill the terms of their agreement with the state. The director, however, has so far refused to release any details to the public that would support this contention.

The key to restoring public confidence is transparency and independent audits. The MEDC and the governor's staff have strong political incentives to puff up the putative good news and bury the genuine bad news. As I recommended last year, a routine audit should be done of MEDC's job creation claims by a department with no dog in the economic fight.