News Story

State's Corporate Welfare Agency Has a History of Secrecy

Since its creation in 1999 as the state's primary agency in charge of economic development programs, the murky, nontransparent nature of the Michigan Economic Development Corporation has been a concern. Former Democratic State Rep. Joseph Rivet of Bay City says he raised alarms about it soon after then-Gov. John Engler created the MEDC.

Engler created the agency by means of an executive order authorizing a so-called interlocal agreement between a state department and local economic development agencies. It replaced another Engler creation, the Michigan Jobs Commission. The rationale for its unusual structure was to give the agency greater flexibility than the more conventional Jobs Commission.

“I thought there were a number of things that were risky about the way they were putting MEDC together,” said Rivet, who is now the Bay County drain commissioner. “I was the ranking Democrat on the House Oversight and Ethics Committee back then and could see that the way they used interlocal agreements to create [the MEDC] allowed them to bring in private foundation money while providing them with a certain amount of cover.”

Immediately after Engler announced the new agency in his 1999 State of the State address, Democrats criticized the move. Some dubbed the parent department, the Michigan Strategic Fund, Engler’s “slush fund.” Republicans pointed out the Strategic Fund had been created in 1984 by a Democratic governor, James Blanchard.

Rivet was perhaps the most visible of a group of legislators warning that the agency's ambiguous status would let it evade regular transparency and open records requirements. It was Rivet who formally requested then-Attorney General Jennifer Granholm (who became governor less than four years later) to render an official opinion on the constitutionality of the unusual structure.

Rivet asked whether the Michigan Strategic Fund was authorized to enter an interlocal agreement creating a separate entity to administer state programs, whether the state constitution prohibited the MEDC from using state dollars, and whether the interlocal agreement required prior approval by the Legislature.

With a few notorious exceptions (such as the home health care provider dues skim created later by Gov. Granholm), most interlocal agreements are unremarkable devices used to avoid red tape in certain government services, such as when two adjacent communities merge their fire departments.

Attorney General Granholm responded to Rivet’s questions on May 14, 1999, basically determining that the Engler administration’s structuring of the MEDC was constitutional.

"I thought she was wrong," Rivet said. "I said so at the time and I still think she was wrong. I could see the value of using private money to try to stimulate the economy but it should be done in a transparent way. Using those interlocal agreements, which have now become a regular fixture of government — you can string those together and create an entity that’s less than transparent. Sen. Harry Gast raised some of the very same issues.” (Gast was a GOP lawmaker who served in the Legislature for over 30 years, retiring in 2002.)

“I went and asked for a copy of an MEDC board meeting’s minutes and all I got was three pages of basically whitewashed copies,” Rivet recalled. “I understood they had resources they wanted to invest but I never thought they should be allowed to do it in a way that we would all have to just take whatever they decided to do on faith.”

As the years passed other lawmakers would validate the concerns by finding it difficult or impossible to obtain official records. Former Rep. Bob Genetski, R-Saugatuck, tried for more than a year to get budget details of the Travel Michigan office run by the agency. For all his efforts was only able to extract a brief list of Pure Michigan ad-buys.

In the summer of 1999, The Detroit News broke the news that then-MEDC chairman Rick Snyder, (who as governor 12 years later would start scaling back the state's corporate programs), recommended that MEDC CEO Doug Rothwell get a $189,000 annual salary. With bonuses, it was estimated that Rothwell's pay might be as high as $250,000, well above the governor's salary.

In an Aug. 4, 1999 article published by the MIRS Newsletter, Rivet argued that the MEDC was possibly created specifically to avoid legislative oversight. He pointed out that even though it would be staffed by state civil service workers paid by taxpayers, the Legislature would have no oversight role in how agency money was spent.

"This is not in Michigan's best interest," the article quoted Rivet as saying in reference to Rothwell’s proposed salary. "I don't care how they wrap it or frame it, he is a public official."

Rothwell’s salary level in 1999 proved to be a harbinger: By the beginning of 2014, the agency had 52 employees making $100,000 or more per year.

“As ranking Democratic member of the oversight committee, I felt I was obligated to do what I did regarding MEDC,” Rivet said. “But as things turned out, it was a boulder I just wasn’t going to be able to move. Engler obviously had virtually everything working in his favor at the time and [the MEDC] became into what it has turned into.”

Rivet says he has little sympathy for current legislators who learned earlier this year that tax credits handed out by the agency during the Granholm administration had created $9.38 billion worth of unfunded taxpayer liabilities payable over 20 years.

“The issue of transparency has been there with MEDC for years and I don’t think lawmakers should use it as an excuse,” Rivet said. “And I can’t really blame Granholm either. She thought she had that $1.8 billion from the [Michigan Business Tax] and I think almost every Republican supported those credits at the time. When the economy is as bad as it was then, you leverage everything you can.”

“Back then it was just like it is now; when it's election time everybody says jobs, jobs, jobs,” Rivet added. “So they do things to make it look like they’re creating jobs even though government’s role in job creation is actually so minuscule that it hardy has any impact at all.”


See also:

State's Corporate Welfare Agency Tone Deaf to Requests for Transparency

Three Cheers for Michigan House Democrats

State's Corporate Welfare Arm Says Ex-Attorney General Approved Being Less Transparent