News Story

In 20 Years, Only Two Corporate Welfare Recipients Created 1,000+ Jobs

MEDC projections rarely come true

Doug Rothwell, president of Business Leaders for Michigan, was quoted recently in Crain’s Business Detroit as saying more government economic development projects and programs are needed in the state.

“We haven’t, until recently, had the governor, MEDC, local agencies, etc., with a cohesive plan,” Rothwell said in the article. “We struggle to attract big projects, and we’ve not attracted a single project that has created more than 1,000 jobs in 10 years.”

Rothwell is the former director of the Michigan Economic Development Corporation, the state’s main business incentives-granting agency, and is the current chair of its executive committee.

In 20-plus years since it was created in 1995, the MEDC has approved benefits for just two projects that actually created 1,000 new jobs. And neither company sustained those jobs over time.

Both projects came under the MEDC’s former flagship program, the Michigan Economic Growth Authority. It was repealed in 2011, but was in the news recently when some $9 billion in liabilities were disclosed, the product of “refundable tax credits” (mostly cash subsidies) granted to companies under the MEGA rubric.

One of the 1,000-job projects was launched in 2004 when Auto Alliance International, Inc., in Flat Rock, claimed tax credits for creating 1,389 jobs. But in 2010, credits for just 75 jobs were claimed.

The other big winner for MEGA was Flagstar Bank in Troy, which received credits for claiming 442 jobs in 2001. Flagstar eventually claimed credits for creating 1,388 jobs in 2013, but that number fell back to 699 in 2014.

There are about 4.5 million jobs in Michigan. Every three months across the state, around 200,000 new jobs are created and around 200,000 existing jobs disappear, with no involvement by state economic development officials. (In good times more are usually created than disappear, and in bad times vice-versa.)

The state’s economic development arm has a long history of making job projections that don’t come close to the reality years later. A state auditor general report in 2013 found that its review of select business reports found that only 22 percent of the projected jobs had materialized. In one instance, a company projected 600 jobs but created just seven.

Many of the MEDC's announcements were made with great fanfare. In 2006, Google announced it was making Ann Arbor the headquarters for its AdWords online advertising program. The MEDC authorized $38 million worth of tax credits payable over 20 years. It announced that Google would create 1,000 Washtenaw County jobs within five years, plus another 1,200 jobs indirectly. As part of the hype, then-Gov. Jennifer Granholm attended the subsidiary’s grand opening.

That was the projection, but according to the MEDC’s most recent annual report, Google claimed tax credits for only 134 jobs in 2007 and 224 jobs 2008. No credits have been claimed since, most likely because the numbers had fallen below a threshold built into Google’s deal with the state.

“The state rarely delivers on the jobs announced when the deals are inked,” said James Hohman, the assistant director of fiscal policy for the Mackinac Center for Public Policy. “Lawmakers should discuss eliminating the remaining programs instead of following Rothwell's call to expand them.”

Chris Douglas, the chair of the Department of Economics at the University of Michigan-Flint, said a new business with a great idea should be able to raise funds in the private capital market without recourse to government favors.

“The fact that the business can't and has to get funding from MEGA suggests that the business isn't sustainable,” Douglas said.

Douglas brought up the ABC-TV reality show Shark Tank, which features entrepreneurs who pitch their business ideas to potential investors, or "sharks."

“Suppose an investor pitches an idea to the sharks and after hearing the pitch, all the sharks pass. Afterward, the government steps in and provides the funding. Would it really be a surprise if the business turned out to not to be sustainable after all and later failed?” Douglas said.

The MEDC didn’t respond to emails seeking comment.