New Subsidies More about Political Development than Economic Development

Economic conditions matter more than giving targeted taxpayer dollars to developers

Some officials have argued lately that the state will see the benefits of new projects — which they label “transformational” — only if taxpayers hand out more in subsidies through measures such as Senate Bill 111 and its companions. But plenty of development is built without direct taxpayer support.

The Census Bureau keeps a database of housing permits, organized on a state-by-state basis. It includes breakdowns for single family housing and multiunit housing developments. Developments of five units or more took a beating during the recession but have since recovered. The Census Bureau also publishes data on nonresidential, nonindustrial and nongovernmental construction, an imperfect measure of commercial and retail construction.

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Construction doesn’t seem to be influenced much by recent changes in state economic development policy. The state converted one of its development credit programs to a smaller direct subsidy program beginning in 2012. The replacement program delivers fewer dollars to developers, which is probably why lawmakers are talking about ways to make sure it sends them more.

The change seemed to have had little effect on the market. Indeed, housing development spiked after the reform. This is not likely due to the policy change, but rather due to the state’s general economic recovery.

Commercial and retail construction shows a less substantial response to the recession. It has bounced around $4 billion to $5 billion annually since 2009 with a recent upward trend. But likewise, there seem to be broader factors at work than policy changes from Lansing.

The lesson is that plenty of development will happen independent of lawmakers lavishing select projects with taxpayer dollars.

If this latest effort to establish a more elaborate state program were about growing the economy, there would be performance targets in the legislation. After all, programs that are meant to transform the economy should not pay out taxpayer dollars unless they show that economic outcomes increase as a result. Lawmakers ought to state exactly which of the important metrics — income, employment or production — will be improved and how much. If the state should promote developments that the bill supporters say are transformational, then it should spell out exactly what that transformation should mean for the local economy. What transformations can we expect to be clearly attributable to a particular subsidized project?

We’re unlikely to get this clarity, however. It would be difficult for anyone to demonstrate that these projects will make much of a change; developers would face a hard obstacle to overcome before getting taxpayer dollars.

An attempt to prove that a taxpayer handout brought a significant transformation is doomed to fail. This is because the core of a community is not in the city’s buildings, but rather in the productive uses of its people. The economy is decentralized: It is the result of millions of people working together to find better ways to use their knowledge, skills and resources. The places that do well are those putting these things together.

People will continue to build communities without this legislation or other giveaways. Michigan’s recovery has been strong and broad. It will continue to be without creating new ways to subsidize developers.

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