MI Would Join Other States In Stopping Biz Subsidies Under Bipartisan Proposal
June 16, 2021
In July through September 2020, administrators of Michigan’s principal business subsidy program pledged $7.2 million to construct 870 jobs through four tax-funded deals — however, legacies of those like the Michigan Economic Growth Authority (MEGA) depend on its competitiveness to keep and coax opportunities from other states.
“It happens all too often: States engage in a race to the bottom with hopes of landing the next big company, many of which never end up making good on their job-creation promises,” said Senate Minority Leader Jim Ananich (D-Flint) on a bipartisan package to place Michigan into a compact agreeing not to offer new subsidies to certain companies.
In 1996, under the leadership of Republican Governor John Engler, an analysis of the “MEGA Promises” indicated the Governor was under pressure from businesses and economic professionals within the state “to respond to the incentives for business expansion and relocation offered by other states.”
The initial purpose of MEGA was ultimately to enhance the state’s ability to compete with the ammunition of “strategic industrial subsidization,” with states like Alabama, Kentucky, North Carolina and Ohio offering the “most substantial economic development incentives in the nation” at the time.
In 2014, Michigan Capitol Confidential reported out of the 434 MEGA credits from 2005-2011, 10 projects fulfilled or surpassed their foreshadowed job counts. A credit would have a value of up to 100% of Michigan’s personal income tax rate multiplied by the expense of wages and employer-paid health care on eligible new or preserved jobs.
“In other words, just 2.3% of MEGA projects met or exceeded expectations,” the article reads. “The Michigan Economic Development Corp., which oversaw the program, projected that these projects would create 122,785 jobs. In fact, only 13,914 materialized.”
Currently, lawmakers in 14 states have introduced legislation consistent with a package being introduced by Ananich, Sen. Aric Nesbitt (R-Lawton), House Minority Floor Leader Yousef Rabhi (D-Ann Arbor) and Rep. Steven Johnson (R-Wayland) to enter a compact of no-subsidy agreements.
According to the press release on SB 0523, SB 0524, HB 4971 and HB 4972, “state and local governments give away an estimated $95 billion in subsidies every year, but many economists argue the subsidies do not pay off in job creation or economic growth.”
“Regular taxpayers bear the burden when states give sweetheart deals to specific companies,” Nesbitt said. “An interstate compact will enable our state to end these destructive deals without losing our competitive advantage.”
The bills have already received a backing from James Hohman, director of fiscal policy at the free-market Mackinac Center for Public Policy.
In March 2019, the organization published “Multilateral Disarmament: A State Compact to End Corporate Welfare,” a study showing the 16 companies in Michigan that obtained deals from the Michigan Business Development Program in the first quarter of 2018 pledged to assemble 1,120 jobs. During that time, the state economy lost 172,700 jobs and added 215,000.
“If residents had to rely on jobs programs to drive economic growth, they would find that policymakers would have been able to replace less than 1% of the jobs lost in the economy over the period,” the study reads. “Taxpayer-funded economic development programs are simply not large enough to have a substantial impact on a complex state economy.”
Hohman said while states should compete with one another through providing a healthy business climate, this should not be done by “offering handouts.”
“It’s past time to end the ineffective practice of using taxpayer dollars to benefit a few select businesses. With this legislation, policymakers are taking necessary steps that would allow states to mutually agree to stop wasting money on a tactic that has been proven to be ineffective.