Legislators Vote To Continue Special Subsidy Program Without Knowing Whether It Works

State Senate wants to extend $844 million program; bill heads to the House

By Tom Gantert | November 7, 2013

The state senate overwhelmingly passed a bill extending the life of an $844.5 million economic development program despite the legislators not knowing how well the program was performing because of a lack of transparency.

Senate Bill 269 would extend funding for the 21^st Century Jobs Fund an additional four years; it was supposed to sunset in 2015. It passed the senate by a 33-4 vote Oct. 31. The bill now goes to the House of Representatives. The 21^st Century Jobs Fund was created using money from a tobacco company lawsuit settlement.

"It's not possible to get a clear picture of how well the 21^st Century Jobs Fund is performing because the state doesn't report on the results on many of their projects," said James Hohman, a fiscal policy analyst for the Mackinac Center for Public Policy.

The Michigan Economic Development Corp.'s 2012 report stated the 21^st Century Jobs Fund's Competitive Edge Technology Grants program gave out $137 million in grants and loans and created 999.19 full-time jobs.

But the information about the 21^st Century Job Fund's performance is not clear.

For example, that 2012 MEDC report states that the company IA Inc./Three Fold Sensors reported negative 3.84 jobs.

Hohman questioned how a company could generate negative 3.84 jobs and wondered whether legislators know what taxpayers are receiving for their money that is invested in this program.

Sen. Rick Jones, R-Grand Ledge, said he supports more transparency on how 21^st Century Jobs Fund money is spent. He voted "yes" on the bill to provide more money to the fund.

"I think the feeling that if we don't have some sort of mechanism in place to attract jobs in Michigan, then Indiana and Ohio and surrounding states will eat our lunch," Sen. Jones said.

But Hohman said these incentive programs are better at producing press releases than actual jobs.

The 21st Century Jobs Fund has been roundly criticized for inaccurate reporting, repeated failings of past companies subsidized, and the idea that bureaucrats are better at spending money through centralized planning than the private market.

The bill's future in the House is uncertain.

"Our caucus is reviewing the reporting requirements and transparency for the 21st Jobs Fund and looking at some things that could improve upon the Senate bills, the majority of which were approved by the Senate prior to the latest audit on the program," said Ari Adler, director of communications for House Speaker Jase Bolger, R-Marshall. "As we have more information now than the Senate did when it voted, it wouldn't surprise me to see some amendments that could address shortfalls in the operation of that program."

(Editor's note: This story has been edited since its original posting.)

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Don't Extend Granholm's 'Blown Away' Program

Demand accountability instead

By James M. Hohman and Jack McHugh | November 6, 2013

Without much fanfare, the Michigan Senate recently approved pouring an additional $300 million through 2019 into a corporate welfare program that's a holdover from Gov. Jennifer Granholm's time in office.

An annual $75 million earmark to the program had been scheduled to sunset in 2015.

Before rubber-stamping the extension, House members should force the state's "economic development" gurus to finally cough up some basic information on the actual performance and outcomes of this 21st Century Jobs Fund scheme.

For starters, they should demand to know how much taxpayer money has been spent, and what we have to show for it. That the program's annual reports fail to answer these basic questions should raise all kinds of red flags for legislators, journalists and the public.

Some background: In 2005, Gov. Granholm proposed to invest $2 billion in borrowed money to support "next-generation" industries. It was this program that inspired her famous "In five years you'll be blown away" declaration.

After initial skepticism from Republican legislators, a package was enacted that borrowed $400 million, pledged another $600 million through 2015 in annual earmarks, and shoved this money out the door in a variety of ways.

Gov. Granholm (and most reporters) claimed a total commitment of $2 billion, with an additional purely speculative $1 billion "blue sky" figure representing all the marvelous profits expected from picking "winner" companies in which the state would take a partial ownership stake, among other activities.

For their part, Republicans — led by then state representative and current Congressman Bill Huizenga, R-Zeeland, — also took an ownership stake in the adventure, resurrecting a proposal that was floundering due to Gov. Granholm's intransigence on a package of tax cuts they wanted (and never got) in return for approving this spending spree.

Hundreds of millions of dollars later, here are some more questions today's Legislature should ask the Michigan Economic Development Corp.:

What happened to the first round of "winner" firms that received grants and loans in 2007? After six years, the MEDC still does not report how much taxpayer money was spent, much less what outcomes were realized.

Having bought stakes in private equity, mezzanine, and venture capital funds, how much does the state own and what is it worth? The MEDC has not reported on whether there have been any returns on the money. Likewise, what investments in Michigan projects were undertaken?

Why does the program change every year? There was statutory guidance on the initial set of programs, but this setup was never enforced and each year brings shifting targets and goals. (Note: The state senate has passed a bill that appears to strip away the façade of expert-guided investment and simply gives the political appointees who run the MEDC's parent agency, the Michigan Strategic Fund, discretion on how to spend the money.)

Although the program's annual report doesn't seem to answer the most important questions, it raises plenty of new ones. Among them:

What does "negative jobs" mean? (For example, a firm called, "IA Inc./ ThreeFold Sensors," was given a $2.6 million state loan and generated "-3.84 jobs.")

When loans were made were they ever repaid?

When grants were authorized, how much was actually delivered?

If a 21st Century project closes, is that ever reported?

In the remainder of her term, Gov. Granholm had many occasions to regret her "blown away" puffery. Before giving a new lease on life to the program that inspired it, today's legislators should discover whether what was really blown away was millions of taxpayer dollars.

Michigan Capitol Confidential is the news source produced by the Mackinac Center for Public Policy. Michigan Capitol Confidential reports with a free-market news perspective.