The Lowdown

Michigan #1 for Economic Development?

The December 2008 edition of Business Facilities magazine announced that Michigan had won the publication's 2008 "State of the Year" contest on the basis of the five best investments in the state during the year. The projects under consideration added up to more than 10,000 new jobs and almost $14 billion in corporate investment. The magazine characterized the competition as a "blowout victory" for Michigan that was "unequivocally propelled" by a joint investment between Dow Chemical and a Kuwaiti chemical company.

The validity of this award had a healthy share of skeptics, due in part because during the same month Michigan was on its way to posting the nation's worst unemployment rate, going above 10 percent for the first time since September 1985. One media outlet, the MIRS Capitol Capsule newsletter (www.mirsnews.com — subscription required) decided to investigate the rationale behind the award after the "K-Dow" joint chemical company investment was cancelled in late December, just after Business Facilities proclaimed its "State of the Year." The loss of this single deal eliminated $11 billion of the $14 billion that the magazine was crediting to Michigan in the contest.

MIRS found out that Business Facilities ranked states based on "unverified claims a state development agency made about its top five projects." In the case of Michigan, the agency submitting the claims was the Michigan Economic Development Corporation. According to the magazine's Web site, the publication is "a dynamic community for C-level executives and economic development organizations." Effectively, this implies that the MEDC is a typical Business Facilities magazine customer.

Contacted by MIRS, the author of the "State of the Year" article explained that the magazine used the numbers "exactly as received by each state organization" and that the organizations "also supplied us press releases that verified their numbers."

"In other words," according to MIRS, "a state such as Michigan, even if it were hopelessly mired in 50th place in terms of overall business development, could still do very well in the contest."

The MEDC and many other state-based economic development agencies like it use targeted tax incentives as a means of luring specific corporate investment to a state. Critics of this approach contend that no panel of government experts can know better than the marketplace what companies are best at creating growth, and thus that cutting taxes evenly for all businesses is a far more effective — and fairer — tool than awarding special favors to a few companies deemed most worthy by the state.

Champions of targeted abatements contend that state experts can sometimes be more effective than the market at predicting who will best maximize the state's economic growth, and use the Business Facilities' ranking and other barometers to help demonstrate their prowess relative to competitors in other states.

Michael D. LaFaive is director of the Mackinac Center for Public Policy's Morey Fiscal Policy Initiative and a skeptic of targeted tax abatements. In 2005, he and Michael Hicks, an adjunct scholar with the Center, teamed up to write a historical retrospective of the first nine years of the Michigan Economic Growth Authority, the MEDC's primary tool for granting these special favors. The peer-reviewed economic analysis found that the program had no impact on Michigan's per-capita personal income, did not improve Michigan's unemployment measures, and produced nothing of lasting value. To date, the MEDC has not refuted a single claim made by LaFaive and Hicks.

When contacted regarding the anomaly in the "State of the Year" rankings, LaFaive told MIRS that magazines such as Business Facilities "hand out awards like candy on Halloween" as a means of generating publicity. Likewise, he asserted that the MEDC and similar agencies enter the contests because it "adds legitimacy to their claims, however shallow that legitimacy may be."

MIRS published this story in its Jan. 23 issue. Four days later, the Michigan Senate Finance Committee held a hearing on Senate Bills 71 and 72, proposals that would require the MEDC to submit more concrete and transparent documentation of their jobs claims to the Legislature so that lawmakers can better establish what — if any — impact targeted tax abatements have on the Michigan economy.

Kenneth M. Braun, director of the Mackinac Center's "Show Michigan the Money" transparency project, testified at the invitation of the committee chair, Sen. Nancy Cassis, R-Novi. Braun reiterated the LaFaive and Hicks findings regarding the failures of targeted tax abatements.

The MEDC did not send a representative to testify at the hearing.

The committee voted in favor of the bills and sent them to the full Senate with a recommendation that they pass. Two similar bills were overwhelmingly approved by the Senate at the end of 2008, but then died in the House of Representatives when that chamber declined to consider them.

New Lawmaker to Save State from 'Clear and Present Danger'

State Rep. Paul Scott, R-Grand Blanc, is one of 46 lawmakers joining the Michigan Legislature for the 2009-2010 session. The new legislator's first two bills are designed to slay what he characterizes as a "clear and present danger to all Michigan residents."

House Bill 4099 would make it illegal for an owner of virtually any public facility to allow smoking. House Bill 4100 would put out of business any restaurant that allows customers to smoke. Scott asserts that there would be "no exceptions" to this ban.

The Michigan Restaurant Association, representing more than 4,500 locations across Michigan, believes that its members should set their own smoking policies so as to cater to the desires of each restaurant's unique base of customers.

"We're in the business of providing customers with choices and giving them what they want," is how former MRA president Rob Gifford characterized the matter when fighting against similar legislation in 2004. "With the growing number of smoke-free restaurants across the state in recent years, the restaurant and foodservice industry has done an excellent job of regulating itself without government interference."

Scott's media release dismissed the arguments made by these job providers as the work of "naysayers." He suggests that they could learn something by visiting a local restaurant in his district that he says is thriving because it voluntarily banned smoking so as to please its customers.

The MRA says this restaurant's decision to go smoke-free voluntarily is an example of a rapidly growing trend and is precisely why government does not need to and should not impose a ban on restaurant owners who think it might hurt their particular business.

"Since 1998 the number of restaurants and taverns that offer a 100 percent smoke-free environment has increased more than 97 percent," noted the MRA while successfully resisting a bill similar to Scott's during the 2007-2008 legislative session. "In 1998, there were 2,200 smoke-free establishments. Today, there are more than 4,350."

The restaurant owners' organization also submitted evidence showing states that totally ban smoking in restaurants have seen their sales growth projections disappoint by as much as 12.4 percent following the imposition of the ban.

But Scott believes the will of the majority has spoken and that no restaurant owner anywhere in Michigan should be allowed to cater to a smoking minority that may wish to have a few places left where they can light up when eating out.

"People overwhelmingly want this ban," notes the lawmaker. "I talked with thousands of local residents during the last few months and there is steadfast support for a smoking ban."

For additional information and an opportunity to comment on these issues, please see www.mackinac.org/10207.