Bad Week for Michigan Corporate Welfare Machine

On Thursday the plug was officially pulled on a monumentally hyped film infrastructure deal in Allen Park called "Unity Studios." There were no press releases from the Governor's office or the Michigan Economic Development Corp. announcing the evaporation of the mirage, but they had plenty to say when its promoters were granted their first batch of state corporate welfare promises in 2009:

Governor Granholm enthused, "(W)e are not only bringing new investment to the burgeoning film production community in Michigan, we are putting in place the infrastructure for an industry that will support long-term job growth and opportunity in new, creative sectors."

MEDC Head Greg Main chimed in with, "Our film program is just one component of our multi-faceted economic diversification strategy that includes growing new businesses from the rich talent and technology assets found in Michigan."

Coincidentally, the day before this week's announcement State Rep. Tom McMillin, R-Rochester Hills, presented a more realistic interpretation of that last claim in the form of an amendment on a bill creating a government "New Economy Commission." He proposed giving it the duty to "outline the inherent risks in focusing on a few industries, which is by definition the opposite of diversifying." Unfortunately, the House majority wasn't interested and gaveled-down the amendment.

Also, this (predictable) disappointment comes hard on the heels of a damning indictment of the film program released last month by non-partisan Senate Fiscal Agency. Economist David Zin calculated that each job created by the subsidies costs the state $193,333 in cash outlays and foregone taxes. He concluded: "The nature of the credit and the resulting activity is such that under current (and any realistic) tax rate the State will never be able to make the credit 'pay for itself' from a State revenue standpoint, even when the credit generates additional private activity that would not have otherwise occurred."

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Main also had some painful moments during a Senate hearing on Wednesday at which embarrassing internal e-mails written by MEDC staffers were revealed by Sen. Nancy Cassis, R-Novi. The staffers expressed concern over the unseemly rush to grant subsidies and tax breaks to the "Renewable and Sustainable Companies" proposal, which after receiving its own MEDC special treatment promises was also discovered to be an illusion, this one conjured by a convicted embezzler working out of a Flint trailer park.

As reported on Sept. 29 by the "Gongwer Michigan Report" newsletter that's read by Lansing insiders (but curiously not reported by anyone in the general media), one unnamed staffer wrote about the pressure they were under to process "RASCO's" request for state goodies: "We did what our CEO told us to do," the e-mail said. "We need a mechanism to check out the folks that make our skin crawl since we can't convince people to say NO."

Another exchange included this: "I want to try to accommodate the company if possible, given the internal criticism we have received for not giving this project the proper attention." (Emphasis added)

Main said under questioning that he did not know the source of that "internal criticism." He also characterized the hearing as a "witch hunt."

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Another MEDC official, Michael Shore, also didn't think much of revelations presented this week about another company that appeared to misrepresent pertinent facts on applications for special tax breaks and subsidies. The firm is called GlobalWatt Inc. and Mr. Shore issued a statement saying, "We have seen no evidence to substantiate the allegations being made against GlobalWatt." That's not surprising, and wouldn't be the first time. Here are the facts: 

The flaws on GlobalWatt's application go to the rationale behind all these selective favors, which is that Michigan's tax, regulatory and labor climates are so rotten that it's necessary to offer extra "sweeteners" to attract potential investors. When they apply for these, corporate petitioners are required to describe the particular advantage provided by locating in another state, thereby demonstrating why the special treatment here is necessary.

GlobalWatt claimed that Texas had offered "up-front cash" incentives, but a Mackinac Center investigation shows that neither the state economic development group there nor the Corpus Christi-area economic development group offered "up-front cash" incentives. In addition, when the company's MEDC application was signed, requests for performance-based incentives had already been turned down cold by the Lone Star State.

With the rationale for the existence of this state's corporate welfare empire undermined in this case, the MEDC apparently granted the special treatment promises because — we can only guess. The RASCO memos strongly suggest political reasons play a strong role in agency decisions, not surprising given that these are predominantly political development programs, not economic ones. Perhaps internal agency e-mails will someday reveal the real motives in this case, too.