Commentary: 'Corporate Welfare' Hype Yields Few Economic Results

The failure of high profile “green energy” firms with the loss of hundreds of millions of taxpayer dollars has made national headlines in recent months. Companies like Solyndra, Beacon Power and Solar Trust have become household names as a result. Less well-known are similar failures right here in Michigan, costing state taxpayers millions.

Ironically, the state government agency responsible for much of this waste has created a one-stop source documenting the hype and failed promises that have become the hallmark of such adventures. Michigan Advantage is the (now-defunct) YouTube channel for the Michigan Economic Development Corp. The intention is to promote state corporate welfare success stories, including subsidies for Hollywood film producers and “green energy” speculators. The reality is a playlist of crony capitalism failures.

The MEDC video on car battery assembler A123Systems is typical.

 

It features the firm’s CEO, David Vieau, praising the MEDC and former Gov. Jennifer Granholm for having “stepped up” significantly and “helped us along the way.”

The company was awarded $25.2 million in grants and $100 million in “refundable” tax credits from the state (meaning these too are most likely to be paid out as cash subsidies). It also received $249 million from federal taxpayers as part of President Obama’s “stimulus” program.

More recently, the firm has laid off nearly half its workforce, lost hundreds of millions of dollars, seen the primary customer for its product go bankrupt and had the U.S. Energy Department cut off the balance of a $528.7 million government loan.

The MEDC video on a film studio proposal calling itself Unity Studios follows a similar script:

 

In the video, the operation’s impresario, a man named Jimmy Lifton, boasts that his subsidized venture would support “more than 3,000 jobs.” Lifton also says the application process for getting money from the state was “very easy” but also had “strict guidelines.”

Unity Studios was awarded more than $40 million in local tax credits, loans and subsidies and another $2.8 million from the state. Wayne County also declared the studio’s property a “Renaissance Zone,” meaning it was exempt from state and county taxes. Politicians in the city of Allen Park were so swept up in the hype that they borrowed nearly $25 million to purchase a facility for the operation.

The adventure has nearly bankrupted Allen Park, threatening local tax hikes and mass layoffs of public employees while forcing city officials to request an emergency manager be appointed by the state. According to some claims the eventual cost to the small city of 28,000 could run as high as $100 million.

An MEDC video on converting the former Ford Wixom Assembly Plant into a “renewable energy technology park” repeats the same themes.

Promoter of the project David Hardee says his $725 million subsidized project will “create the world’s largest renewable energy campus,” consisting of several companies and supposedly creating 4,300 jobs. Based on these promises the Michigan Legislature authorized $100 million in tax breaks and outright cash subsidies. The promoters also sought $500 million in federal loan guarantees from the U.S. Department of Energy Department. Not surprisingly, Ford Motor strongly favored letting taxpayers help take a closed-plant off its hands, but eventually conceded it wasn’t happening.

(In December 2011, the Legislature approved $50 million for a similar scheme at the Wixom site.)

This same video promotes a project by Suniva, a Georgia company awarded $15 million in state tax breaks and subsidies for its promise to create 500 jobs at a proposed plant in Saginaw County. The company’s CEO, John Baumstark, tells viewers he is “happy to be a part” of the plan, and thanks Gov. Granholm, the MEDC and local governments for their support. However, the company failed to get a U.S. Department of Energy loan, and has suspended plans for the Michigan plant. The proposed site in Thomas Township remains vacant.

United Solar Ovonics was awarded $17.3 million in Michigan tax breaks and subsidies for its promise to create over 3,700 jobs in the state.

In the MEDC’s video, CEO Dr. Subhendu Guha says these and local tax favors would let the company “stay in Michigan and to grow in Michigan.” He adds that the business was growing at a rate of 50 percent annually.

Since then, the company saw its revenue fall 70 percent, with a quarterly loss of $243 million. On two separate occasions it was forced to lay off 20 percent of its workforce. The firm finally filed for bankruptcy in February.

“Green” energy subsidy supporters like to quote President Obama saying, “The understanding is that some companies are not going to succeed…”

This brings to mind the saying: “You can’t make an omelet without breaking eggs.” But a look at the promotional videos showing how badly “green” energy companies in Michigan have actually done brings to mind George Orwell’s rejoinder: “Where’s the omelet?”

One can’t help wishing Michigan politicians would instead take their counsel from Mackinac Center President Emeritus Lawrence Reed, who wrote in his Seven Principles of Sound Public Policy, “Nobody spends somebody else’s money as carefully as he spends his own.” While perhaps also recalling a different Obama statement: “You know, the idea you would keep on doing the same thing over and over again, even though it’s been proven not to work -- that’s a sign of madness.”