Auditor General Says State Did Not 'Evaluate the Effectiveness' of $500 Million in Select Tax Breaks

An audit of a state program awarding over $500 million in tax breaks found that the state could not evaluate the program’s effectiveness.

A performance audit from the auditor general found that the Department of Treasury "did not have sufficient performance information available to evaluate the effectiveness of the Brownfield Redevelopment Financing Program."

The Brownfield Redevelopment Financing Program allows municipalities to create Brownfield Redevelopment Authorities, which use Tax Increment Financing to redevelop properties deemed “contaminated, blighted or functionally obsolete.” Tax Increment Financing is used to subsidize redevelopment through expected future gains in tax revenue.

The brownfield program is not the only economic development program to receive criticism from the auditor general. In an audit of the 21^st Century Jobs Fund, the auditor general found that the Michigan Strategic Fund did not document its review of eligibility requirements for recipients of funds from the Centers of Energy Excellence program.

In Michigan, the Brownfield Redevelopment Financing Program is a joint venture of the Department of Environmental Quality, Michigan Economic Growth Authority and the Department of Treasury. The program was created by the Brownfield Redevelopment Act of 1996, which was signed into law by then-Gov. John Engler.

The auditor general estimated that 79 percent of the brownfield authorities had not submitted annual financial status reports from 2008 through 2010. Brownfield authorities are required by law to submit annual financial reports and the Department of Treasury is required by law to collect the reports.

Additionally, the Department of Treasury is required by law to compile and analyze seven metrics in the annual reports. The auditor general found that only one metric was consistently monitored.

Among the unmonitored metrics was the captured taxable value. Since the goal of the program is to increase property tax revenue, this metric is the primary measure of the brownfield program’s effectiveness.

The Department of Treasury also did not submit annual reports to the Legislature regarding the effectiveness of the brownfield program. The Department of Treasury is required by law to submit annual legislative reports. 

In a written response, the Department of Treasury agreed with the auditor general’s findings. The Department of Treasury did not respond to messages left by Michigan Capitol Confidential inquiring about actions taken to improve oversight of the brownfield program.

The Michigan Economic Development Corp. says the brownfield tax incentives have resulted in “higher private investment, job creation and the cleanup/improvement of the Brownfield conditions at these sites.”

Michigan Capitol Confidential previously reported that a similar tax break program for Renewable Energy Renaissance Zones has underdelivered in job creation by 80 percent and underdelivered in private investment by 66 percent.

The Brownfield Redevelopment Financing Program audit was published in June 2011.