Despite Lack Of Jobs and Repeated Broken Promises, Legislature Proposes Extension Of Corporate Welfare Program

Despite repeated failures, the Michigan Legislature is pushing ahead with extending, and in some ways expanding, a government program that hands out select tax breaks, subsidies and loans to particular firms and special interests.

The “21st Century Jobs Fund” law enacted in 2005 created a smorgasbord of selective business subsidy-granting techniques targeted at different types of economic activities and actors. Reviews of this and other state “economic development” programs show that they consistently fall short on jobs projections, lack sufficient documentation for auditors, and spend tens of millions of state dollars with little or no return for taxpayers.

Capitol Confidential did a series of articles on the program last summer. The results are summarized below – all programs fall under the 21st Century Jobs Fund or a directly related area:

• The Michigan Pre-Seed Capital Fund loaned $7.7 million to 35 companies with the promise of 390 jobs – only 79 jobs were created.

• Mascoma Corp., a biofuel company from New Hampshire, was awarded over $20 million from Michigan as part of the Centers of Energy Excellence program on top of $100 million from the federal Department of Energy. The company promised 70 jobs and a new ethanol plant in the Upper Peninsula – it reports only three jobs, a failed initial public offering (IPO) and no plant.

• The Centers of Energy Excellence program awarded 12 grants worth $67 million with the promise of 1,746 jobs – only 588, or one-third, of the jobs came to be.

• The Renaissance Zones program exempts certain companies from state and local taxes: The program predicted it would generate $826 million in private investment and create 1,061 jobs – the reality was $268 million in investment and only 220 jobs; a third of the investment and a fifth of the jobs.

• The Competitive Edge Technology program gave $30 million to seven universities and projected 411 jobs – only 153, less than half, were actually created.

• The Michigan Strategic Fund gave $1.65 million in a direct investment to Microposite Inc. to make “environmentally friendly” siding – the company created zero jobs and went out of business.

• The Michigan Auditor General found that multiple parts of the 21st Century Jobs Fund did not provide sufficient documentation for a significant portion of the reported achievements. A separate audit of the Brownfield Redevelopment Financing Program found that the state treasury did not “evaluate the effectiveness” of the program – it was estimated that “79 percent of the brownfield authorities had not submitted annual financial status reports from 2008 through 2010.”

• A 2010 analysis from the Detroit Free Press found that only one-third of the jobs promised by the 21st Century Jobs Fund ever materialized. A vice president at the MEDC acknowledged the numbers but maintained that the program would pay off for the state in the long run.

Since the 21st Century Jobs Fund was created in 2005, large bipartisan majorities of the legislature have steadily expanded its scope. Despite the program’s failures, a series of recent Senate bills perpetuating the program and revising its subsidy-granting decision-making apparatus have been introduced and appear to be on a fast track. They include the following, with descriptions provided by MichiganVotes.org:

• Senate Bill 269, sponsored by Sen. Mike Kowall, R-White Lake, would eliminate a 2015 sunset on funding for the program, making permanent a law directing that $75 million be appropriated for it every year.

• Senate Bill 278 and Senate Bill 270, sponsored by Kowall and Sen. Judy Emmons, R-Sheridan, respectively, eliminate requirements that fixed proportions of the program’s spending be allocated though the various subsidy-granting methodologies authorized under its numerous sub-programs. Along with other bills in the package, these essentially convert this from appearing to be a "rule-based" subsidy program governed by statutory prescriptions and restrictions into one in which the political appointees on the Michigan Strategic Fund board have more discretion to give out subsidies as they choose.

The Mackinac Center’s Director of Fiscal Policy Michael LaFaive has co-authored several studies examining the results of various state corporate activities over the years. He told Capitol Confidential: “Government ‘economic development’ programs are intended to boost the economy by letting a small group of supposedly ‘far-sighted’ experts, bureaucrats or politicians give discriminatory subsidies to particular firms or industries. History has demonstrated repeatedly that whether rule-based or discretionary, the concept misallocates scarce human and financial capital, creates unfairness, generates abuses like crony capitalism, and doesn’t grow the economy. Given that record, these bills are the equivalent of re-arranging the deck chairs on the Titanic while leaving the throttle set at ‘full speed ahead.’ ”

Senators Kowall and Emmons did not respond to a request for comment.

(Editor's note: Every Saturday, Michigan Capitol Confidential brings you a story about a bill being discussed in committee or presented in the Legislature for a vote. For more information, go to www.MichiganVotes.org.)