MichiganVotes: Senate Bill Aims to Bolster Corporate Welfare

A new bill that would rename and expand formerly failed economic development programs has passed the Michigan Senate nearly unanimously and now moves on to the House of Representatives.

Sponsored by Sen. Virgil Smith, D-Detroit, Senate Bill 271, would "increase maximum amount of state 'community revitalization' grants (formerly 'brownfield' and 'historic preservation' tax credits) that can be awarded to a particular developer, corporation or other special interest from $1 million to $2.5 million; allow four annual loans of up to $20 million each to particular interests for this purpose; and in general, remove various statutory prescriptions and restrictions on how the political appointees on the Michigan Strategic Fund board may spend state revenues allocated to this program," according to MichiganVotes.org.

Further, the legislation says that it will provide capital for "qualified businesses that need additional assistance for deal-closing and for second stage company gap financing." Together, lawmakers think that such measures will spur community revitalization. 

While the bill promises to fulfill such claims, the history and economics behind such subsidies reveals a more complicated picture.  

At the heart of the legislation is the Michigan Strategic Fund, which is governed by a board of politicians, with certain restrictions. The board consists of lawmakers making subjective evaluations regarding such criteria as "whether the project addresses underserved markets of commerce" and the "extent of reuse of vacant buildings, reuse of historical buildings, and redevelopment of blighted property." 

This puts Lansing legislators in the driver's seat regarding questions that the market solves on a regular basis — a reality that results in the business community courting politicians. 

The reward for this persistence? Financial benefits, known as "brownfield subsidies" that serve as pecuniary rewards for the politically and economically well connected. A gaze into the past efficiency of these "investments" reveals a trail of waste. Large and well-connected green energy firms such as GlobalWatt and Mascoma were approved millions of dollars from taxpayers, resulting in anemic job growth and little long-term success. 

A review of past Michigan Strategic Fund programs showed mass failure for the program.

Waste and poor results aren't the only side effects of such corporate handouts. Companies that normally would not engage in seeking benefits and favors spend time and resources to capture the free giveaways provided by politicians, known as "economic rent-seeking."

James Hohman, assistant fiscal policy director at the Mackinac Center for Public Policy, argues that such programs are driven by the question of "what can you give?" Hohman said he thinks this outlook among politicians "costs taxpayers money and gives special favors to companies," which he said is an economic reality that is "fundamentally, at its core, unnecessary."

Yet, such corporate welfare serves as the spark for the hallowed bipartisanship so desired among Republicans and Democrats. 

Nearly the entirety of the senate supported the bill adding $1.5 million for "community revitalization," with the measure passing 36–2. Only Sen. Jack Brandenburg, R-Harrison Township, and Sen. Bruce Caswell, R-Hillsdale, voted against the bill.

Sen. Smith did not respond to a request for comment.

The bill sits in the House Commerce Committee.