How Michigan Blew a Hole in its Budget

Companies cashing in special tax credits have caused the state to bring in a projected $454.4 million less than previously expected. Here's the history and problems with the program.

Michigan House Democrats recently issued a press release that vilified corporate tax subsidies the state of Michigan has been giving out for 20 years and pinned the blame on Republicans.

The press release called the tax subsidies given through the Michigan Economic Development Corporation “disastrous” and House Democratic Leader Tim Greimel said the policy not only doesn’t work, “but is downright dangerous.”

"Republicans have allowed the MEDC to become a runaway organization that is devastating the state’s financial health, while not holding it accountable for creating more jobs,” House Democratic Floor Leader Sam Singh said in the press release.

What the Democrats failed to mention was that Democratic Gov. Jennifer Granholm created a press-release economy based on the MEDC’s “corporate giveaways.”

Giving selective corporate tax credits was a program started under Republican John Engler’s administration in 1995, and greatly expanded by Granholm in her eight year tenure as governor.

Called the Michigan Economic Growth Authority (MEGA) program, during its first 13 years, 1995 to 2007, the state of Michigan made 358 deals and awarded an estimated $2.6 billion in tax subsidies to corporations.

In the three-year period from 2008 to 2010 the state made 320 deals and awarded an estimated $2.5 billion in tax subsidies. The MEGA tax credit was discontinued in 2011, but the state is on the hook for paying out tax credits for up to 20 years. Gov. Rick Snyder has kept the policy of awarding tax subsidies alive via other state incentive programs.

State agencies attempt to project every year how much of these long-term tax credits will be redeemed by the selected companies in any given year. The state expects much larger payments in the current 2015 fiscal year and 2016.

The state says it pays about $300 million a year in MEGA payments to companies. Higher numbers are projected in the future but it's not clear how much higher.

“Sending taxpayer money to large business projects has been a bipartisan affair,” said James Hohman, assistant director of fiscal policy at the Mackinac Center for Public Policy. “It is unnecessary and unfair.”

Greimel didn't return an email seeking comment.