MEGA Failure: Job Projections From Michigan Tax Credit Program Rarely Came True

Michigan’s former flagship economic development program was used for years by politicians on both sides of the aisle to tout job creation projections. But a review of the program shows those jobs rarely materialized.

Of the 434 Michigan Economic Growth Authority (MEGA) credits approved for new jobs from 2005 to the end of the program in 2011, only 10 projects met or exceeded their estimated job counts. In other words, just 2.3 percent of MEGA projects met or exceeded expectations.

The Michigan Economic Development Corp., which oversaw the program, projected that these projects would create 122,785 jobs. In fact, only 13,914 materialized.

"These job projections benefited only a few people — mostly politicians running for re-election," said James Hohman, assistant director of fiscal policy at the Mackinac Center for Public Policy, who tracked the program.

Inauspicious Beginning

The MEGA program began during the administration of Republican Gov. John Engler in 1995. Viewed as a way to get businesses to come to Michigan and industries already in the state to expand, the program empowered a centralized board to give tax breaks to select companies.

Over the years, the program expanded drastically.

In the 2000s, Michigan's economy began to deteriorate. Under the administration of Democratic Gov. Jennifer Granholm, with help from a bipartisan legislature, the MEGA program exploded. An original cap on the number of credits issued per year was eliminated, and Gov. Granholm repeatedly touted the program as a way to help "reinvent," "diversify," and "grow" the state economy.

From 2005 on, Michigan went all in on the MEGA program and other incentives. The state issued so many credits that it is now on the hook for more than $5 billion through 2036. For 2014, Michigan is expected to pay $860 million on economic development programs with $638 million of that coming mostly from Granholm-era tax credits. Of that, the state expects to pay out $245 million in past MEGA credits this year.

While defenders note that the program only pays out state funds if jobs are actually created, there are two main critiques of state tax credit and subsidy programs: 1) Every other citizen and business in the state not favored by state officials has to pay more to support those who get the credits; and 2) Politicians are able to use state government to advertise themselves while lauding "job creation" numbers that rarely materialize.

Pandering With Press Releases 

Gov. Granholm and the MEDC were particularly adept at using press releases full of projections for jobs that never happened. While Michigan was shedding jobs faster than any other state in the nation, the Granholm administration pumped out press releases that were picked up uncritically by media sources across the state. She also made prominent use of these projections in media interviews and speeches.

In her 2010 State of the State address, Gov. Granholm named 40 or so companies being helped by state incentive programs — mainly the MEGA tax credits. She specifically cited job numbers for 17 companies. It appears that every single one of those fell short.

Some became prominent failures. The film studios of Hangar 42 in West Michigan and Unity Studios in Allen Park both ended in scandal. A123 Systems and LG Chem were battery companies that went bankrupt. Renewable energy projects featuring the old Ford Wixom Plant, GlobalWatt, Dow Kokam and Suniva all flopped.

Others companies mentioned in the speech are still around, but the job claims did not live up to predictions. Gov. Granholm cited 100 jobs at Dowding Machining in Eaton Rapids; 6,500 jobs making solar shingles in the Saginaw Valley region; 3,300 jobs for MPI Research; and 1,000 projected for Google. All fell well short, according to state documents.

Not all projections were complete flops. Then-Gov. Granholm said the expansion of the Hagerty insurance company in Traverse City would "create 390 new jobs.” While the company reported 77 new jobs to the state in 2012, the business is still growing. Dan Beutler, vice president of accounting with the company, said the total number of jobs projected by the former governor were hard-to-measure "indirect" jobs and said the company was projected to create 226 direct jobs. It has about 109 today.

"We're still growing," he said. "We anticipate adding more jobs over the next few years."

But most predictions were way off. Energetx Composites, which Gov. Granholm projected would create more than 1,000 new jobs, reported 24 to the state in 2011. When asked about the number projected and reported, CEO David Slikkers said in an email that he thought some of the information was incorrect.

Officials from the MEDC did not respond to a request for comment.

Select Subsidies Continue

In 2011, Gov. Rick Snyder and the Legislature eliminated the MEGA program, moving away from credits and toward a flatter tax system. While the state still hands out select subsidies to businesses, the program is budgeted for every year rather than being open-ended credits.

The Mackinac Center has criticized select tax breaks and direct subsidies since the MEGA program was introduced, writing a policy brief on the program in 1995. The Center has done two studies on the program. A 2005 study found that jobs from the program were temporary and expensive, while a 2009 study showed that the program had a negative impact on the state's economy.

Former Gov. Granholm did not respond to a request for comment.