New bipartisan innovation fund proposal reminiscent of past state grant program

A bipartisan initiative in Lansing aims to spend $105 million of taxpayer money on a business startup program that some say is reminiscent of the 21st Century Jobs Fund.

Under the Granholm administration in 2005, lawmakers allocated $137 million in Competitive Edge Technology Grants. The companies that received the money projected 794 jobs would result. Those companies currently have 22 jobs, according to the Michigan Strategic Fund’s fiscal year 2023 report.

The new initiative, the Michigan Innovation Fund, aims to create 5,000 jobs. If the idea were enacted into law, it would allocate $105 million to five Michigan nonprofit organizations that would award the money to new business startups.

Reps. Greg VanWoerkom, R-Norton Shores; Jason Hoskins, D-Farmington; and Alabas Farhat, D-Dearborn; sponsored legislation to create the fund.

Hoskins and Farhat did not respond to requests for comment. VanWoerkom said in a statement that the bill would pull money from Venture Michigan funds, which have seen returns exceeding $100 million.

“This plan is an opportunity to make our state more competitive nationally by propping up young businesses that create jobs and breed innovation,” said VanWoerkom.

Lawmakers originally earmarked $400 million for the 21st Century Jobs Fund, but they recently allocated an additional $225 million over the next three years, according to James Hohman, director of fiscal policy at the Mackinac Center for Public Policy.

John Mozena, president of the Center for Economic Accountability, told Michigan Capitol Confidential that taxpayers would bear the risk but not the reward of investing in companies backed by venture capital.

“The entire idea of investing in venture capital is that it’s high risk and high reward for people who put their money into these funds,” Mozena wrote in an email. “But when it comes to taxpayers, this model has all the risk of traditional venture capital investing, but none of the potential reward.”

A 2020 Mackinac Center study said the previous program created jobs at a cost of between $274,800 and $330,600 per job per year.

“We found that the programs created jobs but had to offer between $274,800 and $330,600 of incentives per job per year,” the study concluded. “Even if the new jobs paid $400,000 each, they would not return to the treasury what was necessary to create them.”

Mike LaFaive, the senior director of the Morey Fiscal Policy Initiative at the Mackinac Center who wrote the study, told Capcon that the program is costly and repetitive.

“This is tiresome,” LaFaive wrote in an email. “We’ve been here before with Gov. Granholm’s 21st Century Jobs Fund. It’s not an effective jobs program.”

In 2013, The Michigan Office of the Auditor General found that the jobs fund only produced 19% of the promised jobs, or 96 jobs out of a projected 500.