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Original article URL: http://bridgemi.com/2012/12/governors-run-after-companies-waving-dollars/

Economy & competitive position/Public sector

Governors run after companies, waving dollars

Governors can’t resist using their economic development agencies to try to pick business winners and losers in the economy, even when they say they are opposed to doing so.

Gov. James Blanchard bankrolled efforts to grow biotechnology and advanced manufacturing industries in the state, with mixed results.

His successor, Gov. John Engler, heavily invested in life sciences and placed a losing side bet on Michigan becoming a center of flat video screen manufacturing.

Gov. Jennifer Granholm was all about turning Michigan into the nation’s capital for manufacturing electric car batteries, wind turbines and solar panels. It’s far from clear that the billions invested in those industries will pay off.

Granholm’s successor, Gov. Rick Snyder, says he is focused on improving Michigan’s business climate and lowering costs for all industry segments.

But Snyder is showing a preference for aiding technology and agribusiness companies in the 21st Century Jobs Fund, a 10-year, $1 billion program Granholm used to try to boost the advanced manufacturing, clean energy, homeland security and life sciences industries.

Snyder signed legislation last year that specifically expands eligibility for financing and other Jobs Fund assistance to the information technology and agricultural processing industries.

“If you look at history, Michigan’s most rapid periods of job growth came when we were a leader of technology and innovation,” Snyder said in signing the legislation.

The governor, who ran computer-maker Gateway and an Ann Arbor venture capital fund before being elected governor in 2010, also has often spoken about the importance of the state’s agriculture industry.

Snyder has said agriculture contributes more than $71 billion annually to Michigan’s economy; is a major exporting industry; and “plays a key role in the growth and reinvention of our economy.”

Cherry Growers Inc., a member-owned apple and cherry products processor near Traverse City, in July received a $2.5 million state cash incentive to expand operations and add 72 jobs.

That was the second-largest incentive granted so far by the Michigan Business Development Program, which earlier this year replaced the Michigan Economic Growth Authority tax credits as the state’s major incentive program.

Snyder changes rules for dollars

The Snyder administration also has loosened some of the requirements for receiving state incentives.

Under MEGA, the state used an econometric model to determine the size of the incentive.

The model took into consideration such things as the number of jobs proposed, the size of the investment and how it would take the state to recover the incentive through increased economic activity.

Companies did not receive credits unless they created the minimum number of jobs required in the incentive agreement.

MEDC officials say they use similar criteria in awarding incentives under the Michigan Business Development Program. Those incentives usually involve up-front cash, but can also be loans or other assistance.

The new program is more individually tailored to the needs of companies seeking them, officials say.

“While the MEGA tax credit was evaluated based on providing tax savings (for a company), incentives under this program are provided when needed for deal closing or gap financing,” said Joshua Hundt, the MEDC’s manager of development finance.

Deal-closing funds have become popular incentive tools at many state economic development agencies. But they also can result in costly and drawn-out efforts to recoup the money — known as “clawbacks”– when companies getting state cash fail to produce promised jobs.

Legislation establishing the Michigan Business Development Program requires repayment of the incentive if the minimum number of jobs, usually 50, aren’t created by the project.

Rick Haglund has had a distinguished career covering Michigan business, economics and government at newspapers throughout the state. Most recently, at Booth Newspapers he wrote a statewide business column and was one of only three such columnists in Michigan. He also covered the auto industry and Michigan’s economy extensively.

5 comments from Bridge readers.Add mine!

  1. Big D

    Hey Rick:

    Stop spending our money on phantom jobs.

    Just get behind RTW!!!

  2. Brendan Walsh

    Very timely topic, also covered this week by the New York Times.

    Here’s a great report from the Michigan Senate Fiscal Agency (non-partisan) that lays out the scope of the issue. Of note is the title to slide 6, “Tax Breaks Growing Faster than Revenue.” (http://www.ncsl.org/documents/nalfo/TaxExpendituresZin.pdf)

    It raises the whole question, as this article does nicely, about whether a business friendly tax climate really pays dividends. It’s the age old debate, do taxes matter? Of course they do to some extent, but maybe the question better phrased is: do tax expenditures matter?

  3. Jeffrey Poling

    Famous Last Words; “We’re not in the business of picking winners and losers.” as Snyder all but killed the movie industry in Michigan.
    Yes, it was expensive but it created jobs, established a new, diversified industry that had the potential to counter the cyclical swings of the auto industry, and most important, it was a creative industry that appealed to our young, educated people and kept them here in Michigan.
    If it allowed too much money to leave the state for Hollywood, it certainly could have been revised instead of killed. The old saying, “Don’t kill the goose that lays the golden eggs.”

  4. s.melvin

    HIRE MICHIGAN so the governor Hired a $ 300 000 from Utah and the guy fro california at $ 225 000 for Ann Arbor Sparks so how many jobs is that>,an dhow many jobs from ANnArBor Sparks?
    EMU recievd $ 1,5 million to retrain workers from washington .So how many worker have JOBS that support them and there families.really like to know.

  5. s.melvin

    HOW
    many JOBS from CHINA?

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