MEDC adjusts its belt

With less funding and fewer employees, the MEDC is focusing more intently on his core services, including new business development in Michigan.

LANSING — With immediate budget pressures resolved, the Michigan Economic Development Corp. is looking to develop a new long-term plan in which it operates as a smaller, nimbler agency.
Starting Oct. 1, the state’s economic development agency will have fewer employees than it did in December 2001, the first year employment records are available.

The only time the agency was leaner was during a stretch from 2005 to 2008.

Revenue losses have prompted the cuts of 65 employees and 27 percent of the MEDC’s overall budget in less than two weeks. That reduction will force its leaders to start thinking long term about alternative revenue sources and how to offer its core programs with fewer dollars.

“I would hope we wouldn’t see any future cuts,” said Doug Rothwell, president and CEO of Business Leaders for Michigan and chairman of the MEDC’s executive committee. He hopes the budget has hit bottom, but “no one really knows.”

In the meantime, he added: “What are other ways of sustaining our organization?”

How the MEDC responds to that challenge will affect the course of its future. The agency is funded in two ways — with annual budget appropriations from Michigan’s general fund and through tribal casino revenue, referred to as corporate dollars.

MEDC leaders said it’s too early to offer a specific plan. But after a year of transition and handling immediate budget pressures, CEO Steve Arwood said the agency is positioned to deal with that question.

“Now we’re going to be able to look ahead and focus on that more strategically,” he said.
To start, it plans to double down on its three core services — business attraction and retention, including exports and entrepreneurs; community development; and marketing, including the Pure Michigan tourism campaign.

“The plan that Steve laid out gets the organization back to what its original role was a decade ago,” said Rothwell, the MEDC’s first CEO. The agency was formed in 1999 through an interlocal agreement under former Gov. John Engler.

The agency was founded to withstand changes in economic development strategy borne by election cycles, Rothwell said, adding that it has continued through three governors, switches in political party power and the worst recession since the Great Depression.

Today, he said, the agency has flexibility to adapt quicker as the economy changes.

That likely will include revenue streams. Total tribal casino revenue has been falling, which led to smaller payments in 2014, compared to the previous year, from all six tribes that currently make them.

Michigan’s American Indian tribes are required to share a percentage of their proceeds from electronic gaming revenue with the MEDC as a provision of their state gaming compacts in exchange for being allowed exclusive gaming rights within a specific geographic area.

The Gun Lake Tribe also withheld a required $7 million payment to the state in June in a dispute over online lottery games. The tribe, which operates Gun Lake Casino in Allegan County, argues that the lottery expansion negates the exclusivity provision in its compact that requires it to make revenue-sharing payments.

Rothwell said the agency saw the tribal revenue issue on the horizon and adjusted its corporate budget — which pays for such programs as Pure Michigan Business Connect, which matches companies with in-state vendors — to include more one-time expenses, rather than ongoing costs.

Still, the MEDC doesn’t anticipate much growth in tribal revenue in the immediate future. As a result, the agency’s corporate, or tribal, funds are taking the biggest budget hit — 47 percent.

Coupled with legislative budget cuts, both midyear and for the 2016 fiscal year that starts next week, the MEDC and separate Michigan Strategic Fund will have a combined $351.8 million budget as of Oct. 1, down from $481.7 million this year.

Most of the budget cuts will be related to staffing, since the MEDC is heavily service-based, the agency said. Some employees who remain will be trained to do more than one job.

While the number of employees funded through state appropriations has been dropping steadily since records started being kept in 2001, the MEDC’s total payroll rose as high as 336 by January — in part because the number of employees paid by tribal dollars also rose.

The MEDC will have 242 employees as of Oct. 1.

State and local economic development administrators all say they don’t expect local agencies to be affected as much by the cuts since the MEDC’s central programs will continue to exist. At most, they say, local agencies likely will notice an impact of fewer staff, or one employee handling multiple roles.

“It’s not going to be an impact that will change our operations that much,” said Sandy Baruah, president and CEO of the Detroit Regional Chamber.

The chamber holds events related to the Pure Michigan Business Connect program on behalf of the MEDC and receives a fee for service, said Baruah, who also recently accompanied Gov. Rick Snyder on his trade trip to Japan.

“Having a consistent strategy that can be executed year after year for economic development at the state level is hugely important,” he said. “But we also need to move kind of beyond funding challenges to ensuring that we have a statewide economic development strategy that lasts longer than one gubernatorial term. The successful states have an economic development strategy that they essentially pursue regardless who the governor is.”