Michigan Democrats offer plan to remake economic development

• Legislation proposed Wednesday seeks to overhaul the SOAR economic development fund, which reached about $2 billion over two years.
• The state celebrated large-scale job wins from SOAR, but legislators increasingly criticized the program
• The new plan keeps $500 million in annual funding, but adds corporate criteria and community improvements

Michigan Democrats are moving ahead with plans to overhaul the state’s largest business incentive program in an effort to make sure the billions of dollars spent on state subsidies do more than just create jobs. 

A series of Senate bills introduced Wednesday would repeal the increasingly criticized Strategic Outreach and Attraction Reserve (SOAR) Fund and create a new Make It In Michigan Fund. 

The new incentive program would improve accountability for companies that receive large-scale incentives, allow more legislative and community input as plans take shape, and potentially direct more projects toward areas that most need new investments, including brownfields and areas with higher unemployment rates. 

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“Instead of just handing out cash to companies, the Make It In Michigan Fund will create partnerships between companies and communities — allowing both to successfully grow together,” said state Sen. Mallory McMorrow, D-Royal Oak, a sponsor of Senate Bill 559.

“We’ve seen other states find greater success in packaging traditional economic development tools with targeted investments in communities,” McMorrow added in a statement.

Democrats are expected to introduce similar legislation in the House. The bills would preserve SOAR’s $500 million in annual funding through 2025 and its focus on both critical industry attraction and site preparation, while directing 20 percent of subsidies toward a new community revitalization portion of the incentive plan called the Michigan 360 Fund.

The moves come almost two years after Michigan created the $1 billion SOAR program, an incentive fund that allowed the state to pursue so-called “critical industries” requiring large-scale sites for operations that would add 1,000 jobs or more.

However, as that fund grew to $2 billion and overall awards — including hundreds of millions in tax abatements and other state funding considerations — increased the state’s price tag, bipartisan support for SOAR started to fade. Michigan residents also have been critical, notably as incentives supported new auto-related developments despite the industry leaving contaminated sites for the public to clean up, as Bridge reported in its recent series on the state’s industrial legacy.

Related: As automakers win incentives for EV plants, Michigan pays for polluted past

McMorrow, chair of the Senate Economic and Community Development Committee, this year joined other Democrats and some Republicans in calling for reforms that would shift incentives from what some called “corporate welfare” to programs that fund small business growth and community development, particularly in areas that have lost a significant number of jobs. 

“(We) made it abundantly clear that we are going to reform the (economic development) tools in a way that makes more sense,” McMorrow told Bridge in September. 

Related:

• Gov. Whitmer’s SOAR incentive fund, once a triumph, now faces headwinds
• McMorrow: Democrats plan changes to Michigan’s business incentives
• 5 fixes for Michigan's polluted industrial legacy, and a cleaner future

Wednesday’s proposed legislation retools the process used by the Michigan Strategic Fund, the public funding arm of the Michigan Economic Development Corporation (MEDC), as it evaluates large subsidies for projects that the MEDC recommends for state funding.

Among the new criteria added to evaluations, companies will be asked whether:

• They are expanding in areas of higher unemployment;
• They plan on supporting unionizing by workers;
• They are a foreign company “that may be a safety or security risk to Michigan workers and intellectual property.”

The MEDC also will need to determine whether the company seeking the award has laid off Michigan workers in the two years prior to its funding request, and what those workers had earned. The goal is for the state to consider the employer’s net changes on jobs and median income when evaluating a subsidy request.

Under the proposal, the state also would consider the environmental track record of a company seeking incentives. A provision of the overhaul would halt funding to businesses with unpaid fines stemming from pollution in any state, or those that are under investigation by Michigan for environmental reasons.

Beyond that, four legislators would be added as non-voting members to the Michigan Strategic Fund (MSF): Both party leaders of the House and Second committees on economic development. The move will allow legislators to view the merits of a project alongside economic developers and before appropriations committees vote to transfer subsidy awards to the MSF, McMorrow said. 

“That’s keeping the transparency that’s in place, but also expanding visibility,” McMorrow told reporters Wednesday morning. 

The changes, McMorrow added, should end incentive secrecy in communities that are in consideration for large-scale projects. In areas like Marshall and Big Rapids, SOAR awards this year inspired community backlash as some residents said they were surprised to learn of megadeals that had been planned for months. 

Meanwhile, the proposed Michigan 360 Fund would be used to address community-based issues like housing, downtown vitality and small business growth alongside corporate development. Funding could also go toward child care, transportation and community colleges. 

“These are direct investments into a community,” McMorrow said. “It's not to the company, it's not to site development, it's for things like child care infrastructure needs of a community.”

The move, she said, “to make smart strategic investments directly in communities that align the community's goals and align with the company's goals.”

Michigan business leadership, including the Michigan Chamber of Commerce, had been involved in creating SOAR so that the state could recruit large-scale projects and compete with other states that offered record-setting subsidies for electric vehicle battery factories. 

The chamber so far does not have reaction to the proposed legislation, Vice President for Government Affairs Wendy Block told Bridge, but the group has been vocal in the past about the importance of incentives.

Reporter Jonathan Oosting contributed to this story.