Michigan embraces silence in tax break deals as other states move to ban it

Before Michigan lawmakers rapidly considered and approved a $1 billion fund for new business incentives in December, 13 key lawmakers agreed to stay silent about the process — a decision that experts say is rare and troubling.

For the first time in its history, the state’s development arm, the Michigan Economic Development Corp., asked top lawmakers from both parties to sign “confidentiality agreements” that would keep secret for five years any non-public details about four potential projects.

The agreements were signed as the administration of Gov. Gretchen Whitmer and legislators were crafting massive new incentives designed to keep and lure companies to the state, including a 1,000-job, $2.5 billion GM-affiliated battery plant just outside Lansing.

Related: 

• Michigan OKs electricity rate cut to attract automotive battery factories
• Why electricity rates may be next fight in Michigan’s bid for auto jobs
• ‘This is it’: Michigan nears giant tax incentive to lure GM, manufacturers

Confidentiality agreements are common in economic development, sought by companies to preserve secrecy before a deal is finalized, experts said. 

The agreements with lawmakers, however, are different. 

“In this particular case, it was critical that a select number of lawmakers could see the pipeline of transformational projects the state of Michigan is competing for,” MEDC spokesperson Otie McKinley told Bridge in an email.  He said they could create 27,000 jobs and billions of dollars in investment in the state.

The decision came as lawmakers in states including Illinois, Florida and New York consider legislation to end non-disclosure agreements on state-backed economic development deals.

Critics in those states and Michigan say taxpayers should know how their money is spent and secrecy erodes confidence of the deals.

“These (confidentiality agreements) should be banned, not embraced,” said Michael LaFaive, senior director of fiscal policy at the Midland-based Mackinac Center for Public Policy, a free-market think tank.

“Public dollars require public scrutiny.”

House Speaker Jason Wentworth, R-Farwell, was one of the 13 who agreed to the confidentiality deal. His spokesperson said he cannot talk about his agreement but said it was required by the “governor’s team” to talk about the incentives needed to land the projects.

“If that's what it takes to get a deal done and keep jobs in Michigan, the speaker was willing to do it,” Gideon D’Assandro said.

Other lawmakers to sign the agreements were: House Minority Leader Donna Lasinski, D-Scio Township, Senate Majority Leader Mike Shirkey, R-Clarklake, Senate Minority Leader Jim Ananich, D-Flint, Sen. Curtis Hertel, D-East Lansing, Sen. Ken Horn, R-Frankenmuth, Sen. Jim Stamas, R-Midland, Sen. John Bizon, R-Battle Creek, Rep. Joe Tate, D-Detroit, Rep. Thomas Albert, R-Lowell, Rep. Matt Hall, R-Marshall, Rep. Ben Frederick, R-Owosso, and Rep. James Haadsma, D-Battle Creek.

The Detroit Free Press was first to report the list of 13 lawmakers.

Big corporations increasingly require government officials to sign non-disclosure agreements before investing in communities. 

Last year, when Fort Wayne, Ind., voted to approve $16 million in tax incentives for a distribution center, non-disclosure agreements forbid half the City Council from knowing which corporation would benefit from the breaks. (It was Amazon.)

“The chief good of banning these NDAs is that the public gets to have a say in how public resources are used,” said Pat Garofalo, director of state and local policy at the American Economic Liberties Project, a Washington, D.C.-based progressive organization dedicated to reducing the power of corporations over public life.

The Michigan Legislature approved the incentive programs Dec. 14, just days after its details were crafted.

A week later, Whitmer signed the deal, which creates funds to pay for site selection and infrastructure, as well as targeting so-called “critical industries” such as high-tech manufacturing.

The deal came just days before the Lansing City Council approved plans to cut taxes for the proposed GM’s battery plant. The other three projects have yet to be disclosed.

Economic incentives have long been controversial, with proponents saying they help grow and attract businesses. Like most states, Michigan has offered them for decades.

But the deals have led to cut-throat competition among states and, at times, municipalities which all want to attract new businesses and the jobs and people who would likely follow.

For 20 years, C.J. Girod was a business consultant who helped companies get those incentives, working on billion-dollar deals across the country. 

Now he helps states and municipalities craft incentive programs with his firm Responsible Economic Development Incentives, based in Pittsburgh. He said he opposes the use of non-disclosure agreements.

“It keeps everyone in the dark,” Girod said, allowing companies to play one community off of another.

Besides, Girod said incentives aren’t successful. Other factors are more prominent: proximity to transportation, markets, and available workforce. Yet companies sought the incentives, Girod said, because they knew they could get them.

 “Incentives don’t drive location decisions,” Girod said. 

Researchers at the W.E. Upjohn Institute for Employment Research in Kalamazoo concluded that between 2 percent and 25 percent of companies based their location decisions on incentives.

But with billions at stake, secrecy is not uncommon in government.

In Ohio, former Gov. Jim Kasich privatized the state’s economic development efforts in 2011, creating the “Jobs Ohio” organization. Doing so made it exempt from the state’s open records laws.

Jeremiah Gracia, economic development director for Grand Rapids, worked in Columbus, Ohio, on economic development. There, he said non-disclosure agreements were used but typically ended when companies began applying for permits or zoning — actions that could not avoid public scrutiny.

“They do have their place,” he said, and are required by companies trying to make decisions without the prying eyes of competitors, for instance. 

LaFaive said he isn’t opposed to the measured use of the agreements. 

But he said they should be rescinded long enough in advance to allow a review by economists, accountants and the public to weigh whether they are worth it before lawmakers offer up tax dollars.

He pointed to the Foxconn project in Wisconsin, announced in 2017, which was going to require $4 billion in state incentives but deliver 13,000 jobs. Last year, Foxconn said it would create just 1,500 jobs. The state’s investment has been reduced to $80 million.

In Michigan, the state is still absorbing billions in tax credits issued during the Great Recession, as then-Gov. Jennifer Granholm sought to stanch the loss of jobs as the economy collapsed.

The state still estimates it owes more than $4 billion in tax credits granted in 2009 to GM, Ford and the former Chrysler Group LLC. But the details of the agreements are still not public, though GM has provided some details.

“The program was ineffective and very expensive,” LaFaive said.

He said too often politicians are approving deals about which few know the details, and at the last minute. What they want, he said, is to look like they’re doing something to improve the state and the economy.

“What the states are fighting over is job announcements, not jobs,” he said.

— Paula Gardner contributed