During his campaign for governor in 2010, Gov. Rick Snyder said he would focus on tax cuts and end tax incentives in trying to attract jobs and business investment to Michigan.
Snyder and the Republican-controlled Legislature delivered on the tax cuts, trimming business taxes by $1.7 billion.
But although he ended former Gov. Jennifer Granholm’s business tax credits for business expansions -- credits that are still costing the state hundreds of millions of dollars a year --- Snyder has kept the pedal to the metal on economic development incentives.
“What the governor said is that we want to get away from these long-tail incentives,” said Michigan Economic Development Corp. President Mike Finney. “That’s why we have implemented a pay-as-you go approach. And the competitive landscape is changing.”
Snyder has replaced the state’s Michigan Economic Growth Authority tax credits with a new initiative, the Michigan Business Development Program, a $100 million fund used as a cash sweetener to close business investment deals.
By one rough calculation, the cost per job of Snyder’s new incentive program this year could be higher than the cost of Granholm’s incentives.
Granholm vs. Snyder on tax deals
Between Jan. 1 and June 4, the Michigan Business Development Program handed out $17.7 million in cash incentives to 17 companies that are investing $281 million in the state in projects expected to create as many as 2,620 jobs.
During Granholm’s eight years as governor, Michigan approved $7.3 billion in business tax credits to 514 companies under the MEGA program.
MEGA was created in 1995 by Gov. John Engler’s administration. In its early years, it funded just a few dozen business expansions and locations annually.
But MEGA was greatly expanded during the Granholm years to counteract the effects of a rapidly deteriorating economy.
While Michigan is spending a fraction overall of what it spent on incentives in the Granholm years, the basic cost per job -- about $6,700 -- may have risen.
The state’s MEGA incentive program cost about $4,000 a job, according to a 2010 estimate by the Upjohn Institute for Employment Research in Kalamazoo.
Upjohn Institute senior economist Tim Bartik conducted a complex analysis of the MEGA credits that included spin-off jobs, fiscal impact of the credits and other factors to calculate the $4,000 per-job figure.
Bartik said he has not performed a similar analysis of the Michigan Business Development Program. Bridge did a simple calculation by dividing the dollar value of the program’s incentives awarded by the number of jobs announced, which resulted in the $6,700 per-job cost.
Bartik, however, said the cost of the new incentives will likely be lower than $6,700 per job, if grants are awarded to companies that export goods, pay high wages and create lots of spin-off jobs.
Snyder and the Legislature also have maintained other key incentive programs started by Engler and Granholm.
Under pressure from lawmakers, Snyder has agreed to boost the state’s film industry incentives from $25 million this year to $50 million in the fiscal year starting Oct. 1.
Last year, Snyder cut the state’s 42 percent film production credit -- the most generous in the nation -- and capped the incentive program at $25 million.
And Michigan has retooled its popular brownfield redevelopment program. Instead of granting business tax credits, on blighted properties, the MEDC allows qualified projects to capture local property and state education taxes to pay for development costs.
Study urges tax incentives for businesses
Michigan has no choice but to continue to offer economic development incentives, according to an $80,000 study conducted for the MEDC by Angelou Economics inAustin,Texas.
As states rebuild their tattered economies following the Great Recession, “the competition for new employers among economic development organizations throughout the United States has risen to an uncommonly fierce level,” the study said.
Michigan led the nation in 2010, Granholm’s last year in office, with 35,000 jobs announced as a result of tax incentives, according to the Angelou Economics study.
But wanting a quicker return on their investments, companies are demanding up-front cash instead of longer-term tax incentives from states eager to land new jobs.
“In today’s market cash and availability of capital are critical issues,” said Ron Kitchens, president of Southwest Michigan First, a regional economic development agency based in Kalamazoo.
Texas started trend in 2003 with the Texas Enterprise Fund. Called the “king of deal-closing funds” by Site Selection magazine, it has since given out more than $440 million in cash awards to attract new investment.
Twenty-two states have deal-closing funds, according to Site Selection.
Kitchens said local economic developers get quicker decisions under the new state incentive program because the state is putting the “last dollar in as opposed to first dollar in” to economic development projects.
“We can get a decision within 48 to 72 hours now” on whether the state will approve an incentive, Kitchens said. “Before it could be weeks and months.”
In its study, Angelou Economics benchmarked Michigan’s economic development incentives against Alabama, Georgia, Illinois, Indiana, Kansas, Louisiana, Minnesota, Missouri, North Carolina, Ohio, South Carolina, Texas, Virginia and Wisconsin.
Much of the benchmarking data was from 2010, Granholm’s last year in office, and did not reflect the significant changes in tax and economic development policies under Snyder.
While Michigan’s tax incentives under Granholm were ranked the best in the number of announced jobs, the state’s premier MEGA program was criticized by the Michigan Auditor General and others for ultimately producing less than 30 percent of the announced jobs.
Michigan had the lowest labor force growth rate among the states and one of the lowest percentages adults with bachelor’s degrees among the benchmark states.
Furthermore, in a survey by Angelou Economics of 15 site selection consultants, Michigan and Minnesota tied for last among 10 states consultants were asked to rate as desirable for business locations.
The top eight states, in order, were Georgia, Indiana, Ohio, Oklahoma, Louisiana, Illinois, Iowa and Wisconsin.
In its 138-page report, Angelou Economics said Michigan’s reduced economic development incentives under Snyder might ultimately be more than offset by the state’s lower business taxes and a growing reputation as a comeback state.
“We did not find that Michigan’s competitive position will be weakened at all,” said, Angelos Angelou, chief executive of Angelou Economics.
But Kitchens said Michigan likely will need to increase economic development incentive spending beyond the $100 million in the Michigan Business Development Program.
As the economy improves, more companies will be looking to expand and will be seeking incentives for new investment.
“I think we’ll run out of money next year,” Kitchen said. “The economy is heating up.”
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.