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Opinion | Michigan, focus on economic development policies with proven bang for the buck
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When it comes to business projects, Michigan has had recent disappointments—notably, the July 16 announcement that a large semiconductor plant near Flint will not be built. This plant was reported to involve 9,400 jobs.
We cannot be certain about the reasons for this cancellation. However, it’s unlikely the driver was because Michigan didn’t do enough to encourage the project. The state offered assistance of over $676,000 per job. Of that assistance, slightly over 90% was tax incentives and other cash incentives, with the remainder being in-kind assistance such as land, roads, and job training.
More likely, the project stalled due to national economic uncertainty, including shifts in global trade and national policies towards semiconductors. Semiconductor investments are costly and require confidence that sufficient scale to be cost-competitive is attainable.
The project’s cancellation raises questions about Michigan’s economic development strategy, especially when the state faces a tough budget environment. For example, due to changing federal tax policies and Medicaid cuts, the state’s budget for fiscal year 2026 may face a $1.1 billion hole.
Fortunately, research suggests that Michigan can make its economic development programs more productive in several ways.
First, the state should stick to a strict budget limit on megadeals and tightly target those deals on the highest-return projects. Research suggests that incentives with a high cash cost per job can pay off only if the project creates many other downstream local jobs at suppliers and retailers and if the incented jobs are in areas with low employment rates.
For example, my research suggests that the Ford battery plant near Marshall, even with incentives of around $700,000 per job, may have benefits for state residents that exceed costs, due to the project’s estimated high “multiplier” in creating downstream jobs and the economic distress of the area around Marshall.
Such megadeals, even if they have net benefits, won’t make money for state and local governments. Yes, the extra jobs increase the tax base. But they also attract people, which requires extra spending on public services such as schools.
But megadeals can sometimes be justified if they increase state residents’ earnings per capita by more than their costs. This requires large multiplier effects on jobs, and locating jobs in areas with low employment rates and many workers seeking jobs.
Second, economic development budgets should place less emphasis on tax incentives and other cash assistance, and more emphasis on providing services customized to business needs. Research suggests that such business services can have one-third the cost per created job of cash incentives. Examples of such business services include providing businesses with land with ready transportation and utility hookups, labor trained for planned operations and practical advice for cutting through red tape and finding export markets. Michigan already does this, to some extent, but budgets should shift to give these services much greater emphasis.
Third, economic development programs have much greater benefits – both locally and for the state as a whole — when targeted at places with relatively few residents employed. In these places, job creation does more to boost local employment rates—and thus earnings per capita and the tax base—without increasing public service demands. In contrast, job creation in booming places mainly brings in migrants — not a bad thing, but it doesn’t have as high returns for state residents in greater per capita earnings or fiscal benefits.
Michigan state government should continue its commitment to economic development programs that create jobs. The benefits of higher employment rates for state residents, due to higher per capita earnings and fiscal benefits, can exceed $1 million per job.
But in an era of fiscal stringency, economic development programs must be focused on programs and projects with the highest bang for the buck. To do so, the state should target distressed places and emphasize economic development services.
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