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What Economic Development Transparency Should Look Like

By Eric Mosher
Public Interest Associate

Co-authored by PIRGIM Public Interest Associate Eric S. Mosher and Mackinac Center for Public Policy Assistant Director of Fiscal Policy James M. Hohman.

State lawmakers appear to be on the brink of extending Michigan’s “21st Century Jobs Fund” program, which would be unfortunate. This and other “legacy” corporate welfare programs must be required to provide much greater transparency. Taxpayers should be shown what they have gotten for the special benefits previously authorized for particular corporations and developers that will continue to flow for a number of years.

Specifically, the Michigan Economic Development Corporation must be required to regularly post online how much is actually being handed out and to whom by these programs–not just the amounts that were initially authorized. The information should be provided at the individual project and agreement level.

While the state produces an annual “tax expenditures” report listing the types and cost to the state budget of each category the individual and business credits, exemptions and deductions in the state tax code, this report is completely inadequate for assessing economic development expenditures on their own terms. State economic development money is inherently selective and targeted to assisting particular companies while excluding others. Its success can’t be judged without disclosing information about the particular beneficiaries and projects.

That’s the bad transparency news, here’s the good: Most new state “economic development” benefit offers are currently being channeled through programs that are somewhat more open. The state’s new flagship in this area, the “Michigan Business Development Program” discloses online basic information about the subsidy recipient, location, projected investment, and number of projected jobs. It does not yet provide information about actual jobs or investments delivered.

The older programs show why this is a problem. The MEDC has been very good at announcing the job promises of each new incentive agreement it enters with particular corporations and developers. Where it falls short is revealing what happens next. The public was always informed that Company X had been approved for a $20 million tax credit over seven years contingent on meeting specified job and investment milestones, whether it ever meets these and how much it actually collects often remain mysteries.

This information is vital because MEDC projects have so rarely met their promises. A study of that program between 1995 and 2004 showed that, only 29 percent of promised new jobs ever materialized. And as state Auditor General reports found, companies’ claims were not sufficiently verified, and these deals sometimes cost taxpayers far more than initially advertised.

Moreover, projects can receive multiple perks from different agencies and levels of government – state, federal and local – each unaware of the others’ subsidies. Therefore, the state should develop a consolidated report that shows all the economic development “incentives” made to particular firms under old and new programs. This should include any investment and job expectations and milestones for each economic development project, and how much companies actually collect, as well as how much investment actually occurs and how many jobs materialize. If a project is canceled or otherwise fails to occur, this should be noted along with information about whether companies paid back the subsidies. The disclosures should contain explanations and footnotes sufficient to provide context and paint an honest picture of a given project (the absence of which has been noted by state auditors). The information should be placed on an online searchable database.

One model of a more comprehensive database comes from the federal disclosure site for the American Recovery and Reinvestment Act funds, better known as the “stimulus” program, www.recovery.gov. Entering the name of any project brings up quarterly reports on its activities, including how much taxpayer generosity it has received and how many people it currently employs.

The page includes an excess of extraneous material (as do some Michigan corporate welfare reports), but too much information is better than too little, as long as the essential facts are front and center: how much a project cost taxpayers and what we got for the money.

In Michigan these details have recently assumed a critical level of importance. Legislators are currently discussing how to allocate an expected current year budget surplus. However, the “surplus” primarily consists of timing decisions by a handful companies that may have become eligible to collect massive tax breaks and/or subsidies authorized by those legacy programs. In other words, it’s a phantom surplus, the truth and details of which should be disclosed to taxpayers.

As policymakers continue to create new economic development programs and policies, legislators need to insist on some basic transparency principles. Michigan taxpayers deserve to know what we show for these subsidies and tax breaks. This is not rocket science. It’s common sense.

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James Hohman is assistant director of fiscal policy at the Mackinac Center for Public Policy, a research and educational institute headquartered in Midland, Mich. Eric S. Mosher is a Program Associate for the Public Interest Research Group in Michigan.

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