Little Disclosure on Business Subsidies

Deals could eat up half of budget surplus

Last week, Eric Mosher of PIRGIM and I published a piece about how the state can increase transparency at the Michigan Economic Development Corp.

Legislative discussions about how to spend the projected state budget surplus show just how necessary it is to implement our recommendations. Much of the surplus is due to the timing of substantial refundable tax credits to specific companies, yet Michigan residents cannot be told who is being paid this taxpayer money or what the state is getting in return.

The state has made a number of economic development deals that were administered through the old Michigan Business Tax that authorized special refundable tax credits for business expansion. Because these credits were large and had little to do with the company’s actual tax liabilities, the credits were effectively subsidies.

When the older business tax was replaced by the corporate income tax in 2011, the state allowed companies that had been authorized these subsidies to keep filing tax returns under the old business tax. Thus, there is little revenue generated by the MBT and outflows from these subsidies are massive. The state’s revenue estimators expect that the tax will generate $490 million in net payments from the treasury to certificated companies in the current fiscal year. Much of the $971 million in surplus money is due to companies receiving — but not yet collecting — on these tax credits.

There is no disclosure over who gets these incentives and how much they are receiving. The MEDC makes an announcement when the credits are authorized, but they do not report on how much the companies actually collect or when this money gets collected. This is especially problematic when only 29 percent of the jobs announced by the MEDC ever materialize. There are no reports about current employment and actual investments made by the firms that received these credits. (Some dated employment information is available.)

The MEDC is much better about its new direct business incentive, the Michigan Business Development Program. It stacks up what has been authorized in grants to what is actually distributed. It lists the company’s job expectations and compares it to actual job creation. And this is provided on a timely basis. The same needs to be done for its older programs.

Michigan spends more money on these older tax credits than it does on funding for community colleges. But the state releases information on which community colleges get state money and how much they receive. This spending is open for review and disclosure.

The same should be true for the subsidies that also impact state budget discussions.