1 Kenneth P. Thomas, Competing for Capital: Europe and North American in a Global Era (Washington, D.C.: Georgetown University Press, 2000).
2 Alan Peters and Peter Fisher, "The Failures of Economic Development Incentives," Journal of American Planning Association. 70:1 (2004): 28.
3 All MEGA Projects, State of Michigan, Michigan Economic Development Corporation e-mail to Michael D. LaFaive, December 21, 2004.
4 John Engler, Journal of the Senate, State of Michigan, (1984), 2483.
5 Chris Christoff, "Engler pushes for states to end fights over business," Detroit (MI) Free Press, sec. E. Aug. 5, 1992.
6 Maria Tyszkiewicz, "The Economic Development Programs of the Michigan Jobs Commission," State of Michigan, Senate Fiscal Agency (December 1998), http://www.senate.michigan.gov/sfa/Publications/Issues/Mjcecon/ mjcecon.html.
7 Michigan Economic Growth Authority Act (April 18, 1995), Michigan Compiled Laws Annotated, sections 207.1 (West Group) 1998.
9 Martin Wing, Robert Fish, and Joseph Overton, MEGA Industrial Policy: An Analysis of the Proposed Michigan Economic Growth Authority, Midland, Mich.: Mackinac Center for Public Policy, March 1995.
10 Donald Jakeway, This Week @ MEDC, e-mail to unknown list, including Michael D. LaFaive, State of Michigan, Michigan Economic Development Corporation, April 27, 2004.
11 Public Act 144 of 2000, State of Michigan (michiganlegislature.org), 90th Legislature, June 6, 2000: 4.
12 House Legislative Analysis Section, "Brownfield Redevelopment," Lansing, Mich: State of Michigan. 2000: 2.
13 Ibid., Public Act 144 of 2000, State of Michigan (michiganlegislature.org): 5.
14 "Bill Analysis (Public Act 428 of 2000 and Public Act 429 of 2000)," Lansing, Mich: State of Michigan, Senate Fiscal Agency, January 16, 2001: 1.
15 Maria Tyszkiewicz and Jay Wortley, "Bill Analysis," Lansing, Mich: State of Michigan, Senate Fiscal Agency, December 16, 2003: 3. The original quote referred to 2,000 jobs, but the bill was evidently altered afterwards.
16 Public Act 248 of 2003, State of Michigan (michiganlegislature.org), 92nd Legislature, December 2003: 1-6.
18 Public Act 81 of 2004, State of Michigan (michiganlegislature.org), 92nd Legislature, April 2004: 5.
19 Public Act 398 of 2004, State of Michigan (michiganlegislature.org), 92nd Legislature, October 15, 2004: 5.
20 Ibid., All MEGA Projects; and MEGA Credits, State of Michigan, Michigan Economic Development Corporation e-mail to Michael D. LaFaive, December 7, 2004.
21 Ibid., All MEGA Projects.
22 It was not always easy to determine when a MEGA deal was being provided to a parent corporation, as opposed to a listed subsidiary or supplier of that corporation. Furthermore, deals listed as separate MEGA initiatives may have required the approval of a larger corporation in order to be sanctioned. For instance, if three General Motors suppliers received MEGA deals contingent on GM’s decision to refurbish a plant, the MEGA packages could be counted as three deals or as one, depending on the method employed. Both we and the MEDC count these as three deals.
23 Ibid., All MEGA Projects.
24 Ibid., Michigan Economic Growth Authority Act.
25 Ibid., All MEGA Projects.
27 Authors’ calculations based on the following: ibid., All MEGA Projects; Briefing Memos, State of Michigan, Michigan Jobs Commission and Michigan Economic Development Corporation, sent by Michigan Jobs Commission and Michigan Economic Development Corporation to Michael D. LaFaive under the Michigan Freedom of Information Act on multiple dates between 1995 and December 2004; Michigan Economic Growth Authority Annual Report, Lansing, Mich: State of Michigan, Michigan Economic Development Corporation, years 1995 through 2004.
28 Some MEDC documents detail the value of so-called "Renaissance Zone" tax relief, while others are less specific.
29 John Truscott, "State Incentive Package Approved to Attract Further GM Investments in Michigan," State of Michigan: Executive Office, June 13, 2000: 2.
30 Ibid., All MEGA Projects.
31 According to an October 14, 2003 MEDC Briefing Memo, "General Motors will make the ultimate location decision on this project; however, without the MEGA tax credits the suppliers will not be able to provide General Motors with the required cost savings necessary to make this project viable."
32 Some of the authors’ unsuccessful efforts to obtain clarifications about MEDC data are described in "Appendix C: Determining MEGA’s Job Counts." An earlier version of the material in this appendix also appears at www.mackinac.org/6992.
33 On March 29, 2005, MEDC spokesman Paul Krepps answered an important question about MEGA’s methodology for tallying credits and indirect job counts. Other questions have been submitted to the MEDC starting in January 1, 2005 or earlier, and although the MEDC has agreed to answer these, the answers will not arrive before publication of this study.
34 Donald Jakeway, "Gripes against MEDC flawed," Business Direct Weekly, p. 6, November 4, 2004.
35 David Hollister, "MEGA is vital tool for creating jobs, growth," The Detroit (MI) News, sec. A, September 19, 2003.
36 Authors’ calculations based on the following: ibid., All MEGA Projects; ibid., MEGA Credits; and Economic Effects, Lansing, Mich: State of Michigan, Michigan Economic Development Corporation, years 1995 through 2004.
37 To date, MEDC documents indicate that only 77 companies have met the bare minimum requirement of creating 75 (sometimes 150) qualified new jobs (usually) within one year of beginning work at a new facility.
38 Ibid., MEGA Credits.
39 "Labor Market Information Quick Stats," State of Michigan, Michigan Department of Labor and Economic Growth, December 2004, www.michlmi.org.
40 Mark Hornbeck, "Tax breaks shortchange state: $1.4B business program gets minimal payback in jobs," The Detroit (MI) News, sec. A, September 2, 2003.
41 Ibid., Don Jakeway, Business Direct Weekly.
42 Ibid., MEGA Credits.
43 See "Appendix C: Determining MEGA’s Job Counts" for a discussion of our methodology in computing direct job counts. (An earlier version of this appendix appears at www.mackinac.org/6992. For the document indicating that the larger figure was due to indirect job counts, see particularly the penultimate hyperlink in that piece, which can be reached directly at www.mackinac.org/archives/2005/medc102604.pdf.)
44 MEDC spokesman Paul Krepps, e-mail message to author Michael D. LaFaive, March 29, 2005.
45 We discuss REMI’s use in MEGA projections in "Technical Considerations in the Modeling Used by MEGA."
46 We calculated that 56 projects were involved along the lines described earlier in "MEGA Job and Project Performance" in "MEGA's Track Record." Our methodology for this calculation is described in greater detail in "Appendix C: Determining MEGA’s Job Counts."
47 In the March 29, 2005 e-mail message cited in endnote 44, MEDC spokesman Paul Krepps indicates that the ratio is based on 56,103 direct jobs and 62,301 indirect jobs. These figures are a total of all projected past and future direct and indirect jobs arising from MEGA projects. This use of jobs that are being projected for the future is the basis for the some of our criticism of the MEDC’s approach, as explained in the text.
48 Ibid., Don Jakeway, Business Direct Weekly. See specifically the statement "[O]f the MEGA projects that have collected SBT credits for their projects to date, 28,812 total jobs have been created. ..."
49 See, for instance, Executive Budget Appendix on Tax Credits, Deductions, and Exemptions, Fiscal Year 2005, Lansing, Mich.: State of Michigan, Michigan Department of Treasury: 36.
50 Ibid., Don Jakeway, Business Direct Weekly.
51 Ibid., Executive Budget Appendix on Tax Credits, Deductions, and Exemptions, Fiscal Year 2005: 36.
52 Executive Budget Appendix on Tax Credits, Deductions, and Exemptions, Fiscal Year 2004, Lansing, Mich.: State of Michigan, Michigan Department of Treasury: 37.
53 John Truscott, "Southeast Michigan Jobs Bonanza: 2,891 New Jobs Coming to Michigan: Delphi Automotive Systems Builds in Troy," State of Michigan: Executive Office, June 13, 2000. The news release is referring to three companies that received MEGA agreements: Delphi Automotive Systems, LDM Technologies Inc. and Altair Engineering Inc.
54 John Truscott, "1,160 New Jobs for Michigan! 12,000 MEGA Jobs are Helping Michigan Drive America’s Renaissance," State of Michigan: Executive Office, March 12, 1996. The news release is referring to jobs at three companies: Case System Inc., National TechTeam Inc. and Shape Corp.
55 John Truscott, "Greater Detroit Area Beats out Toledo for Webvan Group, Inc. Facility: 1,198 New Jobs for State," Michigan Government News, December 21, 1999.
56 Tim Venable, "Consummate consumer service: Site Selection’s 1999 top 10 development groups," Site Selection: May 2000: 8.
57 Case Systems had an early, small success, but subsequent job cuts have led to a loss of access to credits.
58 Webvan Group Inc. stock value plummeted from more than $18 a share to just 0.47 cents in those 12 months, and it ultimately went lower.
59 Ibid., MEGA Credits.
60 Daniel Hauck, "Delphi hits the bottom of S&P 500 companies," Detroit (MI) Free Press, sec. C, March 30, 2005.
61 Authors’ calculations based on the following: Briefing Memo: Kmart Corp., State of Michigan, Michigan Jobs Commission, May 1998; Briefing Memo: Kmart Corp., State of Michigan, Michigan Economic Development Corporation, August 2000; ibid., All MEGA Projects, Michigan Economic Growth Authority: 1998 Annual Report, Lansing, Mich: State of Michigan, Michigan Jobs Commission; Michigan Economic Growth Authority: 2000 Annual Report, Lansing, Mich: State of Michigan, Michigan Economic Development Corporation.
63 United States Bankruptcy Court, Northern District of Illinois Eastern Division, Case No. 02 B 02462 through 02 B 2494 and Kmart Corp., "Shareholders FAQs," www.kmartcorp.com/corp/investor/general/faq.stm.
64 Ibid., see note 61.
65 MEGA Tax Credit Agreement: Kmart Corp., Schedule A," State of Michigan, Michigan Jobs Commission, effective June 18, 1998.
66 MEGA Tax Credit Agreement: Kmart Corp., Schedule A," State of Michigan, Michigan Jobs Commission, terms accepted Aug. 31, 2000.
67 Daniel Howes, "State Feels Jilted by Kmart: Merger comes while officials were offering millions in tax breaks to keep Troy headquarters," The Detroit (MI) News, sec. A, November 18, 2004.
68 R.J. King and Tenisha Mercer, "Cities tailor incentives to lure Kmart: Detroit, Pontiac, Troy aim to outshine each other, Atlanta," The Detroit (MI) News, sec. B, October 29, 2004.
69 MEDC Freedom of Information Act Officer Theresa Rashid, letter to Michael D. LaFaive, "The total amount of SBT credits that Kmart has received for the two projects through their 2001 tax year is $6,102,215," January 24, 2003.
70 Briefing Memo: Covisint, LLC, State of Michigan, Michigan Economic Development Corporation, Nov. 13, 2001: 1.
71 Rick Haglund, "It ain’t pretty, but it just may work," Booth Newspapers, September 13, 2000. The Detroit Free Press reported a slightly lower estimate of $240 billion annually in brokered sales: See Jamie Butters and Jeff Bennett, "Business is falling flat for Covisint," Detroit Free (MI) Press, sec. A, December 9, 2002.
72 Ibid., Jamie Butters and Jeff Bennett, Detroit (MI) Free Press.
73 Official Meeting Minutes (November 13, 2001), State of Michigan, Michigan Economic Development Corporation, Nov. 13, 2001: 4.
74 MEGA Tax Credit Agreement: Covisint, LLC, Schedule A," State of Michigan, Michigan Jobs Commission, terms of the agreement accepted January 21, 2002.
75 Ibid., Jamie Butters and Jeff Bennett, Detroit (MI) Free Press: p. 8A.
76 Ellen Messmer, "Compuware to acquire Covisint B2B exchange," ComputerWorld, February 5, 2004 (available on the Web at www.computerworld.com/news/special/pages/story/ 0,5364,1865-89896,00.html).
77 Matthew Schifrin, "B2B’s Back," Forbes.com, available on the Web at www.communicate.com/news_display.php?newsID=100.
78 Compuware Corp. staff member Paulette Kane, telephone interview with Michael D. LaFaive, January 25, 2005.
79 Other cases of failed MEGA investment can be found in past publications by the Mackinac Center for Public Policy; see the Center’s Web site at www.mackinac.org/depts/ecodevo/. The Mackinac Center’s first study on the subject of government economic development programs in Michigan, published in 1989, focused on regional economic development and warned that ad hoc policies that relied on property tax abatements and other local incentives were not likely improve longterm employment opportunities and economic growth (see Greg Kaza and Gary Wolfram, Regional Economic Development: Downriver As A Case Study (Midland, Mich.: Mackinac Center for Public Policy), available on the Web at www.mackinac.org/274.) Since that time, Center scholars have written three studies (including this one), 12 Viewpoint Commentaries, dozens of Web-only essays, several exclusive newspaper Op-Eds and scores of speeches on a variety of government economic development initiatives.
80 Michael D. LaFaive, MEGA: Real Jobs or Smoke and Mirrors (Midland, Mich.: Mackinac Center for Public Policy, December 1999, available on the Web at www.mackinac.org/2592).
81 In 2003, Robert Bosch reduced its staffing in Kentwood, Mich., by 1,200 employees, and the firm is expected to lay off another 500 workers in St. Joseph throughout 2005.
82 Current Employment Statistics (Detailed State and Metro Area Statistics customized table), U.S. Department of Labor, Bureau of Labor Statistics, available on the Web at www.bls.gov/sae/home.htm, accessed on January 30, 2005.
83 Current Employment Statistics (Detailed State and Metro Area Statistics customized table), U.S. Department of Labor, Bureau of Labor Statistics, available on the Web at www.bls.gov/sae/home.htm, accessed on March 28, 2005.
84 Just The Facts: Key Economic and Social Indicators for New York State: Total Private-Sector Employment, Public Policy Institute of New York State, available on the Web at www.ppinys.org/reports/jtf2004/privsectemploy.htm, accessed in December 2004.
85 Authors’ calculations based on the following: Regional Economic Accounts ( Gross State Product customizable table), U.S. Department of Commerce, Bureau of Economic Analysis, available on the Web at www.bea.gov/bea/regional/gsp/; Regional Economic Accounts ( State and Local Personal Income customizable table), accessible on the Web at www.bea.gov/bea/regional/spi/.
86 Regional Economic Accounts (State and Local Personal Income customizable table), U.S. Department of Commerce, Bureau of Economic Analysis, available on the Web at www.bea.gov/bea/regional/spi/.
87 "Michigan Has No. 1 Jobless Rate," Michigan Information and Research Service, January 25, 2004, available to subscribers on the Web at www.mirsnews.com/capsule.php?gid=166#2537.
88 State Employment Statistics – December 2004, Joint Economic Committee of the United States Congress, available on the Web at www.jec.senate.gov.
89 Jennifer Bonham, "West And Southeast Gain In Appeal, North Sees More Leaving According To Latest United Van Lines Migration Study," (Fenton, Missouri: United Van Lines, January 6, 2005, available on the Web at www.unitedvanlines.com/media/press/2005.htm.)
90 Ibid., MEDC Freedom of Information Act Officer Theresa Rashid, letter to Michael D. LaFaive.
91 Michael Wasylenko, "Taxation and Economic Development: The State of the Economic Literature," New England Economic Review, March/April 1997: 37-52.
93 Todd Gabe and David S. Kraybill, "The Effect of State Economic Development Incentives on Employment Growth of Establishments," Journal of Regional Science, 42:4 (2002): 703.
94 Terry F. Buss, "The Effect of State Tax Incentives on Economic Growth and Firm Location Decisions: An Overview of the Literature," Economic Development Quarterly, 15:1 (2001): 99.
95 Ibid., Alan Peters and Peter Fisher, Journal of the American Planning Association: 27.
96 Ibid.: 32
97 Ibid.: 35.
98 Timothy J. Bartik, "Evaluating the Impacts of Local Economic Development Policies On Local Economic Outcomes: What Has Been Done and What is Doable?" (working paper, Upjohn Institute Staff, Upjohn Institute, Kalamazoo, Mich., Working Paper No. 03-89, 2000.)
99 For a detailed explanation of measurement errors in these types of studies, see W. Robert Reed and Cynthia Rogers, "Measurement Error and Endogeneity in Studies of State Tax Policy and Economic Growth," (working paper, University of Oklahoma, Department of Economics, Norman, Oklahoma, 2000).
100 Kelly Edmiston, "The Net Effects of Large Plant Locations and Expansions on County Employment," Journal of Regional Science, 44:2: 289-319.
101 William F. Fox and Matthew Murray, "Do Economic Effects Justify the Use of Fiscal Incentives?" International Regional Review, 24:1: 103-133.
102 Michael J. Hicks, "The Regional Impact of Wal-Mart Entrance: A Panel Study of the Retail Trade Sector in West Virginia," Review of Regional Studies, 31:3: 305-313; and Michael J. Hicks, "A Quasi-Experimental Test of Large Retail Stores Impacts on Regional Labor Markets: The Case of Cabela’s Retail Outlets," (working paper).
103 Manufacturing firms and warehousing were eligible for the credits. Construction firms do not receive the credits directly, but construction activity will have accompanied many of the projects.
104 As a technical aside, the possibility exists that the MEGA credits were targeted to poorer places (despite that not being a formal criterion). The instrumental variable approach was specifically designed to account for this possibility.
105 The reverse could be true. We could have detected positive gains for MEGA counties that did not produce statewide benefits, most likely because the gains to MEGA counties came from reallocated economic activities from non-MEGA counties, thereby rendering the net effect zero.
106 We can conclude that the activity is a shift, since there is no corresponding population growth.
107 The $123,000 is only the value of the tax credit. This does not include the value of other incentives, or the fully allocated cost of MEGA staff and of the business recipients.
108 MEDC Freedom of Information Act Coordinator Sara Galluch, letter to Michael D. LaFaive, January 19, 2005.
109 In fact, a REMI expert with whom we conferred told us, "The guys at U of M are very good with the model."
110 George Fulton, Donald Grimes, Peter Nicolas, "The Economic Effects on Michigan of the Solvay Plant Location Decision," Economic Effects, Lansing, Mich: State of Michigan, Michigan Economic Development Corporation, April 20, 1995: 2.
111 In fact, the cost would be even higher than just simply the amount of the MEGA package that was unnecessary to keep or bring the company to Michigan. Officials at REMI, the Amherst, Mass., business that programs and sells the software model, encourage their clients to "identify even a minimal assumption of the opportunity costs on those government funds (NPV of T-bill rate) and include [it] in the model." At the same time, this cost would have a minimal impact on estimates — if any — even if it were factored in.
112 Authors’ calculations based on the following: ibid., All MEGA Projects; ibid., MEGA Credits; and ibid., Economic Effects, years 1995 through 2004.
113 There is another ramification of the model’s inability to distinguish between different regions in the state: It cannot distinguish MEGA projects close to a Michigan border from those far from it. It thus will have difficulty accounting for spin-off business activity that is sent to out-of-state businesses, rather than to in-state businesses from a MEGA project. A business that receives a MEGA grant in Detroit or Coldwater, for example, may spend a significant share of the money resulting from its MEGA package to buy items from Ontario or Indiana suppliers, thereby creating new jobs and income outside, rather than inside, the state — something the REMI model would have difficulty recognizing. Such a dynamic would lead the REMI model to overstate the economic impact of a MEGA grant on the state’s economy.
Of course, it is also possible that cross-border trade could bring new spending from out of state to Michigan. If it did so at a significant rate, it is possible that the REMI model would understate impact of a MEGA grant. Thus, while it is unclear whether this cross-border impact on the whole leads to overstatements or understatements of the economic impact, it is probably one meaningful source of potential error in the REMI modeling.
Cross-border traffic is not a trivial concern. Michigan shares borders with Ohio, Indiana, Ontario and even Wisconsin, and 62 of MEGA’s projects are near one of these borders. Some firms receiving a MEGA package may have branches in one of these four cross-border areas and do significant trade with them. Attempts to crowbar a correction factor into the single-state REMI model to account for this problem would almost certainly cause more problems with the model than the cross-border factors the correction was trying to address in the first place.
114 Timothy Bartik, Peter Eisinger and George Erickcek, "Economic Development Policy in Michigan," Michigan at the Millennium, Lansing, Mich.: Michigan State University Press, 2003: 293.
116 Michael D. LaFaive, MEGA Program Shifts Jobs to Where They Are Needed Least, (Midland, Mich.: Mackinac Center for Public Policy, April 7, 1999, available on the Web at www.mackinac.org/3190).
117 Charles Crumm, "Affluent Oakland, Where do we rank?" The Daily Oakland (MI) Press, April 23, 2004, accessed on the Web on April 7, 2005 at www.theoaklandpress.com/stories/042304/loc_20040423073.shtml. This ranking is derived from federal median household income data by Oakland County officials. It reflects a ranking of counties with a population of at least 1 million people. In a ranking of all American counties, Oakland drops to 33rd.
118 Ibid., Michigan Economic Growth Authority Act, Michigan Compiled Laws Annotated.
120 Ibid., All MEGA Projects.
121 Michigan Information and Research Service, April 21, 1995: 3 (quoting from The Ann Arbor News)
123 Briefing Memo-Compuware Corporation, State of Michigan, Michigan Jobs Commission, September 24, 1996: 2.
124 Daniel Fricker, "Compuware plays it safe," Detroit (MI) Free Press, May 6, 1999, accessed on the Web at www.freep.com/business/qcomp6.htm.
125 Official Meeting Minutes (September 2001), State of Michigan, Michigan Economic Development Corporation, September 2001: 2.
126 For one description of our efforts to obtain this information, see Michael D. LaFaive, Job Search, (Midland, Mich.: Mackinac Center for Public Policy, March 1, 2005, available on the Web at www.mackinac.org/6992). The efforts to obtain this information have been extended. First, author Michael D. LaFaive was told rejected applications weren’t kept; then, he was told that they existed but were spread across state government and might cost as much as $10,000 to locate and copy. In October 2004, he made another request for these applications, which ultimately produced the five applications mentioned in the text.
127 Ibid., Timothy Bartik, et al., "Economic Development Policy in Michigan": 289.
128 Lawrence Reed, Time to End Economic War Between the States, (Midland, Mich.: Mackinac Center for Public Policy, April 4, 1996, available on the Web at www.mackinac.org/718).
130 It is true that some surveys have purported to find that tax incentives matter. For instance, Area Development magazine’s 2003 "Corporate Survey" actually ranked incentives as the number one variable in a host of other options based on a survey it had conducted of its readers. The sample in this poll, however, was more likely to be skewed than the two samples of the surveys cited in the main text, since the sample in the Area Development poll was self-selected. Area Development magazine is a professional publication that covers site selection and relocation, and it sends its survey questions to its subscribers. It is not hard to imagine that people who are in the business of providing and receiving business incentives might find incentives to be important in the site location process.
131 Nobel Memorial Prize-winning economist James Buchanan has pioneered a branch of economics known as "public choice" economics, which superimposes the market model of self-interest on government officials.
132 Margaret E. Dewar, "Why State and Local Economic Development Programs Cause So Little Economic Development," Economic Development Quarterly, 12:1 (1998).
133 Ibid.: 68.
134 Ibid.: 87.
135 Matt Resch and Bill Nowling, "Republicans Vow: ‘We Will Fight For Every Michigan Job,’" Michigan Legislature, Office of House Speaker Rick Johnson, October 27, 2004: 1.
136 It is hard not to become cynical when reviewing these documents. State officials and their staffs spend a significant amount of time and taxpayer resources on programs meant to develop the economy, yet the economic value of these programs is not even mentioned in important internal communications. Supporters of the programs sometimes respond that "politicians always engage in politics," but this "realist’s view" actually concedes a decisive point: that the programs are serving political purposes, and that the economic impact is at most an afterthought.
An equally relevant issue is whether in politicians’ attempt to "do something," they are spending money ineffectively and perhaps even hurting job-seekers in the long run. Consider the trade-off involved in passing of the "Jobs II" package. In 2004, Gov. Granholm proposed a cigarette tax hike of 75 cents per pack to help raise revenue and close an expected state budget deficit. The Mackinac Center for Public Policy estimated that the hike would cause a loss of 5,000 jobs in Michigan in the 12 months following the increase. According to the Lansing-based Michigan Information and Research Service, in May 2004, Senate Majority Leader Sikkema offered to trade Gov. Granholm GOP approval of her tax increase for her support of the GOP Jobs I and Jobs II packages advanced in the previous year (see "Sikkema wants Jobs II for Cig Tax," Michigan Information and Research Service, May 27, 2004). It is quite possible, then, that in the passage of the Jobs II program and the cigarette tax, the political price of a program to "create jobs" was a political program that killed jobs.
137 Hemlock Semiconductor Corporation Site Manager Greg Skufca, general memo to employees, November 30, 2004.
138 Ibid., Hemlock Semiconductor Corporation Site Manager Greg Skufca, general memo.
139 Hemlock Semiconductor Site Manager Greg Skufca, telephone interview with Joseph G. Lehman, April 7, 2005.
140 Ibid., Asked about economic development in Michigan, Mr. Skufca stated that high energy and labor costs make Michigan a difficult place to do business.
141 Paul Krepps, "Hemlock Semiconductor to Expand in Saginaw Area, Create Over 120 New Jobs," State of Michigan, Michigan Economic Development Corporation, November 16, 2004.
142 Performance Audit of the Michigan Strategic Fund, Department of Commerce, October 1, 1988 through Oct. 31, 1992, State of Michigan, Office of the Auditor General, July 22, 1993: ii.
143 Ibid., Don Jakeway, Business Direct Weekly.
144 Editorial, "Jobs promise lost," Toledo (OH) Blade, Sept. 20, 2003, accessible on the Web at www.toledoblade.com/apps/pbcs.dll/ artikkel?SearchID=73148341519429&Avis=TO&Dato=20030920&Kategori=OPINIO N02&Lopenr=109200151&Ref=AR.
146 Joe Mahr, "Growth agency takes less credit: Analysis redefines, reduces project numbers," Toledo (OH) Blade, June 25, 2004, available on the World Wide Web at www.toledoblade.com/apps/pbcs.dll/ artikkel?SearchID=73197141456084&Avis=TO&Dato=20040625&Kategori=NEWS17 &Lopenr=406250352&Ref=AR.
150 Robert Johnson, "Advocates of Tax Breaks See Software as an Ally," The Wall Street Journal, sec. F, January 22, 1997. Journalists are not the only ones to observe the effect that computer models can have on public acceptance of the claims of government jobs programs. In "The Misuse of Regional Economic Models," a paper by distinguished real estate and finance scholar Edwin Mills of Northwestern University in Chicago, Mills suggests how advocates of various "economic development" programs can use regional economic models to advance their own agendas (see Edwin Mills, "The Misuse of Regional Economic Models," Cato Journal, 13:1, Spring/Summer 1993: 38). The Mills paper analyzed REMI’s use in impact studies particularly for government projects like convention centers and sports stadiums, though it’s clear from his discussion that his observations apply to government development programs more broadly. Mills concludes his paper by offering the "the following conjecture to stimulate thought":
First, government officials like to promote big government. They benefit from large government roles in the economy. Adequate evidence is the observation that state and local governments resist cutting spending and, indeed, frequently raise taxes, in recessions when taxpayers’ ability to pay has decreased. Second, to justify increased spending, government officials must identify some publicly desired goal to be accomplished by government spending. Creation of new jobs is among the best such goals that can be found. Third, they must make it plausible that government can accomplish the goal in a way that the private sector cannot. This is where REMI is so valuable. It is a complex computer model that lay people cannot understand or evaluate, and it has important scientific merits. Thus, the frequent government claim that the best scientific model available shows that x thousand jobs will be created by the project helps to carry the day.
151 Ibid., MEDC Freedom of Information Act Officer Theresa Rashid, letter to Michael D. LaFaive: 10. This figure excludes alleged direct and indirect jobs retained through MEGA programs.
152 Ibid.: 13.
153 Ibid., MEDC Freedom of Information Act Coordinator Sara Galluch, letter to Michael D. LaFaive.
154 Michigan Economic Growth Authority Act (April 18, 1995), Michigan Compiled Laws Annotated, section 207.801 (West Group) 1998: 304.
155 Ibid., MEDC Freedom of Information Act Coordinator Sara Galluch, letter to Michael D. LaFaive.
156 Todd Gabe and David Kraybill, "The Effect of State Economic Development Incentives on Employment Growth of Establishments," Journal of Regional Science, 42:4 (2002): 703.
157 Donald Bartlett and James Steele, "What Corporate Welfare Costs," Time, Nov. 9 1998 (reprint of a special report on corporate welfare; no page number provided).
158 Jean Wylie, Poletown: Community Betrayed, (Champaign, Ill.: University of Illinois Press, 1989), 36.
159 These words were taken from an appeals court decision concerning a dispute between Ypsilanti Township and General Motors regarding tax abatements (see Ypsilanti Township v. General Motors Corp., 201 Mich App 128; 506 NW2d 556 (1993), lv den 443 Mich 882; 509 NW2d 152 (1993) (Michigan Appellate Court, 1993)). The opinion can be found on the Web at www.courtofappeals.mijud.net/Digest/newHTML/ 16124521.htm#TopOfSynopsisMichigan.
160 Harold Brumm, "Rent Seeking and Economic Growth: Evidence from the States," Cato Journal, 19:1 (1999): 7.
161 Ibid.: 15.
162 Ibid.: 7.
163 F. A. Hayek, The Fatal Conceit: The Errors of Socialism, ed. W. W. Bartley III (Chicago: The University of Chicago Press, 1989): 76.
164 Ibid.: 77.
165 Joseph Dancy, "Why do mutual fund managers underperform?," review of Searching for Alpha: The Quest for Exceptional Investment Performance, by Ben Warwick, Financial Sense University, March 25, 2004, www.financialsense.com/fsu/posts/dancy/reviews/032504.html.
166 Hugh Gallagher, "Rothwell injects a welcome shot of optimism on economy," Livonia Observer, sec. A, March 7, 2002.
167 Michael D. LaFaive, United States Circuit Court of Appeals Finds Ohio’s Targeted Investment Tax Credit Unconstitutional, (Midland, Mich.: Mackinac Center for Public Policy, September 2, 2004, available on Web at www.mackinac.org/6802).
168 The authors thank Professor Peter Enrich, the plaintiff’s attorney cited in the text, for his insights on this issue, which formed the basis of the argument we present here.
169 These SIC codes have, at least in the past, been vital to REMI software in estimating the impact of policy changes on employment and other variables of interest.
170 Michael D. LaFaive, Picking Winners and Losers with Tax Credits Is Unnecessary and Unfair (Midland, Mich.: Mackinac Center for Public Policy, July 5, 1999: 2).
172 Mark Hornbeck, "Tax breaks shortchange state: $1.4B business program gets minimal payback in jobs," The Detroit (MI) News, sec. A, September 2, 2003.
173 Michigan Department of Treasury staff member Denise Heidt, telephone interview with Michael D. LaFaive, November 3, 2004.
174 Ibid., Michael Wasylenko, New England Economic Review.
175 Tax Foundation, State Business Tax Climate Index, October 14, 2004, www.taxfoundation.org/sbtci.html.
176 Joseph and Diane Bast, ed., "Coming Out of the Ice," Heartland Institute PolicyBot, April 11, 2005, www.heartland.org/pdf/16042.pdf.
177 Diane Katz, A Telecommunications Policy Primer: 20 Comprehensive Answers to 20 Basic Questions (Midland, Mich.: Mackinac Center for Public Policy, August 2004, available on the Web at www.mackinac.org/6750); Russ Harding, Improve Michigan’s Regulatory Climate, (Midland, Mich.: Mackinac Center for Public Policy, January 10, 2005, available on the Web at www.mackinac.org/6942).
178 Andrew Coulson, No Cop Out Left Behind, (Midland, Mich.: Mackinac Center for Public Policy, March 23, 2005, available on the Web at www.mackinac.org/7010; Brian Carpenter, 4M: The Real Structural Problem," www.mackinac.org/6983.
179 Briefing Memo – La-Z-Boy, Inc.," State of Michigan, Michigan Economic Development Corporation, December 21, 1999: 2.
180 William Wilson, The Effect of Right-to-Work Laws on Economic Development (Midland, Mich.: Mackinac Center for Public Policy, June 2002: 2, available on the Web at www.mackinac.org/4290). This is not the only study to find that Right-To-Work states — known as RTW states — enjoy higher employment growth. See, for instance, Thomas Holmes, "The Effect of State Policies on the Location of Industry: Evidence from State Borders," Federal Reserve Bank of Minneapolis, Research Department Staff Report, September 1996: 2. Holmes, an economist at the Federal Reserve Bank of Minneapolis, explains that from 1947 (the year Michigan’s first prominent economic development program was created) to 1996, manufacturing employment in non-RTW states "is virtually the same today as it was in 1947 and 10 percent less than it was in 1963." By contrast, Holmes found that RTW states have seen a 150 percent increase in manufacturing employment.
181 Ibid., Michigan Office of the Auditor General, Performance Audit of the Michigan Strategic Fund, Department of Commerce: October 1, 1988 through October 31, 1992.
182 Performance Audit of Selected Training Related Programs, Michigan Economic Development Corporation, State of Michigan, Office of the Auditor General, August 2003: 11-14.
183 As noted elsewhere (see "A Lack of Data on Rejected Firms" under "The Problem of Ensuring MEGA Credits Are Necessary"), we have attempted to obtain these documents from the MEDC. While the MEDC did supply us with several of the failed applications, it seems likely that there are other applications that our FOIA request did not successfully unearth.
184 For a general discussion of the model, see "Modeling the Economic Impacts of MEGA" under "Econometric Evaluation of MEGA's Effectiveness." For a more detailed description, see "Appendix A: The Model of MEGA’s Economic Impacts."