Grand Rapids is a Regional Leader in Attracting People

City leads Minneapolis and Chicago in population growth

In an article in MLive, Michigan Future President Lou Glazer says that Michigan needs to attract more talent. “Michigan won’t be a high-prosperity state unless metro Detroit and metro Grand Rapids are able to compete with national talent magnets like Chicago and Minneapolis for mobile talent,” he told the paper. He should have checked the numbers first since Grand Rapids is the leader of this group and Chicago is shedding people to other places.

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From 2010 to 2016, the Grand Rapids area led that group of four cities by attracting an additional 2 percent of its population from other places in the U.S. Minneapolis came second, adding 1.5 percent of its population. Metro Detroit lost 1.4 percent of its population through domestic migration. The Chicago area, however, lost 2.8 percent of its population to other areas in the U.S.

The policies Glazer recommends are especially suspect when the economic trends he bases them on are misstated.


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Back to the MEGA Future: Good Jobs for Michigan Reinvents Failed MEGA Program

Proposed law shares remarkable similarities with old, failed law

In a previous blog post titled “What’s Old Is New Again” I mentioned just three similarities between the state’s disastrous Michigan Economic Growth Authority law of 1995 and the proposed Good Jobs for Michigan legislation (specifically, Senate Bill 242). There are many others — 12 major ones by my count — and most are marked by some identical language or concept.

The most notable difference between the old MEGA statute and the new Good Jobs for Michigan language is the method for handing out financial favors. Old MEGA provided refundable tax credits to select businesses, GJFM provides select businesses with “captured” tax money. The results, however, are the same. The favored get something at the expense of the many.

MEGA was a business tax credit program begun in 1995 and which was a demonstrable failure. Five different studies (two by the Mackinac Center) examined this program and were published between 2005 and 2014, which means the entire breadth of MEGA’s existence has been examined. This includes the period during and after which expensive “retention” credits were offered and for which taxpayers are still on the hook. Four of the five studies found a zero or negative impact. A fifth study found a small, albeit positive one.

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It is naive to think that this tax capture proposal will be any more effective than MEGA or other similar Michigan programs or business incentive programs run in other states. The general academic literature on tax increment financing programs is mostly negative, and I have pointed to that evidence again and again.

Moreover, a 2014 study of a Kansas program that most closely resembles the GJFM proposal finds: “recipients are statistically not more likely to generate new jobs than similar firms not receiving incentives. A secondary set of findings shows that firms relocating to Kansas, with or without incentives, do not experience job growth at higher rates than existing firms.” The Kansas “PEAK” program allows chosen businesses to keep 95 percent of tax withholding provided they pay a wage above the average in the county in which they operate. Deals can last as long as 10 years.

When you have a hammer everything looks like a nail, and when you’re an advocate for the interests of large corporations the economic development programs you support inherently tend to favor big business over broad-based economic freedom. Perhaps all of the similarities — including identical language — between the old MEGA and the new MEGA (GJFM) is just a function of the old guard wanting to go back to the way things were, and without regard to consequences or costs to taxpayers. Even with the best intentions from the people in charge, the signal this sends to entrepreneurs is that success leads from swimming in the “swamp.”

The following is a list of major similarities between the 1995 MEGA statute and SB 242, the new MEGA proposal. The bolded material is meant to highlight identical language despite the 22 years that separate authorship of each.

MEGA Statute: “An eligible business may apply to the authority to enter into a written agreement which authorizes a tax credit under section 9.”

GJFM: “An eligible business may apply to the fund to enter into a written agreement which authorizes the payment of withholding tax capture revenues under this chapter.”

MEGA Statute: “The authority may request such information, in addition to that contained in an application, as may be needed to permit the authority to discharge its responsibilities under section 8.”

GJFM: “The fund may request information, in addition to that contained in an application, as may be needed to permit the fund to discharge its responsibilities under this chapter.”

MEGA Statute: “After receipt of an application, the authority may enter into an agreement with an eligible business for a tax credit under section 9 if the authority determines that all of the following are met:

GJFM: “After receipt of an application, the fund may enter into an agreement with an eligible business for withholding tax capture revenues under this chapter if the fund determines that all of the following are met:

MEGA Statute: “The expansion or location of the eligible business will benefit the people of this state by increasing opportunities for employment and by strengthening the economy of this state.”

GJFM: “The expansion or location of the eligible business will benefit the people of this state by increasing opportunities for employment and by strengthening the economy of this state.”

MEGA Statute: “The plans for the expansion, retention, or location are economically sound.”

GJFM: “The plans for the expansion or location are economically sound.”

MEGA Statute: “The expansion or location of the eligible business will not occur in this state without the tax credits offered under this act.”

GJFM: “The eligible business would not have added certified new jobs without the withholding tax capture revenue payments authorized under this chapter.”

MEGA Statute: “A cost/benefit analysis reveals that authorizing the eligible business to receive tax credits under this act will result in an overall positive fiscal impact to the state.

GJFM: “An industry-recognized regional economic model cost-benefit analysis reveals that the payment of withholding tax capture … will result in an overall positive fiscal impact to the state.

(Note: The links above refer to articles related to the subject matter, not the statute or proposal, respectively.)

MEGA Statute: “The local governmental unit in which the eligible business will expand or be located, or a local economic development corporation or similar entity, will make a staff, financial, or economic commitment to the eligible business for the expansion or location.”

GJFM: “The eligible business has received a letter of support for the expansion or new location from the chief executive official, or his or her designee, of the municipality with jurisdiction over the location of that facility.”

MEGA Statute: “If the authority determines that the requirements of subsection (1) have been met, the authority shall determine the amount and duration of tax credits to be authorized under section 9, and shall enter into a written agreement as provided in this section. The duration of the tax credits shall not exceed 20 years.

GJFM: “If the fund determines that the eligible business satisfies all of the requirements of subsection (4), subject to subsection (6), the fund shall determine the amount and duration of the withholding tax capture revenues to be authorized under this chapter and shall enter into a written agreement as provided in this section. The duration of the withholding tax capture revenues must not exceed 5 or 10 years …”

MEGA Statute: “In determining the amount and duration of tax credits authorized, the authority shall consider the following factors: (A) The number of qualified new jobs to be created; (B) The average wage level of the qualified new jobs relative to the average wage paid by private entities in the county in which the facility is located. (C) The total capital investment the eligible business will make. (D) The cost differential to the business between expanding or locating in Michigan and a site outside of Michigan. (E) The potential impact of the expansion or location on the economy of Michigan. (F) The cost of the credit under section 9, the staff, financial, or economic assistance provided by the local government unit, or local economic development corporation or similar entity, and the value of assistance otherwise provided by this state.

GJFM: “In determining the maximum amount and minimum duration of the withholding tax capture revenues authorized, the fund shall consider the following factors, if applicable: (A) The number of certified new jobs to be created. (B) The degree to which the average annual wage of the certified new jobs exceeds the prosperity region average wage. (C) Whether there is a disadvantage to the eligible business if it were to expand or locate in this state versus a site outside this state. (D) The potential impact of the expansion or location on the economy of this state. (E) The estimated cost of the reimbursement of withholding tax capture revenues under this chapter, the staff, financial, or economic assistance provided by the municipality, or local economic development corporation or similar entity, and the value of assistance otherwise provided by this state.

MEGA Statute: “The expansion or location of the eligible business will not occur in this state without the tax credits offered under this act.”

GJFM: “Whether the expansion or location will occur in this state without the payment of withholding tax capture revenues offered under this chapter.”

MEGA Statute: “A written agreement between an eligible business and the authority shall include, but need not be limited to, all of the following:”

(A) A description of the business expansion or location that is the subject of the agreement. (B) Conditions upon which authorized business designation is made. (C) A statement by the eligible business that a violation of the written agreement may result in the revocation of the designation as an authorized business and the loss or reduction of future credits. (D) A statement by the eligible business that a misrepresentation in the application may result in the revocation of the designation as an authorized business and the refund of credits received under section 9. (E) A method for measuring full-time jobs before and after an expansion or location of an authorized business in this state.

GJFM: “A written agreement between an eligible business and the fund must include, but need not be limited to, all of the following:

(A) A description of the business expansion or location that is the subject of the written agreement. (B) Conditions upon which the authorized business designation is made. (C) A statement from the eligible business that the eligible business would not have added certified new jobs without the withholding tax capture revenue payments authorized under this chapter.” “(E) A statement by the eligible business that a violation of the written agreement may result in the revocation of the designation as an authorized business, the loss or reduction of future withholding tax capture revenue payments under this chapter, or a repayment of withholding tax capture revenues received pursuant to this chapter. (F) A statement by the eligible business that a misrepresentation in the application may result in the revocation of the designation as an authorized business and the repayment of withholding tax capture revenues received under this chapter … (G) A method for measuring and verifying full-time jobs before and after an expansion or location of an authorized business in this state.


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"[F]irms relocating to [the state], with or without incentives, do not experience job growth at higher rates than existing firms.” - Nathan M. Jensen for the Ewing Marion Kauffman Foundation

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Save Closures for Truly Failing Schools

Context needed for decisions, whether by state or local officials

Michigan state Superintendent Brian Whiston caused a small stir at last week’s State Board of Education meeting when he remarked that Detroit district leaders would be shutting down some schools this year.

The School Reform Office released in January a list of 38 persistently failing schools subject to be closed or face other drastic interventions. Twenty-five of the schools are located in Detroit, all but one operated by the school district or the almost-defunct Education Achievement Authority. But state officials have never closed down a conventional public school for poor performance.

Despite earlier threats, the trend seems unlikely to change. Gov. Rick Snyder earlier delayed any state decision on school closures until May. Then Whiston offered the 38 schools a chance to sign “partnership agreements” with the Michigan Department of Education to give them extra time to meet goals to improve achievement. The state superintendent speculated that local districts would opt to close some of the 38 schools on their own.

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When Whiston specifically addressed that speculation at the state’s largest and most troubled school district, local leaders pushed back. DPS announced that it intends to close only one school, Durfee Elementary and Middle School, but the Detroit Free Press reports that some board members have expressed concerns with that plan.

Durfee is one of 20 DPS or EAA schools recognized as performing in the bottom 5 percent in Michigan. The Mackinac Center’s most recent Context and Performance Report Card agrees with this rating. Our report card adjusts state test scores for expectations based on student poverty. That means these schools are truly poor performers, even given the greater challenges they face.

With power recently restored to the local school board, DPS needs to make drastic changes if it hopes to survive. Too many students are poorly served, thousands of seats remain empty as families have fled to charters or suburban districts and the district is on a dangerous financial trajectory less than a year after a $665 million Lansing bailout.

Yet any benefit that might come from attempts to right size the state’s largest district ought to be limited to the 20 schools that truly are the worst performers. State test scores don’t reveal everything parents care about in terms of school quality, but they can highlight schools that fail the basics.

The other four Detroit schools on the state’s “next level of accountability” list are doing better when adjusted for student poverty, either marginally like Bow Elementary and Middle School, or substantially, like Thirkell Elementary.

Whether state or local leaders make the decision about closures, they should steer clear of schools that are beating the odds.


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April 21, 2017 MichiganVotes weekly roll call report

House Bill 4080, Authorize new energy-related purchase/debt scheme for schools: Passed 36 to 0 in the Senate

To include schools in a scheme authorized by a 2016 law for counties, which lets them contract with vendors for energy efficiency projects, and pay for these with money the projects are supposed to save (or from regular tax revenue if savings don’t appear).

Who Voted "Yes" and Who Voted "No"

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Senate Bill 245, Repeal switchblade ban: Passed 36 to 1 in the Senate

To repeal the state law against owning, selling or possessing a switchblade knife, “the blade or blades of which can be opened by the flick of a button.” The sponsor of the bill says the ban is outdated and unevenly enforced.

Who Voted "Yes" and Who Voted "No"


Senate Bill 160, License Polaris “Slingshot” type vehicles as a motorcycle: Passed 36 to 0 in the Senate

To revise the regulations on motorcycles in the state vehicle code so they also apply to “autocycles,” in particular to three wheeled vehicles like the Polaris “Slingshot.” Under current law vehicles like this happen to fit a particular definition requiring they be enclosed and have other car-like features such as windshields and wipers.

Who Voted "Yes" and Who Voted "No"


Senate Bill 150, Require agencies disclose federal aid requests to legislature: Passed 36 to 0 in the Senate

To require state agencies that apply for any form of federal or other financial assistance to notify legislative leaders, relevant committees and the legislature’s fiscal agencies within 10 days, with the notice including any conditions or stipulations associated with receiving the assistance.

Who Voted "Yes" and Who Voted "No"


Senate Bill 78, Expand property transfer taxable value “pop up” exception: Passed 37 to 0 in the Senate

To exempt from the property tax assessment “pop up” the transfer of a decedent’s principle residence to a family member, for up to two years. The “pop up” is the provision of the 1994 Proposal A tax limitation initiative that makes a property’s market value the basis of property tax assessments when it is sold, rather than the capped (and lower) “taxable value” of the previous owner.

Who Voted "Yes" and Who Voted "No"


SOURCE: MichiganVotes.org, a free, non-partisan website created by the Mackinac Center for Public Policy, providing concise, non-partisan, plain-English descriptions of every bill and vote in the Michigan House and Senate. Please visit http://www.MichiganVotes.org.


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Proposed Corporate Giveaway Unlikely to Grow Economy

Lawmakers should consider the full costs of corporate welfare before they approve it

(Editor’s Note: The following is legislative testimony given by James Hohman, assistant director of fiscal policy at the Mackinac Center, to the Michigan House Tax Policy Committee on April 19, 2017, concerning a series of bills — Senate Bills 111-115 — intended to give taxpayer-financed subsidies to select real estate developers.)

Proponents of this package have branded the opposition as being “ideological” in their skepticism. But delivering hundreds of millions of taxpayer dollars to select developers based on flimsy evidence is far more ideological than the practical reasons why you should reject this proposal. Indeed, supporters seem more interested in obscuring the costs of this package rather than justifying them.

There are a number of ways that costs are being ignored. This packages uses the tax code to deliver cash to developers instead of through the budget process. There is already $100 million-plus in the state budget pledged for business subsidies. And those subsidies have to be argued for and compared against the multitude of other areas of state spending where lawmakers prioritize the best uses of scarce taxpayer dollars. This package bypasses that process.

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If developers want taxpayer dollars to redevelop select places, they ought to be arguing their case in the budget-making process, and lawmakers should pledge that money this year instead of kicking it to the future, as these bills do by allowing agreements that can last 25 years into the future.

The costs are further obscured by proponents’ argument that the development would not happen without taxpayer assistance, implying that sending tax dollars generated by the development back to the developer represents free money. Even if this “but for” presumption is accurate, and there are reasons to be skeptical, it does not make the proposal costless. Construction workers have multiple jobs that they can work on — they don’t just spring into existence when these projects are approved. When they work on other jobs their income taxes go to the state government and the state will miss out on that revenue when they work on the selected projects approved by this package. Likewise, the people who will live and work in any of these developments do not spring into existence when these buildings get built. Even if people from out of state moved into these developments, they would only be costless to the state budget if the sole purpose of their move was because they really liked the newly developed building.

The other way that costs are obscured in this proposal is through a fig-leaf, cost-benefit calculation made prior to a project being approved. The analysis uses a multiplier to estimate the benefits of the proposal but does not provide the same treatment to the costs. As the bill stands, the methods used by these analyses would likely conclude that partnering with a developer to dig a giant hole in the ground would be a net positive for the state.

While the legislation says that it is only to select “transformational” projects, there is no accountability in these bills that the projects fulfill that promise. That would require performance metrics for the communities, not just for the project, and accountability requirements for both the developers and the people approving these deals.

It is also noteworthy that there are already a handful of other programs on the books specifically for “brownfield development” and dozens more for economic development more broadly. Instead of amending these programs to address what supporters apparently believe are their obvious failures (hence the need for this new and different legislation), this just adds more favors to select businesses and developers from the pockets of taxpayers.

Michigan’s economy is transforming. We are one of the fastest growing states in the union and the best in the region. That includes the recovery of multifamily housing that appears to be targeted in this proposal. If you want to further encourage this transformation, you ought to improve the overall business climate with modest reductions in the state income tax. That would do more to boost Michigan’s economy than creating Rube Goldberg devices to deliver taxpayer dollars to select developers.


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Economic Interference Week

The Michigan Senate has already passed and the House is considering a major expansion of Michigan’s corporate welfare regime. The House Tax Policy Committee held a hearing on March 8, and two officials from the agencies in charge of current business subsidy programs came to explain and justify the state’s corporate welfare apparatus.

Rep. Jim Tedder had some questions about current programs. In particular, about so-called “return on investment” claims made on behalf of one of them (taxpayer-funded “Pure Michigan” ads), which were generated by a consultant called Longwoods International who has been repeatedly hired by the agency and — until recently — under a no-bid contract.

Tedder asked, “[T]he statistic that’s provided — the $7.67 return for every $1.00 — how is that quantified? What is the process in deriving that number?”

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The officials were Steve Arwood, chief executive officer of the Michigan Economic Development Corporation and Jeremy Hendges, chief deputy director of the Michigan Department of Talent and Economic Development. Jeremy Hendges fielded the response, a truncated and edited version of which is below (see the embedded video for the entire answer).

 

“That is the number from Longwoods that does the study on the return from the investment essentially and it is based on state and local tax dollars that come back and Longwoods has been studying the program probably from day one. We have contracted that out a few times. Their methodology was verified a couple years ago. We had Michigan State [University] double check their work essentially and verify their methodology for the study on that.”

The response didn’t answer the question as directly as it was asked, if at all. It was almost a “nonresponse response,” and may leave the reader wondering why a top official at the MEDC can’t provide an answer to this seemingly basic question.

Hendges failed to provide a specific, detailed answer because he probably just does not know the answer. Longwoods refuses to provide meaningful details of the methods they used to create the ROI figure for Pure Michigan. So no one knows exactly how the figure is calculated, which the MEDC knows and seems perfectly comfortable with (or, if MEDC officials do know, they respect Longwoods’ wishes and keep it hidden from the public). The Mackinac Center has written extensively about a lack of transparency in the Pure Michigan and other programs.

Moreover, the MSU review Hendges references was actually performed by another no-bid contractor called Certec, Inc. This company was owned by a former vice president of Longwoods who coauthored the report with an MSU scholar. The report covers an ad campaign in 2003, which predates the Pure Michigan program by several years.

The companies that produce responses that government agencies want to hear are part of a cottage industry that exists to serve the “budget justification” needs of ineffective state economic development agencies. Their products are nothing more than PR puffery garbed in scholarly robes. Here is a relevant excerpt from a previous blog where I explain why the MSU validation study doesn’t validate the Pure Michigan program’s ROI claims:


Who Watches the Watchers?

So it is interesting that in 2011, when pressed on similar questions about earlier Longwoods’ reports, the then-head of Michigan’s travel promotion bureau pointed to a “validation study” for which the MEDC paid a different contractor $5,000. While this was supposed to confirm that the Longwoods methodology was valid, it also suggests the agency knew these reports had a credibility problem.

Moreover, even this second vendor said Longwoods had a “lack of total transparency,” and acknowledged that reviewing its process would “require costly replication to totally confirm” that its claims were valid. But even if cost were no object, Longwoods’ secrecy would make confirming its claims impossible.

Dodgy Methods Acknowledged

We do know some things about the method, although the details provide little comfort. Bill Siegel, founder and CEO of Longwoods, has said his company uses a hybrid system based on what are called “conversion” and advertising tracking studies. The former are said to measure how many people responded to a travel ad by later visiting the destination.

Nevertheless, traditional conversion study methods appear to have been what the validation study authors used for their work. Conversion studies have been widely criticized by academic economists, who consider them highly dubious. In his book, “Tourism Analysis: A Handbook,” author Stephen Smith writes that — especially with tax-funded travel promotion agencies — “Conversion studies are increasingly popular … as a tool to justify budgets. Because of survival motivation, many conversion studies fall short of full adherence to rigorous scientific procedures.” Smith wrote this was especially true of tax-funded agencies that promote tourism interests.

Even Siegel (writing with colleague William Ziff-Levine) said in 1990 that, “The main value of a conversion study would appear to be to get diagnostic information on a fulfillment piece, not to provide hard numbers on the bottom-line return on-investment of a campaign.” More recently, he said that this hybrid approach uses the parts of the conversion study system that he believes are its most useful and effective.

And then there is the secrecy. While you can read an online copy of the survey Longwoods used to produce its 2014 report, it is meaningless without a detailed explanation of how the company used the survey to derive its claim of a 587 percent return from an ad campaign. And such an explanation is exactly what you won’t find on any Longwoods website or published document.

The MEDC’s validation contractor was supposed to evaluate the legitimacy of Longwoods’ claim. Notwithstanding Longwood’s lack of transparency, this second outfit chose to attempt its own version of a conversion study.

Process Fails Smell Test

As if doubts about the underlying contract weren’t enough, there are many reasons to question the practice of paying a second contractor to validate the claims of a “budget justification” contractor.

To begin with, the MEDC did not issue a request for proposals, which could have given it a number of validation contractors to choose from. Instead, agency officials hand-picked a contractor, which at the very least limited the scope of possible perspectives. Also, it’s hard to ignore that the co-author of the validation study is a former vice president of Longwoods International, the company being evaluated.

That revolving-door relationship is part of a pattern. The MEDC official who mentioned the validation study in 2011 was George Zimmerman, whose title was vice president of the MEDC's Travel Michigan office, which oversees state promotion efforts. Mr. Zimmerman has since been hired by Longwoods International as its chairman.

The questions multiply when details of this second contractor’s work are examined. For instance, the survey research it used involves asking respondents to report the degree to which the state of Michigan’s advertisements influenced their decision to visit. This introduces the possibility of response bias — a pitfall of survey research — which would influence the output. Moreover, the authors simply lump in two categories of responses at different rates before making their calculations. They claim this is a common technique but offer no supporting evidence. Curiously, one result derived by the validation authors apparently matched the Longwoods International conclusions to the penny ($3.42).

Confirmation Study Confirms Nothing

Perhaps not surprisingly, the validation study authors so thoroughly hedged and qualified their report that they appear to doubt whether “return on investment” claims like Longwoods’ can actually be measured. In one place they wrote, “The ‘real’ conversion rate in [sic] unknown and next to impossible to derive given the many variables involved, many beyond the control of the researcher.”

Elsewhere, contractor No. 2 admitted, that “the possible confidence interval for our estimate is wide,” and that “our bottom line estimate will likely be inflated to the degree that other Michigan advertisers were also engaged in these markets at this time at a level beyond the precision of this estimate.” Translation: They came up with a ballpark estimate in a very large ballpark. Still, the contractor suggests that even if they’re off by 25 percent the result is still positive.

The outfit that was paid $5,000 to prepare this report can at least be commended for admitting they don’t know what they don’t know.

Perhaps capping all the preceding, 2011 press reports describe former MEDC and current Longwoods International official George Zimmerman repeatedly pointing to the validation study to support his company’s claims about MEDC ad spending. However, the validation study contract was entered into in 2007 to cover a Longwoods’ report on a 2003 tourism ad campaign. Published reports indicate that the state had validated Longwoods’ technique but failed to mention that the validation work involved ads unrelated to the Pure Michigan campaign.


Representative Jim Tedder asked a pointed and good question and got an empty response. He and his colleagues should remember that the next time corporate welfare legislation or its proponents are asked to approve spending taxpayer dollars on it.


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Net Domestic Migration by County

Michigan county gains and losses

Net Migration by County, 2010 – 2016

 

Source: U.S. Census Bureau

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People move for a lot of reasons: for family, health and retirement among others. Finding economic opportunity is an important driver and one that is encouraged by state and local policy.

Over the past decade, Michigan has started to attract more people. It still is losing people to other states, but those numbers are down.

This map looks at net migration — it calculates how much a county’s population has changed due to people moving in and moving out of it from 2010 to 2016. Oakland and Macomb counties attracted the most people, with Oakland adding 22,936 people, a 1.9 percent gain and Macomb adding 21,223 people, a 2.5 percent gain. Those are neighbors of Wayne County, which lost 104,909 people, a 5.8 percent decline.

It’s not all in one direction, though. According to a different report from the U.S. Census Bureau, which doesn’t align perfectly with the data in the map, from 2010 to 2014, 14,405 people moved from Oakland County to Wayne County. But 20,831 people moved from Wayne to Oakland. In a similar fashion, 5,289 people moved from Macomb County to Wayne County and 13,412 people moved from Wayne to Macomb. That is the equivalent of 38.7 percent of Wayne County’s net out-migration.

The largest gain by proportions came in Grand Traverse County at 4.8 percent and Ottawa County at 3.1 percent.


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Christopher DeMuth is the former president of the American Enterprise Institute, a Washington-based think tank. In 2017, DeMuth received a Bradley Prize for his contributions to “preserving and defending the tradition of free representative government and private enterprise.”

DeMuth’s acceptance speech on On April 6, 2017, included this sentence: “Government and politics have succumbed to demands to regiment every aspect of society and commerce and ameliorate every difficulty of private life.”

The Michigan Legislature was taking a spring break when DeMuth spoke, but in the previous week its members proposed adding 83 new laws to the state’s statutes. Here are descriptions of just three, from MichiganVotes.org:

2017 Senate Bill 297: Mandate electrician have proof of licensure while on job
Introduced by Sen. Kenneth Horn, a Republican, on March 30, 2017:
To mandate that an electrician on a job must show a government official or inspector a photo ID and evidence of licensure status if ordered.

2017 House Bill 4465: Mandate cable, phone company “teaser rate” expiration warnings
Introduced by Rep. Jeremy Moss, a Democrat, on March 30, 2017:
To require cellphone, cable and other telecommunications companies that sell contracts with introductory “teaser” rates to notify customers of the new rate in the last two bills before the teaser rate expires.

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2017 House Bill 4440: Authorize cytomegalovirus infection public information campaign
Introduced by Rep. Robert Kosowski, a Democrat, on March 30, 2017:
To require the state health department to do a public and health provider education and awareness campaign on risks related to cytomegalovirus infection.


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What’s Old is New Again: Another Subsidy Program Being Considered by Legislature

Good for politicians and well-connected businesses, bad for Michigan

April 18 is tax day in America, and in Michigan it’s also the 22nd anniversary of a failed corporate subsidy program known as MEGA, or the Michigan Economic Growth Authority. Although it was repealed in 2011, MEGA continues to raid the state Treasury every year, wasting shockingly high amounts of taxpayer money in the process.

The previous administrations used MEGA to give some companies, including some of the largest corporations in the state, multiyear subsidy deals that cost Michigan taxpayers $1 billion in 2016 alone. The cash payouts for this year are projected to be $660 million, with little to show for any of it.

The state officially stopped handing out new tax credit deals in 2012, replacing it with a budgeted direct subsidy program. The MEGA program had a horrendous record, too. Now friends of corporate welfare are back and raring for more. This new scheme has many features of the old program. The essence of both programs is that they take state tax dollars collected from families and small businesses and give them to a tiny handful of politically well-connected developers and big businesses.

The new program would give away up to $250 million more over 10 years. Wasting money more slowly doesn’t make it any better an idea.

The new proposal (Senate Bills 242 to 244) is called “Good Jobs for Michigan,” and is dressed up to appear costless and a net benefit for all. But like all such selective corporate subsidy programs, it is designed to transfer money from small businesses and working families to a favored few developers and company owners, some of whom may already be millionaires and billionaires.

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Recipients would have to promise that the subsidized developments would never exist “but for” getting state cash. But there are many examples and empirical studies that show much of these developments would have occurred sans subsidies.

MEGA also demanded this and had other stipulations too, but it still failed to create net new jobs and wealth. Now some of the same individuals are involved in the new scheme, so perhaps, not surprisingly, there are yet more similarities between it and the proposed Good Jobs for Michigan (GJFM).* For example:

  • MEGA statute: “The plans for the expansion, retention, or location are economically sound.”
  • The “Good Jobs” bills: “The plans for the expansion or location are economically sound.”

The nonpartisan Senate Fiscal Agency points out the new bills do not define “economically sound.” It could mean anything, and in MEGA’s case, it meant nothing.

That’s no exaggeration: MEGA once approved a deal for a company that apparently existed only on paper, created by a convicted felon on parole for a financial crime. This company may have been fictional but it was still considered economically sound at one point by state bureaucrats. The MEGA never paid out, but that was in part due to the felon’s parole officer spotting him in press coverage related to the deal.

  • MEGA statute: “The expansion or location of the eligible business will not occur in this state without the tax credits offered under this act.”
  • The “Good Jobs” bills: “The eligible business would not have added certified new jobs without the withholding tax capture revenue payments authorized under this chapter.”

These “but for” provisions invite abuse, because such counter-factuals are ultimately unprovable. The provision is a cover story for politicians pretending the subsidies will create whole new jobs, businesses or industries that wouldn’t exist “but for” their favoritism. Subsidies to build electric vehicle batteries and produce films were recent Michigan programs that showed not even huge handouts can overcome economic reality.

  • MEGA statute: “A cost/benefit analysis reveals that authorizing the eligible business to receive tax credits under this act will result in an overall positive fiscal impact to the state. [Emphasis added.] (See identical language below.)
  • The “Good jobs” bills: “An industry-recognized regional economic model cost-benefit analysis reveals that the payment of withholding tax capture … will result in an overall positive fiscal impact to the state.” [Emphasis added.]

These analyses are purchased by economic development agencies from a cottage industry of consultants who exist the serve the agencies’ “budget justification” needs. They are generally not worth the paper they are written on, with methods and inputs that are easily gamed to generate whatever results the client seeks.

Their products are crafted to give the appearance of independent scholarly research, but in fact they frequently violate its canons. The methods are sometimes secretive, not transparent; they sometimes do not use public data sources; and rather than being independent, they have an inherent conflict of interest.

In some cases, the products are quickly dismissible. For example, an arm of Michigan State University was paid by the agency that runs most of these programs here, the Michigan Economic Development Corporation, to produce a paper on its film subsidy program. The university’s sure-fire method to demonstrate the program was a “big hit” was to exclude all its costs from the analysis. The summary might as well have read: “No cost; all benefits.”

Similarly, the MEDC also pays a consultant to calculate an alleged “return on investment” for millions of dollars spent on state tourism ads. Yet the claims are empty because the vendor refuses to disclose the details of precisely how it arrives at the fabulous figures it reports. Nevertheless, MEDC bureaucrats implicitly demand that legislators, the public and media just take their word.

But with millions of dollars in subsidies (and agency) salaries involved, the MEDC also uses sophisticated tools itself to paint a false picture of its programs’ outcomes. One is a software program called REMI, used by the agency to predict the supposed impact of the Michigan Business Development Program. No matter how big their computer, however, the model’s output is entirely invalid when the agency refuses to make public the assumptions their analyses are based on.

Such behavior should win these analyses scorn, derision and a hand-waving dismissal. Few serious policy analysts would take secretive and questionable products seriously, yet they are woven into the state laws authorizing business subsidy programs as if their conclusions have some real meaning. The reality is that such products produced by and for the MEDC are basically empty public relations gimmicks.

~~~~~~~~~

The MEGA law that appears to be the inspiration for the new proposal was originally intended as a narrow device to bring new industries that “but for” that subsidy might not come. In fact, some supporters of the old MEGA program are back and blurring the line between big business and big government in the name of “economic development.”

It’s not only the re-emergence of the same cheerleaders but also the symbiotic relationship between business and government they favor that should make Michiganders reject the recycled MEGA model. When you have a hammer everything looks like a nail, and when you’re an advocate for the interests of large corporations the economic development programs you support inherently tend to favor big business over broad-based economic freedom. Even with the best intentions from the people in charge, the signal that the Michigan’s economic development aristocracy sends to entrepreneurs is that their paths to success lie through lobbying government for subsidies, rather than serving customers.

This is both disturbing and sad. Selective business subsidy programs like MEGA have been extensively studied by academic economists who have found much evidence and offered many explanations for why they waste money and don’t work.

MEGA itself has been the focus of five independent analyses. Four of them (two by the Mackinac Center in 2005 and 2009) found a zero-to-negative impact. One study found a positive impact but it was small. A 2014 jobs count of the program by Michigan Capitol Confidential found that just 2.3 percent of MEGA subsidy agreements met their expectations, making the “company to add one hundred jobs” press releases an exercise in fiction.

Adding injury to insult, the program continues to cost Michigan taxpayers hundreds of millions of dollars a year, blowing unpredictable holes in our state’s budget

These programs are less about economic development than political development. They represent government elites working hand-in-glove with well-heeled business owners to advance the interests of both sides, not the public interest.

~~~~~~~

Senate Bills 242-244 have already passed the Michigan Senate and are now pending before the House Tax Policy Committee, which may take them up soon.

House Tax Policy Committee Members and Contact Information

Jim Tedder, R-Clarkston
David Maturen, R-Vicksburg
Martin Howrylak, R-Troy
Klint Kesto, R-Commerce Township
Peter Lucido, R-Shelby Township
Hank Vaupel, R-Fowlerville
Steven Johnson, R-Wayland
Bronna Kahle, R-Clinton
James Lower, R-Ionia
Wendell Byrd, D-Detroit
Sheldon Neely, D-Flint
Jim Ellison, D-Royal Oak
Abdullah Hammoud, D-Dearborn.


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So Long Film Subsidies

Back to the MEGA Future: Good Jobs for Michigan Reinvents Failed MEGA Program

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In 20 Years, Only Two Corporate Welfare Recipients Created 1,000+ Jobs

Some Recently Introduced Bills of Interest

April 14, 2017 MichiganVotes weekly roll call report

The House and Senate are out for a two-week spring break. Therefore, this report contains no votes but several recently introduced bills of general interest.


Senate Bill 59 and House Bill 4409: Authorize student loan tax breaks

Introduced by Sen. Curtis Hertel, Jr. (D) and Rep. Andy Schor (D), respectively, to authorize an income tax credit equal to 50 percent of the amount of student loan payments made by a resident (subject to some caps) who got a degree from a college or university in Michigan and is employed in the state. The credit would not be “refundable,” but would reduce an individual’s tax liability on a dollar-for-dollar basis. Referred to committee, no further action at this time.

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Senate Bill 81: Scrap national “Common Core” curriculum and tests

Introduced by Sen. Phil Pavlov (R), to cease all planning and actions related to adopting the national “common core” curriculum in Michigan schools and tests, and replace this with the curriculum that was in effect in Massachusetts during the 2008-2009 school year. This would be an interim step pending creation of Michigan content standards, which the bill proposes be adopted in five years. Referred to committee, no further action at this time.


Senate Bill 84: Ban discrimination based on not having a residence

Introduced by Sen. Bert Johnson (D), to establish in statute that the privileges and immunities associated with being a resident and citizen of this state and country apply equally to an individual who has no permanent mailing address. This would include the right “to use and move freely in public spaces, including sidewalks, parks, transportation and public buildings.” Referred to committee, no further action at this time.


Senate Bill 88: Let Detroit issue automated "photo cop" school bus citations

Introduced by Sen. Bert Johnson (D), to allow the Detroit public school district to contract with a private vendor to install and operate an automated traffic citation system to ticket motorists who illegally pass a stopped school bus, based on images collected by cameras attached to school buses. Fines would start at $300, rising to $1,000 for a third offense, and the money would go to the Detroit public school district (less the amount collected by the private vendor). The Senate passed a version of this bill last year with just three opposing votes, but the House did not take it up. Referred to committee, no further action at this time.


Senate Bill 91, and House Bills 4129 and 4310: Exempt feminine hygiene products from use tax

Introduced by Sen. Rebekah Warren (D), Rep. Rep. Brian Elder (D) and Rep, Scott Dianda (D), to exempt feminine hygiene products from sales tax.


Senate Bill 151: Ban "photo-cop” traffic tickets

Introduced by Sen. Mike Shirkey (R), to prohibit the use of automated, unmanned traffic monitoring devices for issuing traffic law tickets. A Michigan driver who was issued an automated ticket in another state would not get “points” on his or her license for automated traffic tickets issued there. Referred to committee, no further action at this time.


House Bills 4046 and 4376: Authorize 3-mill "sinking fund" property tax for school buses

Introduced by Rep. Robert Kosowski (D) and Rep. Aaron Miller (R), respectively, To allow school districts to levy a 3-mill “sinking fund” property tax for 10 years to buy school buses. These are a permanent funds that originally could only be used only for land purchases and the construction or (major) repair of school buildings, but a 2016 law expanded this to include school security measures and “technology” purchases. Referred to committee, no further action at this time.


House Bill 4053: Establish English as official state language

Introduced by Rep. Tom Barrett (R), to establish English as the official state language. This would apply to government activities, but not to private sector activity. It would require governmental documents, records, meetings, actions, or policies to be in English, but would not prohibit them from also being in another language. Referred to committee, no further action at this time.


House Bill 4105: Withhold state money from so-called “sanctuary cities"

Introduced by Rep. Pamela Hornberger (R), to prohibit local governments from adopting or enforcing a policy that limits officials or police from communicating or cooperating with appropriate federal officials concerning the status of illegal aliens. Cities would have notify police and other staff of their duty under the law, and notify the state they have done so. Jurisdictions in violation would not receive the optional, non-constitutional portion of state revenue sharing dollars. Referred to committee, no further action at this time.


House Bill 4108: Allow temporary speeding to pass

Introduced by Rep. Beau LaFave (R), to allow drivers who are passing another car on a highway to exceed the speed limit by up to 10 miles per hour while passing, except in a city or school zone. Drivers would have 10 seconds after passing to slow back down. See also House Bill 4062, which would require left lane drivers to get over for passing cars. Referred to committee, no further action at this time.


House Bill 4134: Prohibit mandating that licensed doctors also be “board certified”

Introduced by Rep. Edward Canfield (R), to prohibit state licensure authorities from requiring a physician to hold one of the various professional association board certifications. Some national organizations that make money from these certifications have been advocating that states mandate them. Referred to committee, no further action at this time.


House Bill 4146: Repeal Michigan’s Right to Work law

Introduced by Rep. John Chirkun and 32 other Democrats, to repeal the state’s right to work law for government and public school employees. Specifically, the bill would allow public employers to require employees to pay dues or fees to a union as a condition of employment. Similarly, House Bill 4147 would allow private sector employers to make workers pay the union. Referred to committee, no further action at this time.


SOURCE: MichiganVotes.org, a free, non-partisan website created by the Mackinac Center for Public Policy, providing concise, non-partisan, plain-English descriptions of every bill and vote in the Michigan House and Senate. Please visit http://www.MichiganVotes.org.


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