‘But For’ Can’t Be Proved: Corporate Welfare is a Waste

New MEGA not costless, despite assurances

State lawmakers are considering a new package of legislation that would provide fiscal favors to companies selected by Lansing bureaucrats for special treatment. Among the arguments made in favor of the program is that it is costless because without the incentive the jobs wouldn’t be created in the first place. In other words, it’s performance-based.

This was the same argument sold to skeptical lawmakers and others for the failed Michigan Economic Growth Authority program. It was known as the “but for” argument: But for these incentives the company would not have located here, therefore, these deals are a net plus for Michigan. This is not exactly true and this is explained in the blog article, “MEGA Tax Credits Are Not Without Cost,” and elsewhere.

We have dubbed the proposed legislation “New MEGA” for the similarities it has with the original MEGA law.

The fact is apologists for these corporate welfare programs can’t prove a business moves to or expands in Michigan because of these incentives. They just rely on the assurances of executives in front of whom they have dangled millions of dollars.

At a June 14 hearing about the proposed New MEGA, the same “but for” arguments were made. Watch the video to see all of them or read the sample below:

State Sen. Jim Stamas, R-Midland: “This is not a MEGA. This does not take other taxpayer dollars and put it somewhere else. This is about collecting the dollars from the jobs that are actually created within it.”

He also said, “On top of that please write down, if there’s no jobs, there’s no money. No jobs equals no money for anybody making that investment.”

State Rep. Peter Lucido, R-Shelby Township: “The only money that’s gonna be out is only money that would come as a result of a new job. The job doesn’t fit the mold we didn’t lose anything did we?”

Derek Nofz, Southwest Michigan First: “It doesn’t take any current money. You have to create new jobs. It is only new revenue coming in.”

None of these men attempted to prove that incentives truly made the difference. By contrast, testimony from economist Tim Bartik of the Upjohn Institute suggested that by one measure, only 6 percent of “incented location decisions” are tipped by the incentive. Any money handed out to companies that would have expanded, relocated or invested in Michigan without the extra, special tax deals is likely just a waste of money, from the perspective of taxpayers.

One analysis of the old MEGA program found that deals from 2005 through 2011 only delivered about 2.3 percent of their promised job creation. Five studies of the MEGA program have been performed and four found a zero to negative impact. One found a positive effect, though a small one. A study from Kansas about a program in that state with close characteristics to the New MEGA proposal showed that the program also did not create jobs.

Not a single proponent of this legislation presented scholarly evidence that New MEGA would actually work or perform better than its failed predecessors. It is just assumed that it will despite much evidence to the contrary. The proposal should not be adopted until its champions can prove otherwise.


Related Articles:

Return of the Mega Subsidy

New Corporate Welfare Proposal is Unfair

MEGA 2 Hearing Demonstrates Desperation

Cut Corporate Welfare to Help Balance State Budget

Will Republicans Backtrack on Corporate Welfare Cuts?

New Corporate Welfare Proposal is Unfair

'Good Jobs for Michigan' a repeat of failed MEGA program

Gov. Rick Snyder is hoping that a package of corporate handout bills already passed by the state Senate (Senate Bills 242-244) will likewise be adopted by the House as early as next week. The proposal reads a lot like the old, failed Michigan Economic Growth Authority that cost taxpayers billions of dollars with little to show, at the expense of perhaps more wisely funded programs.

The legislation represents another profoundly unfair attempt by Lansing politicians to transfer wealth from the many to a few elites. This philosophy that favors corporations over everything else is not only unfair, it is ineffective and should be rejected. We should return to a “fair field and no favors” approach to economic growth.

The legislation would give a few cherry-picked corporations a percentage of the tax revenue that new employees would normally pay to the government. This means tax dollars that might be used to benefit all Michigan residents will only benefit politically connected, large corporations.

While this funding mechanism is a relatively new way to give corporate handouts in Michigan and differs from the way favors were paid out via the old MEGA program — in that case, via tax credits — this so-called “Good Jobs for Michigan” is basically MEGA 2. The new bill’s text contains 12 instances of identical or near-identical language and concepts from its predecessor.

Regardless of the way favors are distributed, such bills represent a forced transfer of wealth from the many to a few. As the Mackinac Center has argued many times, government has nothing to give anyone it doesn’t first take from someone else. This program could in effect redistribute $200 million over ten years, though future lawmakers can always expand the handouts once the program is in place, just as they did with the original MEGA law.

Such transfers do more than provide special fiscal favors for the benefit of big businesses. They also place at a disadvantage potential competitors who were not fortunate enough to get government goodies. Imagine working day and night to grow your family business only to discover that Lansing bureaucrats have offered your tax dollars to a competitor. Few things seem more unfair.

Yet despite this, some still say this legislation is basically costless. They say that without this bill and its subsidies, the selected companies would not create jobs or create them here, so the diverted/gifted tax revenue wouldn’t be generated anyway. But they can’t prove this.

They are simply relying on the word of corporate executives in front of whom they have dangled millions of dollars in incentives and the development agencies interested in handing out the loot. This way of thinking is naïve and not backed by evidence.

In 1995, one of the first MEGA deals ever struck went to the Walden Book Company, Inc. Company executives were required by law to say that it was MEGA that made the difference in their decision to move to Michigan. Yet reporters learned that the company president had put down a deposit on a home in the Ann Arbor area before MEGA was ever approved. The company was likely coming here anyway and just went shopping for state favors, which lawmakers gave it. It went on to file for bankruptcy in 2011, ultimately erasing jobs allegedly created by MEGA. “Costless” indeed.

In addition to being unfair, these programs are ineffective. A 2014 analysis of a similar program in Kansas revealed that companies who received favors created no more employment than like companies who had not. The Michigan MEGA program has been analyzed five times by scholars and four of the studies showed the program has had zero positive impact, or even negative impact, on the economy. Only one study found a positive impact, but only a small one.

The absence of hard, empirical evidence proving programs such as MEGA 2 will be effective highlights a cold truth about those working to pass the legislation. Their worldview, or philosophy, seems to be a corporatist one, where politically favored companies matter most and they get to play by different rules than everyone else.

So, what is the alternative? Economies have been developing themselves for millennia, free of government intervention. The people of Michigan have been founding good businesses that create good jobs without government tax tomfoolery since before we were a state. If the government simply got out of the way and stopped taking money from some of us to give to a few politically-connected friends, we’d create even more and we’d all be better off for it.


Related Articles:

Return of the Mega Subsidy

‘But For’ Can’t Be Proved: Corporate Welfare is a Waste

MEGA 2 Hearing Demonstrates Desperation

Cut Corporate Welfare to Help Balance State Budget

Will Republicans Backtrack on Corporate Welfare Cuts?

Paris Was a Bad Deal for the US

Greens agreed with Trump on Paris before he pulled out

After President Trump’s decision in June to withdraw the United States from the Paris climate agreement, various environmental groups, celebrities and politicians engaged in a string of hysterical condemnations. Former President Barack Obama characterized the decision as an “absence of American leadership,” while former Vice President Al Gore called it “reckless and indefensible.”

Billionaire activist Tom Steyer, who ironically made much of his money in international coal markets, referred to Mr. Trump’s decision as atraitorous act of war against the American people.” An environmental special interest group, Friends of the Earth U.S., demanded that all nations “assert heavy economic and diplomatic pressure to compel the Trump administration to take serious climate action.” Environmental activist and author Bill McKibben called the move a “repudiation of two of the civilizing forces on our planet: diplomacy and science.”

Media reports from the recent G-7 meeting of environmental ministers in Italy ladled it on further, worrying that in the wake of the Paris decision, the U.S. is becoming increasingly isolated in the world climate arena. This disturbing isolation was apparently confirmed when EPA Administrator Scott Pruitt declined to sign on to a string of 18 climate-focused paragraphs in the meeting report.

Of course, it isn’t surprising that other nations are upset with the United States for pulling out of the agreement, since U.S. taxpayers were expected to foot much of the bill. Furthermore, the more we hinder our economy with restrictive environmental rules, the better able other nations are to compete with us in international markets.

The Paris agreement, which was approved by the Obama administration in December 2015, committed the United States to a 28 percent reduction of greenhouse gas emissions by 2025, based on a 2005 benchmark. The agreement further committed the U.S. to pouring billions of dollars into a UN-administered Green Climate Fund. It also required us to submit new plans for increasingly strict reductions of greenhouse gas every five years.

But while we limit our ability to compete internationally and pour billions more into the UN’s coffers, our major competitors in world markets – China, India, and Russia – really only agreed to continue growing their economies, unencumbered by any need to cut energy use, for the foreseeable future.

Attacks from environmentalists and activist climate researchers are also confusing, given that so many of them also attacked the Paris agreement as a farce when it was signed in December 2015. Today they claim the agreement is practically essential for life on earth to continue, but in December 2015, the so-called father of global warming, James Hansen, described the agreement as a fraud.

McKibben panned the agreement as being 20 years out of date – better suited to 1995 than 2015. He also argued that the agreement fell short because it was designed to do only just “enough to keep both environmentalists and the fossil fuel industry from complaining too much,” as it agreed to unenforceable, modest and voluntary pledges instead of strict and mandatory cuts in greenhouse gas emissions.

In reality their initial critiques of the agreement were correct; Paris did fall short. But not necessarily in the way these green critics thought. If followed to the letter, the agreement would have only slowed predicted worldwide warming by a nearly imperceptible 0.2 degrees Celsius in 2100, according to researchers at the Massachusetts Institute of Technology.

Paris was a bad deal for our country. It would have had little to no real environmental impact, it would have soaked up billions in limited tax dollars, and it would have given our major economic competitors a substantial competitive advantage over us.

The United States has achieved greater cuts in greenhouse gas emissions than any other developed nation in recent history. We have better environmental performance and are economically better off without this unnecessary restraint.


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A Map of Michigan Commute Times

Where do people make the longest drives to work?

The people who live in the outer ring of Detroit suburbs, especially areas like Lapeer and northern St. Clair County, have the longest drives to work in Michigan.

The Grand Rapids area does not see as long of commutes on average, though there are some areas in Newaygo County where people make longer commutes.

The Census Bureau reports that Cedarville Township in Menominee County technically has the longest commutes in the state, averaging 53.1 minutes. With just 247 people in the township and a large margin of error, take the numbers with a grain of salt.

See the map below for the average length of a commute in each city, village and township in Michigan and some other information about commuters.

Median Commute Times by Township/Municipality

 

Source: U.S. Census Bureau


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In Remembrance on Independence Day: William T. Wilson, Ph.D.

Economist once paid steep price for intellectual honesty

Dr. William Wilson, former senior policy analyst with the Mackinac Center for Public Policy, died last April of cardiac arrest, according to his official obituary. He was 54. Bill Wilson was a longtime friend to the Mackinac Center, a talented scholar and economist and recipient of the Mackinac Center’s Lives, Fortunes and Sacred Honor Award.

It seems only fitting that we wish an old colleague goodbye on Independence Day, that sublime day in U.S. history when this nation chose to set itself apart from England and declare itself free and independent.

Originally from York, Penn., Wilson attended Towson State University in Maryland before earning both a master’s degree and doctorate in international economics from Purdue University. Wilson eventually taught at Purdue as well as at Ohio Northern University and the University of Glasgow before joining Comerica Bank at its then corporate headquarters in Detroit. It is during his time at Comerica Bank that Mackinac Center employees befriended this good man and ultimately asked him for a favor that would change his life.

Wilson was a regular at many Mackinac Center functions and provided assistance as needed for the “Ask the Economist” feature of our early web site. Ask the Economist was a module that allowed students of economics to ask broad questions of Center scholars. In addition, he published everything from short “Viewpoint” commentaries on subjects as varied as Social Security and the International Monetary Fund to Michigan Renaissance Zones to the Mackinac Center’s first study on the economic impact of adopting right-to-work laws.

It is in regard to this latter subject that the Mackinac Center turned to Wilson in 1999 when it needed a scholar to testify on the topic before a state committee in Lansing. Wilson agreed to testify. He told us the room was packed with an audience that was strenuously opposed to right-to-work. After his testimony, Wilson was informed that he would be let go from his job at Comerica. Apparently, unions that kept their money on deposit at his bank were organizing large withdrawals in response to Wilson’s testimony about the positive economic development aspects of right-to-work laws.

Wilson’s termination led him to find new work in Chicago as chief economist for the business consultancy Ernst and Young. Eventually, his work would lead him to live in Kuwait, China and Moscow. It was this latter home from which he traveled in early 2013 when the Mackinac Center hosted a small party in Lansing to celebrate the adoption of Michigan’s right-to-work law the year before, 14 years after Wilson had testified in support of the idea.

We asked Wilson to say a few words to our audience at this event and on his way to the podium he noticed a Comerica Bank branch across the street. This prompted him to recount for our guests the story of his firing from Comerica. Pausing for effect he concluded by saying he was here in Lansing, “From Russia, with love.” The audience, including the authors, roared with laughter and approval.

Wilson’s contribution to the right-to-work debate, and ultimately the adoption of the law, should never be lost to history. Recognizing the special role played by him, the Mackinac Center gave him its prestigious Lives, Fortunes and Sacred Honor Award, and a plaque denoting as much hangs in the Mackinac Center’s Midland headquarters. It reads:

Dr. William T. Wilson has earned the Lives, Fortunes and Sacred Honor award for his courageous defense of free labor markets in testimony before the Michigan Legislature and in the press.

His principled analysis incurred the wrath of organized labor and ultimately cost him a job, even though his calls for an end to compulsory unionism find support among legions of Michigan workers.

David Littmann, his former Comerica Bank colleague, described Bill as “a principled, top-notch economist scholar and friend” and we couldn’t agree more.

The world lost a talented economist and good man last April in William T. Wilson. His legacy will live on in his published research, interviews, testimony and in his comments that ultimately helped see a right-to-work law adopted in Michigan.

People in the Great Lake State are a little freer this Independence Day because of Bill Wilson’s contributions. The staff feel privileged to have known him.


Related Articles:

Americans are Moving to Right-to-Work States

West Virginia House Vote Could Tip National Scale on Right-to-Work

Another Judge Upholds Teachers’ Right-to-Work Status; Faults Union’s Tactics

Watch Vernuccio Discuss Labor Reform at Heritage

Wright Discusses Right-to-Work Decision with State Media

Return of the Mega Subsidy

Corporate welfare still demonstrably ineffective

Less than five years after Gov. Rick Snyder and the Legislature pulled the plug on the state’s Michigan Economic Growth Authority corporate handout program, many Lansing politicians are eager to increase the size and number of favors they can provide.

The governor is pressing for a July 12 vote by the Legislature on a new MEGA of sorts that will give politicians one more device for providing financial favors to a favored few. Legislators should not agree to this. Such programs are demonstrably ineffective, expensive and unfair.

Senate bills awaiting action in the House and sold as “Good Jobs for Michigan” amount to a state tax “capture” program that allows a lucky few corporations chosen by state bureaucrats to enjoy special tax treatment under the law. This is the new part of the proposal. The rest reads like a cut-and-paste job from the original MEGA law, passed in 1995.

For instance, both the old MEGA law and new jobs proposal contain language that 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.” Yet this promise is empty.

By one estimate, only 2.3 percent of MEGA deals met their original promises from 2005 through 2011. There have been five formal studies done on the program and four showed a zero-to-negative impact despite spending billions. In 2016 alone, MEGA cost the treasury $1 billion, roughly equal to all the money generated by the state’s corporate income tax payers.

MEGA is not the state’s only failed attempt at job creation and business and industry attraction. The state wasted $500 million subsidizing Hollywood. It spent more than $14 million on rural broadband deployment through a program that was supposed to create 500,000 new jobs by 2010.

Studies by university scholars published in academic journals also largely take a dim view of state and local economic development programs. One 2014 study of the Promoting Employment Across Kansas initiative is particularly noteworthy. Kansas operates a state tax capture scheme similar to the Good Jobs proposal. Scholar Nathan Jenson examined the program and found that firms which received incentives under the PEAK program were no more likely to create new jobs than like firms which had not gotten tax favors.

Another study worth mentioning is a 2004 analysis of academic literature reviews about state and local economic development programs. The authors, Peter Fishers and Alan Peters, titled their review “The Failures of Economic Development.” These scholars report, after noting hundreds of studies have been done on the subject, that claims that economic development programs spur growth or are a fiscal plus for governments operating them are probably false.

No scholarship to my knowledge has been cited in favor of the new Good Jobs for Michigan proposal, although proponents had the chance to do so at a June 14 House Tax Committee hearing.

Despite 14 people testifying in favor of the bill — the proposal’s primary sponsor, a mayor, and economic development officials, not one offered any evidence aside from personal anecdotes. Nor did any explain how this program would be a success where other programs — such as the MEGA program, several admitted — had failed. Lawmakers should reject this parade of corporatist philosophy and make decisions based on rational arguments that are steeped in scholarly evidence.

The Good Jobs for Michigan proposal should go the way of MEGA, film subsidies and rural broadband deployment before it has the chance to do any damage.


Related Articles:

‘But For’ Can’t Be Proved: Corporate Welfare is a Waste

New Corporate Welfare Proposal is Unfair

MEGA 2 Hearing Demonstrates Desperation

Cut Corporate Welfare to Help Balance State Budget

Will Republicans Backtrack on Corporate Welfare Cuts?

Note: The House and Senate are adjourned until July 12 (at the earliest). There will be no Roll Call Report next week (July 7).The Roll Call Report will resume July 14.

House Bill 4759, Sell Senate's former office building in Lansing: Passed 26 to 9 in the Senate

To sell the former state Senate office building in Lansing for fair market value. Last year the Senate moved into a new building acquired through a lease-purchase agreement that reportedly will cost taxpayers more than $134 million over 30 years.

Who Voted "Yes" and Who Voted "No"


House Bill 4759, Sell Senate's former office building in Lansing: Passed 107 to 0 in the House

The House vote on the bill described above.

Who Voted "Yes" and Who Voted "No"


Senate Bill 274, Restrict opioid prescription quantities: Passed 36 to 1 in the Senate

To restrict the amount of opioid pain pills a doctor may prescribe to a seven day supply for acute conditions and 30 days for chronic ones.

Who Voted "Yes" and Who Voted "No"


Senate Bill 270, Require bona fide prescriber-patient relationship” for opioid prescription: Passed 37 to 0 in the Senate

To require a doctor have a “bona fide prescriber-patient relationship” before prescribing opioid and other painkillers that are subject to abuse.

Who Voted "Yes" and Who Voted "No"


House Bill 4559, Let beer and wine cartel members hold tastings for staff: Passed 37 to 0 in the Senate

To permit the handful of members in the state-protected beer and wine wholesale and distribution cartel to hold educational product sampling sessions for employees.

Who Voted "Yes" and Who Voted "No"


Senate Bill 160, License Polaris “Slingshot” type vehicles as a motorcycle: Passed 68 to 39 in the House

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 248, Create World War I centennial commission: Passed 105 to 2 in the House

To create a state World War I centennial commission that would plan and encourage activities to commemorate the centennial of World War I. Also called The Great War, WWI was the first fully “industrialized” war. It began in August of 1914 and ended on November 11, 1918; the United States entered in April 1917. The Senate approved the bill unanimously in April.

Who Voted "Yes" and Who Voted "No"


House Bill 4355, Ban police sex with prostitutes: Passed 93 to 14 in the House

To repeal an exemption that allows police to have sex with a prostitute as part of an investigation.

Who Voted "Yes" and Who Voted "No"


House Bill 4584, Mandate giving spina bifida information to new parents: Passed 64 to 43 in the House

To mandate that a physician or other medical provider give an expecting mother or new parent specified information about spina bifida if this is detected in a fetus or newborn. Opponents were concerned that these tests produce a large number of false-positive results.

Who Voted "Yes" and Who Voted "No"


Senate Bill 245, Repeal switchblade ban: Passed 106 to 1 in the House

To repeal the state law against owning, selling or possessing a switchblade knife. Reportedly the ban is outdated and unevenly enforced.

Who Voted "Yes" and Who Voted "No"


House Bill 4170, Authorize more comprehensive "Do Not Resuscitate" type forms: Passed 106 to 1 in the House

To authorize a process for creating a standardized form for individuals to express their wishes regarding medical treatment and end of life care, which is called Physician Orders for Scope of Treatment (POST). This would be like the current Do Not Resuscitate form but with more details.

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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The Model Facade: Selling Jobs to the Public, Press and Policymakers

History shows models are used to obscure costly, ineffective programs

“The models are used in ways that systematically exaggerate the public benefits of proposed government projects, thus biasing government decision making in the direction of excessive government spending and expansion into areas that should be left to the private sector.” – Edwin Mills, author of “The Misuse of Regional Economic Models.”

Legislation up for consideration (Senate Bills 242-244), colloquially known as “Good Jobs for Michigan” or “New MEGA,” contains a mandate that the state employ “an industry-recognized regional economic model cost-benefit analysis [that] reveals [that] … [the program] … will result in an overall positive fiscal impact to the state.” This means nearly nothing as state-bought analyses can and have failed to accurately predict and measure impacts and are at times steeped in secrecy or used mischievously.

The “industry-recognized regional economic model” is almost invariably (should the proposal become law) going to be “REMI,” which stands for Regional Economic Models, Inc. I say this with some confidence because the state has for years wielded this computer model in its service directly and also indirectly through the consultants it hires. The model was employed to estimate the jobs and revenue impacts of the state’s failed Michigan Economic Growth Authority projects (which are maintained online here), the state’s film subsidy program and the current and secretive Michigan Business Development Program analyses.

Like the current proposal, MEGA law mandated a cost-benefit analysis to ensure that each project would be a net plus for Michigan. We now know from hindsight that the vast majority of these impact analyses were profoundly inaccurate. This was a function of one deal after another not living up to expectations. The model’s output is only as good as the accuracy of the modeler's input assumptions, or what the modeler tells the computer about a project. In other words, and in a supreme twist of irony, the models can’t accurately predict the future because the model’s operators can’t accurately predict the future.

Consider just two of many examples: Webvan.com and Kmart. The REMI analysis performed by the state reported that Webvan Group, Inc., would employ 900 people directly at its Livonia location by 2004 and a total of 1,200 in the state by 2015 while increasing tax revenue to the Michigan treasury by $27.3 million. This, if only the state would offer up millions in incentives through the MEGA program. The state did give Webvan these tax breaks but the jobs never materialized. Just over a year after being declared a MEGA winner, the company was no more.

Kmart was given its second MEGA deal less than 17 months before it declared bankruptcy. The company later moved its headquarters to a different state. The REMI model reported that the Kmart deal would create 753 jobs in Michigan by 2013 and provide a net tax gain to the Michigan treasury of $27.2 million. But this never happened.

From 2005 to the time it closed in 2011, only 2.3 percent of MEGA’s projects met their job creation expectations. The most generous accounting reports that MEGA was responsible for about 19 percent of all direct jobs it had said it would create. Five empirical studies have been done on the overall program and four found a zero-to-negative impact from the program.

This suggests that a mandate to perform such analyses ultimately counted for little-to-nothing save for the public relations surrounding alleged jobs that would be created. Previous administrations reported the REMI jobs output with a verve and passion and many news agencies simply reported the claims without a hint of skepticism. They should not have done so.

The state mandate for MEGA and the Good Jobs for Michigan proposal does not mandate an opportunity cost-benefit analysis. The REMI analyses are not required to investigate alternative uses of precious resources, either from spending on a different basket of public goods or an across-the-board tax cut. What if, instead of handing out goodies to one company, the REMI analysis projected the economic impact of a tax cut for all? The Anderson Economic Group once made such a calculation for the MEGA program and found that an across-the-board tax cut would have created more jobs on net balance than MEGA.

Regional models can also be used irresponsibly. For instance, the Michigan Economic Development Corporation once hired Michigan State University consultants to estimate the impact of their new film incentive subsidy program after its first year. The consultants likewise employed REMI to make their estimations. They failed to note in their report, however, that their estimations did not include any of the costs associated with the program. That’s not how the real world works. Everything has a cost. Yet this study was released and pointed to as evidence of the film subsidy program’s success.

The state’s corporate welfare machine, the MEDC, has also used REMI models to forecast the impact of its subsidies to corporations under the Michigan Business Development Program. This replaced the now defunct MEGA. The MEDC claims that the development program forecasts a return on investment of more than $8 to $1. It refuses, however, to make public the input assumptions it fed into the REMI model for review. In other words, MEDC officials are just expecting everyone to take their word that their programs are successful. It is naive to do so when you consider the MEDC’s own incentive to engage in self-aggrandizing puffery.

I’m hardly the only person to notice the use (or misuse) of these types of models as a justification for an otherwise unwarranted intrusion in the marketplace. Edwin Mills, professor emeritus at Northwestern University, wrote a classic takedown of such models titled, “The Misuse of Regional Economic Models.”

He examined the use and misuse of REMI by governments and their consultants. He noted that deploying models like REMI can be effective because “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.” Carrying the day is precisely what state jobs officials are trying to do. Using REMI or another regional model provides economic air cover for corporate handouts.

John Crompton, a distinguished professor at Texas A&M University, published a 2006 paper titled, “Economic Impact Studies: Instruments for Political Shenanigans?” and argued that economic impact studies “are commissioned to legitimize a political position rather than to search for economic truth. Often, this results in the use of mischievous procedures that produce large numbers that study sponsors seek to support a predetermined position.”

A mandate that forces bureaucrats to employ a particular type of model to estimate the benefits of particular policies should serve as a warning to lawmakers, not a signal that all is well. Past model use (or abuse) by state officials has shown that these models are used to help obscure the fact that such programs are costly and ineffective.


Related Articles:

Return of the Mega Subsidy

MEGA 2 Hearing Demonstrates Desperation

New Corporate Welfare Proposal is Unfair

‘But For’ Can’t Be Proved: Corporate Welfare is a Waste

Cut Corporate Welfare to Help Balance State Budget

The Allure of Corporate Welfare

The Double Standard in Environmental Protection: A Reprise

Delving further into sewage system failures

Downtown Midland, Michigan

Last week, several areas in Mid-Michigan experienced heavy rains and near-record flood conditions. As the rain fell and water levels rose, basements began to fill with water and untreated sewage from the area’s overloaded sewer systems. Throughout the streets of Mid-Michigan towns, the impacts are clear. Sewage and water damaged carpet and furniture; boxes of ruined property are piled high on city streets, waiting for sanitation crews to pick them up.

This unusual and unfortunate weather event coincided with research being carried out at the Mackinac Center. In November 2016, we had discovered what appeared to be a clear double standard in environmental protection. When private industry harmed the environment, it was (rightly) met with fines, regulatory penalties and a great deal of media attention and condemnation. When governments harmed the environment, on the other hand, their actions were met with a collective shrug of the shoulders.

For example, in 2010, when an Enbridge pipeline leaked over 1 million gallons of crude oil into the Kalamazoo River, the company faced a $177 million settlement. In 2014, the cities of Michigan released 11.56 billion gallons of untreated sewage into public waterways, including the Great Lakes. At the time, we believed the government agencies responsible for the damage faced little to no consequence for their actions.

But a deeper look at the situation uncovered a surprising — and at least partially reassuring — truth. At the enforcement level, the double standard we had highlighted earlier does not appear to exist, or, at least, should not be inferred from these types of examples. The key information comes from the history of Michigan wastewater management: how wastewater spills compare to industrial spills, and the enforcement actions taken in response.

Let’s start with the billions of gallons of raw sewage released into Michigan’s environment by government-run water systems. Contrary to what many would think, these discharges are not accidental. They are an intentional and designed response to naturally occurring phenomena.

In times of heavy rainfall, sewers fill, and if enough water enters the system, they reach their capacity and overflow. To avoid sending human waste on a roundtrip — back into our homes — sections of municipal sewer systems are actually designed to release sewage into lakes and rivers. These design features are known as outfalls.

So, this is a conscious decision on the part of sewage system planners and managers — and the public who employ them, meaning taxpayers. Faced with an either-or decision regarding potential damage from sewage overflows, we effectively choose to protect our personal property over our natural environment. But this is no small choice to make, as published research indicates that Michigan’s “recreational beaches are being adversely impacted by human fecal pollution,” leaving nine to 15 swimmers per 1,000 at risk of acquiring a viral infection each season.

Email discussions with researchers at Michigan State University also indicated that there are hundreds of disease-causing pathogens in sewage. Those pathogens can cause a variety of acute and chronic gastrointestinal and respiratory diseases. As many as 13 million cases of illness per year result from contact with infected surface water systems in the U.S.

So back to the double standard. Private industry actors clearly pay a hefty fine when they spill. But do municipalities that operate sewer systems designed to release disease-causing sewage into lakes and rivers simply go free? The short answer is no.

Michigan’s state and municipal governments have spent the last 30 years working to redesign sewer systems to help minimize the impacts of outfalls. In 1988, Michigan implemented a strict sewer overflow policy to limit the amount of sewage being diverted from houses into lakes. At the time, state employees found 80 systems, containing 613 outfalls, that had repeatedly discharged untreated wastewater. By 2015 — 27 years later — the total number of outfalls had decreased to 124. That’s a reduction of nearly 80 percent. As a result, the entire state of Michigan now releases only half as much untreated sewage as the city of Detroit did by itself in 1988.

While the state’s overflow policy did acknowledge that having zero sewage releases a year was an impossibility, state regulators still set minimum standards. When those standards are violated, some form of enforcement or remediation action is taken, regardless of whether the violation came from a municipality or a business.

Take the nearby city of South Bend, Indiana, where the wastewater facility annually dumped 600,000 pounds of euphemistically renamed “suspended solids” into the St. Joseph River. That river runs past the Michigan cities of Niles, Buchanan, Berrien Springs, St. Joseph and Benton Harbor and then into Lake Michigan. The city’s spills were above permitted levels, so South Bend was legally required to make $509.5 million worth of improvements — significantly more than Enbridge’s $177 million settlement. The authority to demand these improvements exists in the federal Clean Water Act, under which a roughly 50-50 split between actions has been taken against municipalities and private businesses.

Enbridge made the improvements and cleaned up its spill, but what happened to South Bend? The improvements scheduled under the Clean Water Act aren’t due to be completed until 2031, and South Bend’s city council reports the cost of improvements has ballooned to $861 million. So, the environment will be protected, but it will be a long, drawn-out and expensive process, and the bill must be paid by state and local taxpayers.

Every municipality in Michigan is engaged in a long-term plan, like South Bend’s, to meet federal standards for water quality. We’re doing much better, but we’re not there yet. It’s essential to recognize that the process takes time and a lot of money.


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New corporate welfare proposal gets hard sell in tax committee

Forty.

That is our count for the number of times a group of 14 lobbyists and a handful of Republican lawmakers referred to corporate welfare as a needed “tool” (or some variation thereof) at a state House Tax Policy committee hearing on June 14.

In this instance, corporate welfare means unelected bureaucrats at the Michigan Strategic Fund or Michigan Economic Development Corporation picking and choosing select large companies with at least 250 new employees to bestow up to $200 million in tax incentives over the next decade — foregoing revenue that would otherwise go to state government.

Advocates dismissed most criticism of the proposed laws, colloquially known as “Good Jobs for Michigan,” as merely philosophical or theoretical opposition. They regurgitated the same buzz words that accompanied the passing of Michigan’s prior major tax-incentive scheme, the infamous Michigan Economic Growth Authority program.

Perhaps the only thing more common than the utterances of the word “tool” during the testimony was the agreement that MEGA was indeed a failure, always followed by assurances that this package of bills was no MEGA.

“We don’t have a tool such as MEGA’s, and quite frankly, I’m not sad that they’re gone or that we stopped them,” said bill sponsor Sen. Jim Stamas, R-Midland. “We’re still paying though.”

MEGA, now being phased-out, was a multibillion-dollar program that doled out business subsidies. Taxpayers were on the hook for an estimated $1 billion in 2016. One tally indicates that only 2.3 percent of all MEGA deals lived up to their billing.

Five scholarly studies have been done about the program over its life and four found a zero-to-negative impact. It’s no wonder Stamas and others worked so hard to distance this corporate welfare proposal from MEGA.

Furthermore, despite assurances to the contrary, previous Mackinac Center research demonstrates the old MEGA and the proposed Good Jobs for Michigan program share at least 12 instances of identical or near identical language and concepts. The only major difference is the mechanism by which fiscal favors to a favored few corporations will be delivered.

The proposal itself is another “jobs” program that stands on the shoulders of MEGA and other corporate welfare boondoggles across the nation. The Kansas PEAK program is perhaps most similar to the one being proposed in Michigan now. A 2014 study about PEAK found no evidence that program recipients created more jobs than similar businesses who had not received subsidies.

The proposed Good Jobs program should not be adopted. It is unfair to hand out goodies to those chosen by a handful of government appointees, and there is no data-based evidence (anecdotes don’t count) to suggest it would be effective.

Despite the four hours of testimony, not one person who asked for the state to provide an additional tool expressed any concern that it may not be an effective tool.

It seems to be assumed the proposed program will create jobs that otherwise would not exist — and that it would be costless, too. Not a single person testifying in favor of the legislation cited any study from any scholar on the subject as evidence that the new program would work as advertised.

Indeed, when pressed about a study of incentive programs by the Upjohn Institute of Kalamazoo, one guest simply dismissed the study as being philosophical rather than addressing any specific concerns. That seems to be the new talking point distributed around Lansing: proponents of corporate welfare dismissing criticism by arguing opponents are only philosophically or ideologically opposed.

The insinuation is that there is no practical reason for being opposed to such legislation. This is nonsense. There are loads of empirical reasons why lawmakers ought to be skeptical of this program.

One needs not to delve deep into Michigan’s past to find evidence that the state’s attempts to pick winners and losers in the marketplace has been ineffectual. The MEGA program, film subsidies and broadband deployment were all colossal failures of state incentive programs.

These alone should be reason enough not to try the state’s hand at more.

When is enough, enough? How many programs are needed to achieve jobs nirvana? How many individual deals must be struck?

No proponent of the Good Jobs for Michigan was interested in providing an answer to any of the above questions, while they seemed oblivious to the actual nature of job creation in the state.

The market has been creating jobs long before government officials ever presumed it was their responsibility to try to do likewise. It will continue to do so. Every quarter, Michigan gains and loses about 200,000 jobs, with slightly more gained than lost as of late. Michiganders accomplished this and reached a projected May unemployment rate of 4.2 percent without the Good Jobs corporate welfare scheme in place.

Businesses that receive special tax incentives represent a fraction of a fraction of the actual jobs in the state. Moreover, it is estimated at least 94 percent of businesses that received incentives would have remained in or relocated to the state even without tax incentives.

A better solution is to end all of the state’s incentive programs and return the money to the taxpayers who earned it in the first place. No special favors to special interests. After all, if tax cuts are good for a few select businesses and corporations, why aren’t they good for all of them?


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