Senate Bills Would Bring More Transparency to MEDC

(Note: The following are the edited remarks of Kenneth M. Braun, Mackinac Center policy analyst, delivered Jan. 27, 2009, to the Michigan Senate Finance Committee.)

Hello senators and thank you for inviting me here today. I am from the Mackinac Center for Public Policy, a nonprofit, nonpartisan public policy research institution headquartered in Midland, Mich. We don't endorse or oppose legislation, but when asked we provide our perspective regarding what we believe a proposed policy change will accomplish.

I am here today because Sen. Cassis has asked us to comment on Senate Bills 71 and 72.

What I am going to share with you comes mostly from the work of Michael LaFaive, the Mackinac Center's director of fiscal policy. Mike is not here today, but I can make him available to answer any questions that you may have about his work if I cannot answer them.

I'd like to open with a quote about the future of the Michigan Economic Growth Authority:

"A year from now, our success in transforming Michigan's economy and generating jobs for Michigan workers will make any legislator think twice about reducing that 'job creation services' line item in the state budget."

Jim Epolito, outgoing CEO, Michigan Economic Development Corporation, October 2005.

More than three years later, Michigan's unemployment rate is the highest in the nation, has hit double digits and shows no signs of abating soon. Mr. Epolito is leaving, his replacement will doubtlessly provide us with another rosy projection for how the agency will transform the state, and the Legislature has indeed left that "job creation services" line item in the budget.

Our Mike LaFaive, and adjunct scholar Michael Hicks, wrote their historical retrospective of MEGA's first nine years. It too was published in 2005, the year of Mr. Epolito's predictions about the future of MEGA and the Michigan economy.

This exhaustive, sophisticated, peer-reviewed economic analysis found that the program had no impact on Michigan's per-capita personal income and did not improve Michigan's unemployment measures. At best, MEGA produced nothing of lasting economic value.

Within these general findings there are also many individual stories of MEGA's failures and basic unfairness. Mike offered to turn over his data to the Legislature so it could hire its own independent experts to peer review it and either confirm or attempt to reject the study's findings. He was not taken up on this offer, but the offer still stands.

Moreover, to our knowledge, the MEDC has still not publicly attempted to refute the findings of this study.

Needless to say, before deciding what to believe about MEGA, each of you should spend some time on the phone or in person with Mike, getting an independent analysis of the extraordinary claims made by this government agency. His warnings in 2005 have withstood the test of time far better than the agency's boasts of that same year.

As Mr. Epolito's quote would imply, measuring the effectiveness of MEGA is important, and that's what Senate Bills 71 and 72 are about.

In our research you will find many examples where MEDC's reported claims of job production do not cast a shadow when exposed to sunlight. There is even one example of a MEGA recipient disavowing the jobs claims made about them by the agency!

In Monday's MIRS newsletter, we saw the comical example of the MEDC claiming credit for winning the "State of the Year" award from Business Facilities magazine. That award was won on the basis of the MEDC self-reporting $14 billion worth of investment in the state to the magazine. But three-quarters of the total — $11 billion — was wrapped up in a deal between Dow and the Kuwaiti government that has now been cancelled.

Maybe if the Detroit Lions had self-reported their 4-0 preseason record to Business Facilities magazine, they too could have been given a championship. But in football as in economics, getting the real numbers is what matters. The Lions are a long way from playing in this weekend's Super Bowl, and Michigan isn't close to being the "State of the Year."

Having been the loudest voice pointing out MEGA's suspect reputation, no one recognizes more than the Mackinac Center that there is a need for truly independent tools to verify what impact, if any, MEGA has on Michigan's economy. Unfortunately, we have noticed deterioration in the number of measuring tools that once existed.

Prior to 2008, boilerplate budget language governing MEGA had included a directive that MEDC "shall work with the office of the auditor general to implement procedures to annually audit the number of jobs claimed to be created by firms." But as Mr. LaFaive revealed this past March, the word "shall" was changed to "may," seemingly leaving it up to MEDC's discretion whether their claims of success were open to more independent scrutiny.

In 2005, Mr. Epolito boasted of big results for MEGA by 2006, yet by 2008 you had compromised one of your few means of verifying that claim. The taxpayers of Michigan pay you to be more curious than that. Two of the bills before you today would go a long way toward putting that transparency permanently into law.

I'd like to end with a final note on taking special tax breaks.

The Mackinac Center's mission here is not to denounce the companies that take special tax favors offered by government. These companies have a fiduciary responsibility to their shareholders, customers and employees to limit their tax exposure by every legal means made available to them — even if the underlying public policy is flawed. The responsibility for the failure of MEGA belongs in these committee rooms, not in corporate board rooms, and it is you who should be looking for the information necessary to clean it up.

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Kenneth M. Braun is a policy analyst specializing in fiscal and budgetary issues at the Mackinac Center for Public Policy, a research and educational institute headquartered in Midland, Mich. Permission to reprint in whole or in part is hereby granted, provided that the author and the Center are properly cited.