A Rebuttal to the MEDC's Wall Street Journal Letter Part II

Yesterday, I published the first part of this essay illustrating how an MEDC letter-to-the-editor responding to a critical Wall Street Journal editorial illustrates the agency's pattern of using illegitimate rhetorical devices to avoid responding to the substance of serious critiques, including distractions, irrelevancies and non sequiturs. Here is the second part of the essay, deconstructing other statements in MEDC CEO Greg Main's letter.

Main: "Unlike other states, we are prohibited by law from offering up-front cash payments to companies."

While technically true, this is misleading because lawmakers have instead adopted a slew of cash subsidies that are paid in the form of refundable tax credits. The state's film incentive program is a case in point. It writes checks drawn on the state treasury that are equal to as much as 42 percent of a film producer's expenditures in the state.

Main's statement is also a misdirection play. Like the rest of the letter, it sidesteps the substantive point of the Journal editorial, which is the complete failure of the MEDC's selective subsidy and targeted tax break programs to improve Michigan's economy.

Main: "Michigan incentives are self-policing and performance-based, and no tax dollars are expended until these projects have delivered on the agreed upon investment and job requirements."

This is a misleading argument. First, with regards to the state's flagship "MEGA" tax-credits-for-jobs-produced program, he fails to mention that almost all MEGA deals include other incentives, some of which the firms can collect immediately, not only after jobs are actually created.

Second, a review of the minutes of MEGA board meetings shows that the Authority does not hesitate to change the terms of an existing tax break agreement in midstream, lowering the state's quid so that the company will still get its quo. At the very least, this results in a reduction of the benefits trumpeted by the MEDC press releases that accompany each new tax break deal. The practice is part of why MEGA has only delivered about 29 percent of the total jobs initially promised by its hundreds of individual agreements.

Third, MEGA can't prove that its beneficiaries weren't going to create the jobs here anyway, and only went shopping for targeted incentives after their plant location decisions were already made.

Fourth, many MEGA beneficiaries collected tax breaks and other incentives for jobs "created," only to eliminate those jobs later. Kmart collected $6 million in state tax relief and then declared bankruptcy, eliminated the MEGA and other jobs and left the state. How, exactly, is this "self policing and performance-based?"

Lastly, if Main is referring to all Michigan economic development programs and not just MEGA, then he is mistaken in claiming that they are "self-policing." The recently released Mackinac Center study, "Michigan Economic Development Corporation: A Review and Analysis," details a 2003 audit by the state's Auditor General office, examining a job-training subsidy program. We wrote, "Although the program had been alleged to have created 635 jobs, the OAG found that total employment had actually decreased by 222. The OAG criticized the MEDC for not independently verifying jobs claims ..."

The third and final installment of this essay will appear tomorrow.

Permission to reprint this blog post in whole or in part is hereby granted, provided that the author (or authors) and the Mackinac Center for Public Policy are properly cited.