MEGA Marks 15th Anniversary

Yesterday marked the 15th anniversary of the creation of the Michigan Economic Growth Authority, a business-tax credit and subsidy program designed to create new and keep existing jobs in the state. The Mackinac Center has published two rigorous analyses of MEGA: "MEGA: A Retrospective Assessment" in 2005, and "Michigan Economic Development Corporation: A Review and Analysis" in 2009.

Both studies found that the program had no impact on overall job creation in the state. The Mackinac Center is not the only organization to examine MEGA and find it lacking. Last month, the Anderson Economic Group found that the opportunity cost of the MEGA program — how much was lost by relying on this program rather than a particular alternative, such as an overall business-tax cut — was 8,200 jobs. That is, Michigan would have been better off economically if the state had just cut taxes for all businesses instead of operating a targeted tax break program.

A fourth MEGA study was released this month by the Upjohn Institute, this one slightly favorable. It uses a "conjoined input-output model" known as "REMI" to simulate the fiscal impacts that the program allegedly had on the economy and on government tax collections.

The authors conclude that MEGA incentives are a decisive factor in inducing economic development in slightly more than 8 percent of business site selection decisions. Even if one were to double this success rate, however, the program would "win" new jobs for Michigan at only slightly better than the rate at which the Detroit Lions won games last year (2 wins out of 14 games, or around 14 percent).

The authors also note that even with these small successes, the program still has a slightly negative effect on the state budget, averaging less than $4,000 per job per year. This figure actually understates the real cost of the program because with most tax credit deals come other, non-MEGA incentives.

The authors conclude that on balance, selectively handing out MEGA favors to particular businesses is more effective than alternatives.

It should be noted that the Upjohn authors disagreed with the two Mackinac Center MEGA studies. Michael Hicks, co-author of those studies, offered rejoinders to their criticism and their new paper in an essay, "MEGA Critique: A Response."

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