Run From the Border(s)

On April 20, 1995, three firms were selected by state bureaucrats and political appointees to be the first “winners” of a new discriminatory tax break program championed by Gov. John Engler, the “Michigan Economic Growth Authority.” One of those firms, Waldenbooks, better known today as Borders, announced Monday afternoon that it will close its doors forever and liquidate its assets. Borders is hardly the first MEGA “winner” to come out a loser, but perhaps it’s the most noteworthy.

MEGA originated as a scheme to grant selective business tax breaks to firms that promised to locate in Michigan or expand current operations here. Critics argued that, among other shortcomings, many of these companies would have come here even without the program. Engler administration officials responded that company executives had to affirm in writing that MEGA made the difference in their site selection decision. Borders execs duly signed that affirmation.

"Not only can we prove interstate competition, we require the company to sign a certification form . . . endorsed by a high ranking official at each company, (which) states, ‘I hereby certify that the expansion or location of the eligible business will not occur in this state without the (MEGA) tax credits . . .’" Doug Rothwell, Director of the Michigan Economic Development Corp., 1995

Weeks after the Borders announcement, The Ann Arbor News reported that even before the Legislature had passed the MEGA law, company executives had already made down-payments on Ann Arbor area homes. In other words, in MEGA’s first round of targeted tax break hand-outs, one of the firms had engaged in the very gamesmanship the critics had warned of: Borders was coming to Michigan anyway, and the preferential tax treatment had little or nothing to do with that decision. Nonetheless, the firm was allowed to keep its tax breaks.

The lesson here was two-fold. First, government officials can never know if the incentives they dangle before selected firms are necessary. Second, there is no reason to think state bureaucrats will perform better when risking other people’s money than private investors do with their own capital.

Over the years, MEGA evolved into outright corporate welfare subsidy checks, and thankfully, Gov. Rick Snyder has reined-in some of that. He should go further and liquidate both MEGA and its bureaucratic parent, the Michigan Economic Development Corp., which continues to preside over the remaining provinces of this state’s corporate welfare empire.

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