This article originally appeared in The Detroit News May 1, 2024. 

Fay Beydoun sparked a Venti-sized scandal when she used a state grant to buy a $4,500 coffeemaker. Beydoun, an Oakland County businesswoman, secured $20 million from the state for her nonprofit Global Link International, then used the money for several eyebrow-raising purchases. Lawmakers are calling for new oversight of state incentive programs.

People are understandably upset. This scandal should also give pause to lawmakers who are considering new subsidies for the film industry and other select businesses.

The Legislature and Michigan Economic Development Corporation have been on an overcaffeinated spending spree. Since January 2023, the Legislature has approved $4.4 billion for business subsidies.

With that amount you could buy a $4,500 coffeemaker for every resident of Detroit, Grand Rapids, Flint and Saginaw. Use it for a tax cut and every household in the state would get $1,100.

The problems with business subsidies are well-documented. Here are three:

First, subsidies simply do not work. Despite the fanfare that accompanies every incentive package, they rarely deliver the number of jobs promised. An analysis of Michigan Economic Growth Authority grants from 2005 to 2011 found that only 2.3% of the projects met or exceeded their job expectations. Dozens of case studies tell a tale of companies that took incentives only to downgrade their projections or go bust.

Second, the per-job cost to taxpayers is enormous. Each job created cost between $274,800 and $330,600, the Mackinac Center found in a 2020 analysis of the 21st Century Jobs Fund. Bridge Michigan found that the Whitmer administration spent $29,000 for each job subsidized in 2023.

Third, subsidies create the risk and appearance of corruption. Beydoun’s gold-plated coffeemaker looks worse because she served on the executive committee of the MEDC — the very agency that oversees her grant.

This is not the first such scandal. In 2010, Richard A. Short joined then-Gov. Jennifer Granholm on stage as she announced several tax credits. Short was eligible for $9 million until it was reported that he was a convicted embezzler still on parole.

Granholm also touted a deal with GlobalWatt in her 2010 State of the State address. GlobalWatt was eligible for up to $42 million, but an analysis found possible misrepresentations in its applications.

And yet, lawmakers are preparing to expand the state’s subsidy programs again. Incentives are, after all, “the heroin drip of state government,” as former Gov. Rick Snyder said.

The Senate approved $1.6 billion for a “tax capture” program where workers pay their state income tax to their employer. A House committee just voted for $2 billion for a rewarmed film subsidy program, too. The state killed off in its previous version in 2015 after wasting $500 million to get a temporary 600-job boost in film jobs.

Policymakers are discussing new guardrails for incentive programs: screening, audits, transparency, clawbacks and more. That’s fine.

But we’ve been here before. In 2010, both the House and Senate held hearings after the state offered millions to convicted embezzler Short.

In 2012, Rep. Bob Genetski, R-Saugatuck, complained that the MEDC stonewalled him when he asked for the budget for Travel Michigan.

In 2013, Rep. Tim Greimel, D-Auburn Hills, called for “meaningful clawback provisions” for MEDC grants.

In 2015, reports that tax credit liabilities could reach more than $9 billion triggered legislative hearings.

In 2020, the House Tax Committee considered a package of incentive transparency bills. MEDC chief operating officer Amanda Bright-McClanahan told lawmakers the agency’s processes “ensure that there is transparency in the way that our funds are spent.”

In 2022, the Michigan Supreme Court ordered the MEDC to disclose the amounts of subsidies offered to General Motors. Yet taxpayers still are not told how much money the company collects each year.

And now Sen. Jim Runestad, R-White Lake, is unhappy that the MEDC isn’t answering his questions about the Beydoun grant.

The $4,500 coffeemaker scandal ought to provoke legislative skepticism. Will it?

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.