A study by the Mackinac Center for Public Policy (MCPP), a nonpartisan Michigan think tank, has found that only one of 11 new jobs promised in large, publicly subsidized industrial development projects have materialized.
The MCPP reviewed front-page news stories from 2000 to 2020 that touted state-subsidized deals struck with large corporations that promised to create 123,060 new jobs.
“Our analysis of 41 major subsidy deals revealed that only six met expectations,” MCPP’s Director of Fiscal Policy James Hohman told The Epoch Times.
The study concludes that taxpayer-funded incentives such as grants and refundable business tax credits are “ineffective tools to improve job growth.”
A refundable business tax credit is a credit paid to a company whether it owes any tax liability or not.
Hohman said the latest estimate is that business tax credit recipients in Michigan are being paid $503 million more than they owe in taxes.
“It’s a way for politicians to legally launder payments to favored businesses through the tax code rather than through the state budget,” Hohman said.
The subsidy efforts are expensive and “distortionary to other economic activity,” the study said.
For example, in 2000, a pioneering online grocery delivery service proposed to open a large center in a Detroit suburb that was supposed to employ 900 people within three years.
The company said that between 180 and 200 of those jobs would be executive positions paying an average yearly salary of $50,000 (around $91,000 in today’s dollars), according to the MCPP report.
The study found that no one was paid that salary and “no jobs were ever created as a result of this deal.”
In addition to state assistance, property tax abatement from localities and grants from the federal government may also be added to the deals.
The MCPP states that distortions in economic activity may occur when one business is awarded taxpayer-funded incentives and a direct competitor is not.
According to the report, the favored company will likely take away business from other companies because of the subsidy and tax credit advantage it enjoys.
“These deals could result in fewer jobs if the companies that lose market share are forced to shed more jobs than the subsidized business creates.
Auto Industry Declines Despite Subsidies
In what the MCPP report calls “The Lost Decade,” Michigan automakers and parts manufacturers went from 315,000 jobs in 2000 down to 108,500 in 2009.Despite increasing to about 172,100 jobs in the years immediately preceding the pandemic shutdowns, from 2000 to 2020, Michigan automakers and parts manufacturers lost 45 percent of their workforce.
“The industry was marked by job loss regardless of whether a few lucky companies received special state subsidies and created some jobs,” the study said.
Hohman told The Epoch Times, “The state has not been doing enough deals, even if they go right, to affect Michigan’s job trends.
‘Job Churn’ Muddies the Water
The study cited figures from the Bureau of Labor Statistics showing that Michigan added 207,857 private sector jobs in the first quarter of 2024, but lost 198,797 private sector jobs over the same period through a phenomenon Hohman calls “job churn.”“Some businesses added jobs, while at the same time other businesses lost jobs,” he said.
The report cited an announcement by the Michigan Economic Development Corporation (MEDC), a quasi-governmental agency that administers business subsidy programs, that state deals with certain businesses would create 4,863 jobs in the first quarter of 2024.
“Even if all those jobs were created, those deals would have increased the number of jobs created by about 2.3 percent.
“These subsidy deals are simply too meager to impact statewide job trends,” the study said.
Otie McKinley, the MEDC’s media and communications manager, told The Epoch Times he could not comment on the Mackinaw Center study until it could be analyzed by the agency.
Bureau of Labor Statistics records cited by the MCPP report showed that Michigan lost 286,500 jobs in 2008, or one out of every 15 jobs in the state.
Dashed Expectations
To stem the flow, Michigan lawmakers authorized $6.3 billion in incentives.In 2009, the Obama administration granted Michigan $1.36 billion to stimulate battery and electric vehicle production.
Between the federal grant and state subsidies, the effort was expected to create 6,800 jobs within 18 months, and another 33,200 jobs over a few years.
The Mackinac Center study discovered from state reports that 1,296 jobs were created from the stimulus.
It highlighted a news article announcing state deals with 14 companies that were expected to create 4,800 jobs.
Cause for Skepticism
Such results can cause public skepticism over the efficacy of incentive and subsidy programs in creating jobs.“They [the people] can have a negative reaction when they read stories about the state handing out money to handpicked corporations,” the study said.
Between 2001 and Aug. 2024, Hohman said that Michigan lawmakers approved $23 billion in select business subsidies.
According to Hohman, any follow-up on promises made about new jobs in the initial public announcements of the subsidy deals is seldom done.
“Politicians and state administrators have no interest in telling people afterward when these deals fail.
“Taxpayers have a right to know what has become of their money,” he said.
Governor Gretchen Whitmer, a Democrat, did not respond to a request for comment.
