LANSING – The state’s main economic development program, already under heavy criticism, failed to adequately determine whether businesses receiving tax breaks to locate or stay in Michigan delivered on the wages and jobs promised, according to an audit released Monday.

Auditors for the legislative auditor general found that in 15 of the 27 audits of Michigan Economic Growth Authority tax breaks conducted by the Michigan Economic Development Corporation, 10 of the 15 companies did not submit data required for the audit. In those instances, either MEDC staff or the company used formulas or standard amounts for missing data instead of actual data.

The audit found that, of the MEDC audits reviewed, 34 percent of the $350.2 million of company-reported wages potentially did not meet the criteria to qualify for a tax credit – and $2.6 million in tax credits related to those wages were approved for four companies.

This finding, auditors said, stemmed from the MEDC not always identifying potentially ineligible employees and wages from the data supplied by the company, meaning the MEDC did not revise the calculation for the tax credit based on corrected information. Of the 15 MEDC audits reviewed by the legislative auditor general, MEDC claimed 4,790 employees and their wages to be eligible for the tax credit while the audit found 26 percent of those employees might be ineligible.

In some cases, the company failed to report the hours worked to substantiate that the employees were full-time. In other cases, the total quarterly hours reported came to less than 35 hours per week.

The audit’s findings come at a troubled time for MEGA and the MEDC. The program’s critics have increasingly called MEGA a needless giveaway to businesses that has had almost no impact on the state’s unemployment rate. Then an ex-con, Richard Short, duped MEDC staff into approving a $9.1 million tax break for an apparently fictitious business. Even a study that generally praised the MEGA program said it produced far fewer jobs than officials have claimed.

In response to the audit’s findings, the MEDC said it is pursuing full data collection from the one company cited that submitted insufficient information and will collect all necessary information going forward.

Additionally, MEDC said it has increased MEGA application fees to provide additional revenue to support in-depth audit procedures to validate the tax breaks issued. And it has hired an accounting firm to assist in an audit of all MEGA tax credits issued for 2006 through 2009.

The audit did not identify the companies in question, citing state rules on taxpayer privacy.

The audit also found that MEDC’s policy allowing companies to annualize their wages to meet average weekly requirements was not in compliance with MEGA agreements. Auditors found that 8 percent of the 40 tax breaks reviewed showed companies with insufficient average weekly wages, a situation that occurred when companies added their jobs in the middle of the year and then calculated their wages as though the jobs had been in place all year.

However, there was one finding in the audit that would hearten the MEDC. Auditors found that the MEDC understated the amount of jobs created. In 2007, the MEDC in its report to the Legislature reported 12,770 estimated new and retained jobs from new agreements. But auditors said the company-reported data showed 61,808 actual jobs created or retained from MEGA deals.

Other data came to light as a result of the audit. From 2005-07, an average of 56 percent of MEGA deals failed to yield the minimum number of new jobs needed to qualify for the credit, about 30 percent met only the minimum number for the credit but not their jobs estimate and just 13 percent met or exceeded the number of jobs they estimated they would create.

That data, provided by the MEDC to auditors, surely will embolden MEDC critics who say the new jobs claimed in news releases when Governor Jennifer Granholm and the MEDC announce new agreements are unrealistic at best.

The MEDC also told auditors that the average tax credit cost per direct job created or retained from 2005-07 was $1,854.

MEDC data also gave a county-by-county look at MEGA deals. Twenty-eight of the 83 counties had no business receive a MEGA tax break from the time the program was created in 1995 through August 18, 2009.

Oakland County led with 114 deals, followed by Wayne at 68, Washtenaw at 53, Kent at 28, Macomb at 19 and Ottawa at 19. Ingham, Kalamazoo and Calhoun counties each had 13 deals while Monroe had 10.

The audit was conducted from June through October 2009 and covers the period from January 1, 2005, through August 2009.

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