LANSING – The chairman of the Michigan House Subcommittee that oversees the Michigan Economic Development Corp. budget said the tax abatements and grants awarded by the MEDC do not encourage businesses to move to the state or to stay here, but instead are a way for businesses to play states against each other to gain tax benefits for decisions they have already made. But MEDC and corporate officials both argue the value of the program.
House Appropriations Economic Development Subcommittee Chair Rep. Jack Brandenburg (R-Harrison Twp.) argued that the $1 billion that has been spent on MEDC programs and operations since it was founded in 1999 by former Governor John Engler and the $2 billion in incentives has not resulted in the improved economy. Instead, he said, the state has lost some 30,000 jobs.
He also said, based on his experience in 1993 moving his business from Eastpointe to Clemens that the incentives being offered by the MEDC are not enough to cover the costs of relocating a business from another state.
“During the past year, I have heard many people, including some business people, express the idea that somehow Michigan can recapture its prosperity by luring or stealing businesses from other states,” Brandenburg said in a prepared statement. “They claim we are in a war with our sister states, and cannot unilaterally disarm. In my judgment, this is a myth. It is a myth fostered by businesses seeking to extort tax benefits by playing one state off against another. It is a myth that many elected officials want to believe, because they often are given public credit for supposedly retaining or enticing businesses to locate within their jurisdiction.”
He argued the plans instead have become a way for companies that have already decided where they want to be to play states against each other to generate tax cuts and training grants from the state where they want to locate.
“That is how the game is played,” he said. :But it does nothing to help the economy of the state that supposedly wins the battle. They are simply paying a business to do something it has already decided to do.”
But MEDC CEO James Epolito said the MEDC does not offer relocation incentives to smaller businesses precisely for the reason that the incentives would result in significant benefit to those businesses. “If you look at the facts and look at the numbers, there are going to be certain sizes of business that it’s not going to make sense for them to move,” he said. “For those kinds of businesses we aren’t passing out tax credits.”
For larger businesses or for those looking for a new site, tax abatements and other MEDC programs can make the difference for a business deciding where to locate, Epolito said.
He pointed to the deal, announced Wednesday, with United Solar Ovonic of Auburn Hills to relocate to Greenville. “They did analyses on all the states on where they should locate their business from a cost structure,” Epolito said. “Michigan was 27th.”
The new $129 million facility in Greenville is expected to generate 200 jobs in exchange for $37 million in state and local tax abatements over 20 years, and additional incentives could bring five additional Ovonic plants in Greenville creating up to 1,000 jobs. The company, which builds photo-electric cells, had ranked South Carolina as its first location choice.
But he said the package MEDC put together convinced the company to at least remain in the state, though it could not be convinced to keep its location in Auburn Hills.
And he said other states are giving everything from the cost of moving plants and employees to the land and structures businesses need to attract them.
Patrick Lancaster, vice president of American Axle Manufacturing, said his company expanded one of its plants here and moved its world headquarters here only because of assistance offered through the MEDC.
“People in other states and around the world want our jobs,” Lancaster said. “Michigan needs to compete.”
Epolito said such competition between states is nothing new. Similar inducement battles went on around the turn of the last century when Nevada mines began to close and the state was looking to attract other business, he said. In 1903, the state ended all business taxes and other states soon followed with similar plans to avoid losing business to the desert state.
Michigan risks losing any advantage because the MEDC has lost so much funding and personnel, Mr. Epolito said. “If you cut 72 percent over a period of years, how can that business stay in business?” he said. “What’s happened to the MEDC over the last several years is it’s bleeding to death.”
The agency has also dropped to about 160 employees from a high of 300.
Epolito said he was encouraged that, while Brandenburg is opposed to much of the MEDC’s mission, he is at least willing to listen to views supporting the program.
Brandenburg said it was the smaller businesses that are not always the focus of MEDC attraction efforts that he would like to see promoted. “I am concerned with small businesses that employ 20 people or less,” he said. “This is because academic research has shown that these firms create approximately two-thirds of the net new jobs added to the U.S. economy in any given year.”
He argued the state should be promoting more programs, such as those in the 21st Century Jobs Fund, that provide state incentives for banks to loan money to small businesses and startups.
The state also should concentrate more on providing education and job training to provide businesses with the skilled workers they need, he said.
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