LANSING – A total of 65 full-time positions and more than $129.8 million are being cut from the Michigan Economic Development Corporation’s 2016 budget after its executive committee on Tuesday adopted a resolution accepting the budget as proposed.
The MEDC in mid-August announced it would make major cuts for its 2015-16 fiscal year budget beginning October 1 due to a combination of “steep” reductions in the MEDC’s corporate revenues and its business attraction support that comes from the Legislature. According to a document from the meeting, total state funding decreased by 24 percent ($102.15 million) for the upcoming fiscal year, and corporate funding has decreased 47 percent ($27.7 million) from the previous fiscal year.
Also in the mix is a dispute with the Gun Lake Tribe regarding terms of the tribe’s compact that resulted in it ceasing payments to the state in June.
“When revenue goes down at the casino, we have a double whammy in the way the formula works,” Christopher Riznik, CEO and fund manager for Renaissance Venture Capital Fund in Ann Arbor, told the committee in his financial overview. “Obviously, there’s some painful cuts, but it’s done with the realization that we have a lot of uncertainty on revenue. We don’t know when the Gun Lake issue will be resolved and we can’t assume increases in revenue from other sources.”
Talent and Economic DevelopmentDirector Steve Arwood, speaking to reporters after the meeting, said the corporation has to plan for what it knows. When the year began, it expected to have about $7 million that it does not have currently due to the variety of factors, and that caused the MEDC to reorganize.
Arwood, whose department now houses the MEDC, said the effect of these cuts and schedule for laying people off would be announced “soon”.
Lynne Feldpausch, vice president of human resources for the MEDC, said the organization has both civil service and corporate employees, so that makes the layoff timing a little more complicated to answer. She said the corporate staff would be “departing” before the end of the fiscal year, but since civil service staff have different rights depending on their status, the MEDC can simply follow civil service regulations as it relates to those staff members.
Arwood also did not detail specific programs or projects that might be cut, saying only that the entire organization will be affected. He reiterated this point when asked if there would also be a change in the number of vice presidents and the like who sit at the top of the hierarchy.
“There will be a change in the entire organization structurally,” he said. “We have not had our discussions yet with staff so I’m not going to talk about personnel matters.”
In total, there will be a cut of more than $129.86 million from the MEDC between changes in state funding and corporate funding.
When compared to the previous fiscal year:
Salaries and benefits are decreasing by slightly less than $10.5 million;
Administrative costs, including employee travel, will see a slight increase in funding to the tune of $552,900;
Marketing will see an increase of almost $5 million; and
Programs and grants are being slashed by about $124.9 million
While a document handed out at the meeting outlines the total proposed funding, using both state and corporate money, of various programs and grants for the upcoming fiscal year 2015-16 budget, there is no specific comparison to the previous year, making it difficult to discern which programs might be seeing what kind of reductions. Mr. Arwood did say during the meeting, though, that in reviewing the whole organization, some key factors were the rate of return on investment of various programs and those yielding higher capital.
Arwood said there is a difference between eliminating programs and coordinating the program function into a larger unit – the latter of which the MEDC will use going forward.
“For example, we have the logistics and supply area that we’ve had an office of. We will continue to focus on logistics and supply, but having various offices to do these different things is something we can’t sustain,” he said. “So we’re going to bring those core industries … under an umbrella of a larger unit and use remaining staff to cross-functionally train to work on these issues.”
Indeed, Arwood told the executive committee that the mission and the vision of the organization will not be compromised with the budgetary charges. He said the future of MEDC will focus on eight specific, focused areas that contain tools for growth. They are:
Retain and grow Michigan businesses,
Maintain and strengthen automotive leadership,
Develop value-added agriculture and natural resources,
Accelerate manufacturing innovation,
Grow Michigan exports,
Deliver key entrepreneurial and economic gardening services,
Aggressively build national and international business attention, and
Protect and grow defense-related industries.
The MEDC will also continue to develop and expand community vitality initiatives, its image via the Pure Michigan brand, and increase private investment, jobs, wages and customer satisfaction, Arwood told the committee.
One key thing to watch going forward is that the MEDC expects to be stricter about how much money it gives and where, as well as pay closer attention to payment from the state for services the MEDC currently provides but isn’t specifically paid for.
“In the current year, we’re expecting to be reimbursed for about $7.6 million from the state for the services we provide on those flagship programs we talked about. We are limited under statute for the 21st Century Funds that fund those programs to 4 percent for administrative costs. That limits what we can charge versus what it’s actually costing the corporation to provide those services, Amanda Bright McClanahan, CFO for the executive committee, said. “From 2015, it’s a reduction of a little over $5 million of what we were able to charge the state.”
Doug Rothwell, MEDC executive committee chair, added: “What it costs to run these programs versus what they can charge are two different things. And it costs more to run them than they can charge.”
To make up for that shortfall throughout the current fiscal year, the MEDC was forced to tap into its corporate side of the budget and a sort of rainy day fund, known as the Strategic Reserve, that was once at more than $30 million but now holds about $18 million.
“We do not know what may happen down the road, and that is what’s there to protect the event that we may have other economic things happen we didn’t understand. I think that’s prudent,” Arwood said. “Right now this budget is balanced, but there’s no contingency. So what we’re going to have to do is work within what we’ve got and make the most of it. Certainly if there are issues that happen, we’ll come back to the executive committee and we’ll talk about those issues. But this is a very, very hard budget in terms of looking at a year’s operation.”
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