Tax Breaks Handed Out by Board With No Dissent, Few Questions

The Freep today does an excellent job on reporting the efficacy of tax breaks that are handed out in exchange for the promise of job “creation.” (we still struggle with that term – Nixon had it right in noting that sound business policy presents “job opportunities.”)
The story states, “...A six-month examination of the Michigan Economic Growth Authority tax credit program -- once described by Granholm as "the flagship of Michigan's economic development efforts" -- uncovered trends that raise questions about the incentives' effectiveness.
* A large percentage of the tax credits has gone to companies that later couldn't meet the job creation requirements.
When the Free Press tracked what happened to 195 of these tax breaks awarded by the state from 1999 through 2005, it found that 51% of these incentives had either never been used or were not used in recent years.
* Despite Michigan's efforts to diversify its economy, the auto industry has been a big recipient of the tax credits. Auto suppliers and automakers received 45% of the 195 tax breaks awarded by the state from 1999 through 2005.
* About 90% of the 491 total tax breaks granted since the incentive program began have gone to Michigan companies planning expansions rather than to out-of-state firms.
* In recent years, the state has expanded the incentive program by enabling more companies, particularly smaller tech firms, to qualify for the tax credits, primarily by lowering the job-creation requirements.”
FreeMichigan has discussed the Michigan Economic Growth Authority on several occasions, and we are happy to see our mainstream brethren checking things out. Reporter Katherine Yung did a terrific job.
This board is a rubber stamp for tax breaks. Review of its minutes for meetings since last June, which is as far back as the posted minutes go, shows not a single no vote with regard to any business before board.
This is not a system of checks and balance. Instead the board is packed with yes-men who apparently lack the instinct or courage to even question a petitioner’s request. Minutes also show that the governor periodically stops by the meetings to encourage and thank them.
We also note that Douglas Buckler, executive secretary/treasurer of the Michigan Regional Council of Carpenters and Millwrights (MRCC), serves on the board. As a union leader, we find this wholly inappropriate. Do you think that Buckler was simply the best choice for the board, despite what one could easily claim is a fealty to special interests, i.e. organized labor? In case anyone cares, Buckler in 2007 pulled in a salary/benefit package of $418,198, which included an expense account of $25,940, per the union's 990 tax form. Someone who is so beholden to an interest as such cannot perform what is demanded of a body dealing with our money.
Finally, let’s go back to November 2001, when the state and Pfizer announced the drug maker had received at least $70 million in state and local tax credits for expansion. It had threatened to leave Michigan unless it was given these breaks.
One news account reported, “The deal increases the odds that the company, Ann Arbor's largest private employer and largest taxpayer, will stay put and continue to have a significant impact on the state's economy.
The Pfizer expansion is the largest new economic development project announced in Michigan this year. State officials say it would pump more than $89 million and 988 jobs into the economy in the next 20 years.
At a news conference Tuesday in Ann Arbor, Gov. John Engler praised the Pfizer deal as a "welcome confirmation that Michigan is attracting the important companies and investments that will make the Life Sciences Corridor vision a reality."
The Michigan Economic Development Corp. on Tuesday granted Pfizer a 20-year single business tax credit worth an estimated $25.8 million. It also granted a 12-year, 6-mill abatement of the state education tax, valued at $10.7 million.”
Pfizer announced in 2007 that it would close its facilities in Michigan.
There is something very suspect about a board that operates with no opposition, no voice of dissent. But that is exactly what MEGA is doing. Is anyone going to do something about it?

$2 Million More to Build a Meijer in Michigan Than in Indiana

We still love the Michigan Economic Growth Authority (MEGA), an offshoot of the Michigan Economic Development Corporation which authorizes tax breaks.
In its meeting last month, there was a bit of exchange about a new Meijer being built in Berlin Township a bit east of Flint. The new location will hire around 190 full time workers. This, from the minutes:
“(Board member Jackie) Shinn inquired about the difference in cost compared to Indiana. There was a $2 million difference in the labor in Indiana and it is less expensive to build there. Meijer faces a significant competitive disadvantage by relocating in Michigan without the benefit of incentives.”
The board’s response to this? A 100% standard employment tax credit for 8 years. We are for tax concessions when they are needed to remain competitive – within the state. But when we are looking at a neighboring state that has a better shot at landing a large employer because of its union base and attached costs, would that not ignite some kind of debate?
Union costs in Michigan are of course what fuel this cost discrepancy. Michigan has about 30% more labor membership than Indiana.
A quick look at the records shows that Jackie Shinn, chief deputy director at the Michigan Department of Transportation, has no inclination at all to reflect on why Indiana can get the job done cheaper than Michigan.
Her political contribution list is filled with money filtered to the pro-union forces here. She has donated thousands of dollars to the Granholm administration and has been rewarded with a lofty, powerful position as a result.
The free market is not free when you have a cabal with such fealty to costly union strongholds. Did we mention Michigan’s unemployment rate?

State Funds Private Auto Supplier Expansions; Same Suppliers are Privy to $5 Bil Fed Bailout

Auto suppliers in mid-March joined the ranks of companies with their hands in the government till, receiving up to $5 billion in financing under a new program from the Treasury Department.
The Auto Supplier Support Program is meant to give “suppliers the confidence they need to continue shipping parts, pay their employees and continue their operations,” Treasury said in a press release.
The program was created thanks to some strong lobbying by the Original Equipment Suppliers Association and other supplier advocacy non-profits.
We notice, though, that in February some of the state’s brightest economic minds got together for the monthly meeting of the Michigan Strategic Fund Board, one more panel that meets with absolutely zero oversight from the media or public. The panel is there to hand out public money, and this group is particularly charged with giving away money from the Community Development Block Grant(CDBG), a federal program that “works to ensure decent affordable housing, to provide services to the most vulnerable in our communities, and to create jobs through the expansion and retention of businesses,” according to its site.
What the Strategic Fund Board decided to do is give away $260,000 to Berrien County in order to help a private company named Harbor Light Metals, an aluminum producer that provides parts to automotive companies, purchase some equipment. The county was excited, of course, because somehow it is sure that Harbor will provide some jobs. Maybe, maybe not. But wait a minute, didn’t we just fork over $5 billion for companies like this? What happened to buying your own gear, making something people needed or wanted, and then using that revenue to pay back the loan you took our to buy the gear?
The item read on the Fund Board’s minute like this: Harbor Light Metals, LLC, located in Benton Harbor, is a minority owned company producing aluminum alloys sold to automotive, industrial and export buying markets. Its major customers include Alcoa, Toyota, and Briggs & Stratton. The Company has the opportunity to diversify their customer base to include aerospace and defense. To that end, the Company needs to purchase additional machinery and equipment, a total investment cost of $709,000. Berrien County is requesting $260,000 of CDBG funds to assist in the purchase of machinery and equipment by the Company in support of this project.
Done deal. Your money. No problem.
Next, the Strategic Fund Board heard the case of Mahle Engine Components, an international concern with a shop in St. Johns, Michigan. It, too, is an auto supplier and a member of the Original Equipment Suppliers Association. Remember, the group that lobbied for the $5 billion auto supplier bailout? It seems Mahle wants to expand and diversify its piston ring production. Is this a sound move given the direction of the auto industry? Not sure, but a private company is entitled to make its own decision in a free market. But the City of St. Johns is so sure it’s a good idea that it asked for $61,400 to build an additional road so that Mahle can embark on its dubious enterprise.
These are small amounts of money in the scheme of things. But it is alarming to see this public money thrown at companies who are already receiving more than they should. We are for tax breaks and concessions in the spirit of economic competition when conditions are right. But they are not right now, and both the private and public sectors need to stick to a pretty tight game plan, and that is to make money on both ends. This handing over of taxpayer dollars is a crime. And that a board such as the Michigan Strategic Fund Board operates with no public oversight is a travesty.

MEGA addition

The Michigan Economic Growth Authority is overseen by a board of eight. Half of them are major donors to Granholm’s two gubernatorial bids. Who do you think they will follow in terms of recommendations for tax breaks?
These board members include MEGA chair James C. Epolito, who is also president of the Michigan Economic Development Corporation. He donated the maximum $3,400 in 2004 and his wife, Deborah, kicked in another $250 in 2006.
Kirk T. Steudle, head of MDOT, has donated $4,800 to Granholm’s war chest since 2004.
Cullen DuBose also stepped up to the political ass-grab plate with a $3,400 donation in 2005.
And Stanley “Skip” Pruss outdid them all with $8,500 in Granholm donations over the past six years.