Michael D. LaFaive, Mackinac Center for Public Policy
Lansing lawmakers are working on the fiscal year 2024 state budget which begins in October. We have long recommended restraint in state spending and last year announced our Sustainable Michigan Budget initiative. The goal of this initiative is to recommend to lawmakers a spending target whereby year-over-year budget growth is limited to changes in population and inflation combined.
The Sustainable Michigan Budget’s target is $47.6 billion in state spending from state resources this year. Limiting spending gives lawmakers greater incentives to better prioritize state spending. If they want to spend more on roads, for instance, they may need to re-task dollars spent elsewhere. There is perhaps no better place to start cutting than at Michigan’s corporate welfare industrial complex.
Lawmakers ought to rethink their approach to encouraging economic development, because what they are doing doesn’t work and wastes taxpayer money.
• Pure Michigan. The state should eliminate this program. It is fundamentally unfair to make everyone pay for the advertising of private industry. It’s also expensive. Since fiscal 2007 more than $453 million has been appropriated to Pure Michigan.
It also fails to encourage much tourism. Using publicly available data, the Mackinac Center found in 2016 that for every $1 million increase in tourism promotion subsidies there is a corresponding increase in economic activity in the Michigan accommodations industry of just $20,000. That represents a massive, negative return on investment. The Michigan Economic Development Corporation claims that Pure Michigan is effective but fights all efforts to fact-check its credulity-straining claims. Savings: $25,000,000.
• Business Attraction and Community Revitalization. This line item hands out subsidies to corporations and developers. Corporations receive grants ostensibly related to attracting jobs via the Michigan Business Development Program – a program that consistently fails to deliver good economic outcomes for the spending. The Mackinac Center has performed two analyses of the program in 2018 and 2020, respectively.
Our 2016 study found that, during the first 2.5 years of the program, for every $500,000 in subsidies there was an associated loss of 600 jobs in the counties where projects were located. Our 2020 study found the program created more jobs at subsidized companies than were created at similar firms across Michigan – but at a cost of $29,400 per job per year. That’s not a cost-effective way to create jobs.
Subsidies for developers are an ineffective and expensive way to facilitate growth. Lawmakers have wasted almost $800 million on Michigan Business Development Program and Community Revitalization subsidies since fiscal year 2016. Savings: $100,000,000.
• Entrepreneurship Ecosystem. This line item underwrites business “incubators” and “accelerators,” among other items which are purportedly designed to facilitate entrepreneurship. These programs also fail to justify their taxpayer support. A 2010 study by Alejandro S. Amezcua reported that “incubation is not associated with a major increase in the survival, employment growth, or sales growth of new ventures on average.” Thirty-two of the incubators in his study were from Michigan.
The ecosystem line item is funded by the 21st Century Jobs Fund, a creation of the Granholm administration. The Fund’s efforts were analyzed by the Mackinac Center in 2020. We found that it created jobs but had to offer up between $275,000 and $331,000 in incentives per job to do so. Savings: $15,650,000.
• Arts and cultural affairs. This line item underwrites grants approved by the Michigan Arts and Culture Council. The grants have historically been approved for a variety of groups including the Grand Rapids Symphony Orchestra, the Beaver Island Cultural Arts Association and even garden poetry readings at a Buddhist-run Ann Arbor farm.
Government arts funding presumes a small group of bureaucrats knows more about maximizing Michigan culture than do those who are forced to finance it. That’s presumptuous and unfair. Public funding for art is dwarfed by private support. Art can thrive without dragging taxpayers into the mix. Savings: $10,000,000.
In addition to official legislative appropriations, the Michigan Strategic Fund and the Michigan Economic Development Corporation also receive tribal gaming dollars that could be redirected to a higher purpose. In fiscal 2022 that amounted to more than $50 million. This money should be re-tasked. Savings: $52,787,295.
In just one small section of the state budget, I recommend more than $203 million in gross state savings. Most of those dollars could be banked for a rainy day, used to pay down state debt or improve Michigan’s infrastructure as lawmakers try to secure a Sustainable Michigan Budget.
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Michael LaFaive is the senior director of the Morey Fiscal Policy Initiative for the Mackinac Center for Public Policy, where he has worked since 1995.
