James M.?Hohman, Mackinac Center for Public Policy
“Let’s keep our foot on the accelerator,” Gov. Whitmer said in July to announce the $800 million expansion to the Transformational Brownfield Fund, a program to give select developers subsidies to build buildings.
The law has been added to the Mackinac Center’s business subsidy scorecard. Legislators have so far approved $4.1 billion in new business subsidies this year.
The program that was expanded by the law was created in 2017 to give the tax money generated at “transformational” buildings back to the developer. It was used twice: a $618 million award to a series of buildings in Detroit and an estimated $30 million award to turn an abandoned paper mill in Vicksburg into a mixed-use development. The projects also received abatements and other favors in addition to money from this program.
Neither of these projects have been completed.
As I’ve said before, handing out select subsidies is not stepping on the gas; it’s flipping the switch on a Useless Box. Writing big checks to big companies is one of lawmakers’ top priorities but it is expensive to taxpayers, ineffective at creating jobs, and unfair to businesses that don’t get extra favors.
Attempts from Detroit Free Press reporter JC Reindl to find out how much developers have received in this program have not yet been successful. So we do not know how much this has cost taxpayers so far.
Legislators expanded the program this year despite its poor track record and lack of transparency. The program offers developers the authority to collect the state taxes associated with the building, the income taxes paid by workers when constructing the building, and the income taxes earned by residents once the building is constructed. The recently approved law increases the amount of money that can be handed over to developers from $800 million to $1.6 billion. It also allows developers to collect the sales tax generated by businesses who locate within the building that gets a deal.
We argued against the bill in committee, noting how it allows administrators to create expenditures that ought instead to be authorized by legislators. Though proponents argue that lawmakers ought to ignore the money collected by developers, there are costs to the program. If this program is supposed to create jobs, legislators ought to specify in statute what economic outcomes they expect communities to experience and hold developers accountable for economic performance.
So far, the 2023-24 legislature has authorized $4.1 billion in business subsidies. This is up from $1.1 billion offered by the previous legislature, and the most since the 2007-2008 legislature.
Michigan’s economy lags the job growth other states are experiencing. It has yet to recover all the jobs lost during the pandemic and is the 14th-weakest state for job recovery. The states that are doing well are not the ones handing out the biggest checks. The massive business subsidies authorized from 2003 to 2008 did nothing to change Michigan’s direction. The state lost 253,000 jobs during this period, the biggest loss among all states. Only Ohio and Rhode Island also lost jobs over this period, and the combined employment loss for these two states was fewer than 40,000 jobs.
Michigan lawmakers ought to reconsider all of the new business subsidies they authorize. There are better ways to grow the economy.
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James M. Hohman is the director of fiscal policy at the Mackinac Center for Public Policy.
