The state of Michigan operates an economic development program known as “MEGA,” or the Michigan Economic Growth Authority. It is a tax credit program designed to keep good jobs in Michigan and hopefully create more. The program has been a failure and I was reminded of that fact by an article last week in The Detroit News.
In 2005 my colleague and I proved empirically that MEGA did not improve employment, the unemployment rate or per-capita personal income. Perhaps the best illustration of MEGA’s shortcomings involves the Kmart Corporation, picked as a two-time MEGA “winner” that turned out to be a big loser for MEGA’s development mandarins.
This was far from the only deal that the Authority promised great things from that turned out to be a dud. All too often the MEGA has picked economic winners with less forecasting accuracy than "Carnac," Johnny Carson's beloved character (seen below). One has to wonder if MEGA officials are remotely embarassed by the performance of the program they champion, but given their continued use of MEGA the answer may be a resounding "no."
The Michigan Economic Growth Authority twice offered the Troy-based company a host of incentives, once in 1998 and again in 2000. State law requires that the local unit of government participate in the deal in some way. In the first two deals the state offered a total $30 million in tax credits and an additional $3.7 million in other inducements. The second deal occurred less than 17 months before the company declared bankruptcy. The company was actually able to collect on some state and local incentives before moving from the state.
But the story doesn’t end there. State officials actually had the temerity to offer a bankrupt Kmart a third deal worth $45 million over just 10 years to keep them in Michigan. Like a bad penny, the Kmart-MEGA relationship returned again. This time, over incentives to raze old buildings and put up new ones in a deal unrelated to the company itself.
Last Friday, the Detroit News reported that the state had refused to provide additional incentives to a developer that wants to build a high-end shopping center where Kmart used to be located. According to the News the state has already provided more than $13 million in tax credits to facilitate the razing of existing buildings but the developer wants more. The state argues that the project doesn’t qualify for more.
But thus far no one seems to have argued that handing out incentives that haven’t worked at this site and at many, many others. What is needed is an economic environment where investors are willing to take risks without MEDC officials interfering in the decision making process.
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