Plastech: Another MEGA "Winner"

Plastech was a wholly owned subsidiary of Plastech Engineered Products, a company that was something of a tier-two supplier to the automobile industry. The company is now defunct and its assets liquidated adding another firm to the list of “winners” chosen by MEGA that turned out to be big losers in the marketplace. Below, you will find a rather optimistic  post on youtube.com detailing the initial bankruptcy announcement.

 

 

 

If you didn’t hear of the companies’ liquidation perhaps it is because the state does not issue “We were wrong!” press releases with apologies from state officials and a recalculation of the jobs that had been forecast  as on the cusp of creation. Can you imagine MEGA officials putting out a press release that read: “MEGA destroys jobs and wealth!” …  and “Rather than creating 555 jobs and new tax revenue as we had foretold, the company failed to meet its job projections, closed its doors, dismissed its staff, drained over $1 million from the state treasury and liquidated its assets. Our poor decisions probably destroyed hundreds of jobs on net balance.”

 

State documents provide conflicting data on just how long the firm has been in business. One document says 1997, the other says 1988 and that it was the recipient of a Blanchard-era Strategic Fund loan. Regardless, MEGA officials thought Plastech was a real comer twice, and offered two subsidiaries (Plastech Romulus and Plastech Frenchtown)  incentives in 2002 and 2003.

 

The first deal, “Plastech Romulus” was to facilitate the firm’s construction and staffing of a new 300,000 foot square facility to manufacture injection molded auto parts. The state offered a property tax abatement of more than $516,000 and $2.8 million in MEGA tax credits. The city of Romulus also kicked in a property tax abatement of nearly $2.2 million. The company was supposed to directly create 400 net new by 2005. University of Michigan economists assumed they would maintain those employment levels through 2011 and create an additional 155 spin off jobs (in retail, etc.) over that period.

 

The second deal, Plastech Frenchtown, was sealed in 2003 and announced with the usual self-aggrandizing press releases issued by the state. This one came with a quote from Governor Granholm:  “Michigan’s leadership in attracting new businesses and expanding our existing manufacturing sector continues today with Plastech’s commitment to the future of our state,” Granholm said. “My administration wants to make Michigan a magnet for economic growth — Plastech’s expansion is evidence that we're making it happen.”

 

No. Governor Granholm and the state’s economic development apparatus is not making it happen. Neither did previous administrations. This Frenchtown deal involved a $500,000 block grant from the state, a $9.9 million MEGA tax credit offer and a Frenchtown Township property tax abatement offer of $8.2 million. The company collected more than $1 million in MEGA tax credit relief before being liquidated and I estimate close to half of the local abatement before going belly up.

 

The state’s economic forecasters estimated that this deal would create a total of 1,898 jobs through 2016, a whopping 990 of them in retail trade, services, and others. This deal had an average “employment multiplier” of 2.1 according to University of Michigan economists, and the Romulus deal an employment multiplier of 1.4.

 

But employment multipliers can be negative too, so there is a very real possibility that these failed deals destroyed more jobs than would have occurred had the state not offered them financial goodies. The accuracy of these forecasts begs the question: "If state-paid economists are honestly capable of telling us how many jobs will be created by different economic sectors (retail, etc.), and as much as 20 years into the future thanks to targeted tax credits, why can’t they foretell a single company’s failure just five or six years hence?" It seems a reasonable question to ask.

 

The answer is that they cannot, and the use of economic forecasting instruments such as REMI computer software probably does little more than provide a quasi-scientific cover for bureaucrats looking to play the industrial policy game at our expense.

Comments

[JGillman]

It would be interesting to find the root cause of the financial crisis in this case. Those were some pretty heavy CREDITS. Was it automotive downturn, Michigan Downturn or poor accounting and management?

Is Plastech a Union company?

Ultimately, no company that deals with automotive or manufacturing is safe from the "green plague" spreading across the world. When overly zealous "progressive" environmental policies put limits on the production of energy, and product versus developing solutions to deal with what they see as the end results.

Of course those are the very same people who create the MEGA deals and pick the winners and are really bad gamblers. Unfortunately with our money they are rolling the dice.

[Robert Kerr]

I have worked with a Palstech Engineer in the Parental Rights movement, and inquired about the Palstech demise, the problem was most of Plastech's contracts were for delivery at fixed prices (not all to unusual in the auto industry or elsewhere), with the rise in oil prices Plastech was no longer able to meet their contractual pricing obligations.

[Jason Gillman]

Sooo the "green Plague" DID have an effect. Somehow not surprising. Granholm has been a staunch supporter of this job killing blight.

[Liquidated products listing]

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