Although former Gov. Rick Snyder ended the Michigan Economic Growth Authority (MEGA) program in 2011, the state continues to pay out millions of dollars each year to corporations that signed on to receive the tax credits.
That money, according to Senate Minority Leader Jim Ananich, D-Flint, would be better spent on repairing the state’s roads and increasing education spending. He is proposing phasing MEGA payments out completely after two years. He proposed capping MEGA payments at $200 million in the first year and $100 million the second year.
While the program ended in 2011, some tax credits promised to corporations extended to 2032. Currently, the total liability yet unpaid is estimated to be somewhere between $5 billion and $6 billion.
“Michigan has no shortage of underfunded programs, whether it be K-12 schools, local public safety, or, most notably, the roads,” Ananich said in a statement.
“While we’re debating where we’re going to have to make painful cuts in the budget, our state is sitting on a pot of money being held hostage by corporate accountants looking for a taxpayer-funded windfall,” he continued.
“For a decade, big corporations have received break after break, and it’s time for them to start paying their fair share.”
Since its inception in the mid-1990s under Republican Gov. John Engler, MEGA incentives spiked significantly during the administration of his successor, Democrat Gov. Jennifer Granholm, and a bipartisan legislature. Whereas the Engler administration capped the incentives, under Granholm the caps were eliminated.
Critics of the program called MEGA corporate welfare and challenged claims it promoted job growth in the state. Several companies benefiting from MEGA incentives subsequently went broke, including film studios Hangar 42 and Unity Studios; battery companies A123 Systems and LG Chem; and renewable energy projects at the Ford Wixom Plant, GlobalWatt, Dow Kokam and Suniva, according to research provided by the Mackinac Center for Public Policy.
Seldom did jobs provided match initial projections.
“When it comes to tax incentives, you have to look at each incentive very carefully in order to determine their effectiveness,” Brian R. Peterson, director of public policy and economic analyst at the East Lansing and Chicago-based Anderson Economic Group, told The Center Square.
“For example, did the incentive lead to new jobs being created in the state that otherwise would not have been created if there was no incentive? Did the credit result in a net increase in tax revenue?”
Peterson continued: “A corporate income tax credit could result in increased hiring, which would lead to more individual income tax revenue for the state, which could offset the foregone corporate income taxes.”
However, he added: “What we see on a regular basis across the country is that states have not built in effectiveness measures into their incentives. For most programs, there are limited data available, so we cannot measure their effectiveness,” he said.
States are becoming more proactive about incentives, regular evaluations to determine if job goals are being met, Peterson said.
“We need to get our arms around exactly how much money the state is slated to give out because some of these MEGA deals were negotiated behind closed doors, but we know the number is in the billions – that’s billions with a B,” Ananich said. “Rolling back these corporate giveaways and reallocating funds to our state’s most underfunded programs will get us a long way on the journey to fund our schools, communities and roads.”