Michigan – where the CEA is headquartered – is considering renewing and expanding a tax credit program known as “Good Jobs for Michigan” that by some estimates is costing taxpayers $40,000 per job.
CEA President John C. Mozena attended the Michigan State Senate Economic and Small Business Development Committee hearing at which testimony was being taken on legislation to extend and expand the program, which would otherwise sunset at the end of this year. While time constraints and a speaker list dominated by supporters of the legislation meant the CEA was among the opponents not given the opportunity to testify, he did submit written testimony and we’re publishing as an open letter the followup he sent (with minor personalization) to the committee members:
I’m writing as one of the attendees at yesterday’s Good Jobs for Michigan hearing. My intention was to speak in opposition to the bill, as my work on economic development policy across the country makes me very concerned that my home state is about to make a terrible mistake by extending and expanding an antiquated, ineffective and costly program.
You heard a great deal from the Michigan Economic Development Corporation and its allies who have direct financial stakes in handing out more and bigger incentive packages about how great these deals are. With all due respect, of course they’re going to say that; there’s no universe in which the MEDC or Business Leaders for Michigan or local economic development agencies are going to tell you that an incentive program is worthless and you should get rid of it. That’s not what they’re employed to do.
However, once you get past the professional cheerleaders for economic development incentives, there’s a solid consensus from both nonpartisan researchers as well as principled advocates across the political spectrum that programs like Good Jobs for Michigan are a bad idea. When you’ve got unlikely allies like the Center for American Progress and the Mercatus Center agreeing on something like this, it’s worth considering that they might be right and the lobbyists for the economic development industry might not be giving you the whole truth.
If you haven’t already, I would suggest that you (or your staff) dig into some of the truly massive amount of independent academic research from major universities and respected nonpartisan institutions that directly challenges the assertions made by GJFM’s self-interested cheerleaders. Here’s a few quick samples of what you might find:
“There is virtually no association between economic development incentives and any measure of economic performance. We found no statistically significant association between economic development incentives per capita and average wages or incomes; none between incentives and college grads or knowledge workers; and none between incentives and the state unemployment rate.”
“When we examine the overall effectiveness of state incentive grants on firm-level performance, we find little evidence that they generate new jobs or other direct economic benefits to the states that employ them… This simple but direct finding—that incentives do not create jobs—should prove critical to policymakers.”
“Let’s be honest: The ingrained practice of taxpayer-funded business recruitment has not lessened despite the mounting evidence that many incentives don’t actually pay off. The firms that receive incentives do not tend to generate more jobs than firms that don’t get them. And the overwhelming majority of state job growth comes from births of new establishments or expansion of existing establishments, not from firms moving to the state.”
“For a typical state and local incentive package, in only 2 percent to 25 percent of the incented projects is the incentive decisive in tipping a location, expansion, or job retention decision towards that state or local area. In the other 75 percent to 98 percent of the time, the same decision would have been made without the incentive”
“Ultimately, the results show that financial incentives negatively affect the overall fiscal health of a state… While financial incentives may have an economic return on investment, they come with a high cost to the state’s financial sustainability. As such, they are a financial tool that should only be used with caution.”
“Municipalities that elect to adopt TIF stimulate the growth of blighted areas at the expense of the larger town. We doubt that most municipal decision-makers are aware of this tradeoff or that they would willingly sacrifice significant municipal growth to create TIF districts. Our results present an opportunity to ponder the issue of whether, and how much, overall municipal growth should be sacrificed to encourage the development of blighted areas.”
For what it’s worth, even though I’m writing to you about research studies and think tank policy papers I come to my position on this topic as the result of my private-sector, real-world experience behind the scenes in it. I spent the best part of two decades as a private-sector communications professional where I worked over the years with a broad variety of private and public entities that were involved in these programs. I represented high-profile companies and developers who were receiving incentives in Michigan and across the country, I represented multiple DDAs that were handing them out, I represented trade associations that were advocating for expansions of one form of incentive or another. Nothing in that real-world experience makes me question anything the academics say about these programs.
By way of bona fides, my writing on economic development-related topics has been published over the past year in the Albany Times-Union, Billings Gazette, Cleveland Plain Dealer, Des Moines Register, Detroit News, Indianapolis Star, St. Louis Post-Dispatch, Nashville Tennessean, Crain’s Chicago Business and Crain’s Detroit Business. While I come to this topic from the free-market, limited-government perspective, our work in Nashville was covered by The Guardian as an example of bipartisan agreement on the topic. Earlier this summer, I presented at the American Legislative Exchange Council’s Great Lakes Tax & Fiscal Policy Academy to an audience of state legislators from across the upper Midwest.
If I may, I’ll leave you with one damning piece of evidence about the ineffectiveness of incentive programs like Good Jobs for Michigan: Its proponents say that it’s necessary in order to attract projects like Amazon’s HQ2. But in the Washington, DC area, Amazon left more than $7 billion worth of incentives on the table when it chose the $750 million Northern Virginia bid over the $8.5 billion Mongomery County, Maryland bid. At the end of the day, after a giant nationwide beauty pageant, Amazon valued all the other business factors in play more highly than a truly ridiculous incentive offer, proving how little they matter in major site selection decisions.
I would be happy to speak further with you or with staff on this topic. Please feel free to contact me at your convenience, and thank you for your time and consideration.
John C. Mozena, President, The Center for Economic Accountability