BEFORE THE MICHIGAN State Senate Economic and Small Business Development Committee

REGARDING SBs 615 annd 623

September 30, 2021

Mister Chairman, honorable members of this committee, thank you. My name is John Mozena and I am the president of The Center for Economic Accountability. We are an independent and nonpartisan 501(c)(3) nonprofit organization headquartered here in Michigan that works for transparency, accountability and reform of state and local economic development programs across the country.

In my role, I speak and write regularly across the country on economic development topics. And before I was involved in public policy, I spent the better part of two decades in the private sector in professional roles that placed me behind the scenes of subsidized economic development deals both here in Michigan and around the country.

My testimony today is informed as much or more by those real-world experiences as it is by what are frequently dismissed as “ivory-tower” research studies. In fact, the studies and research confirm what I’d always expected: These kinds of subsidy programs don’t deliver on their promises, and often do more harm than good.

That’s why I am here today to urge you not to revive failed subsidy programs through Senate Bills 615 and 623. They will not provide the benefits you intend, and they come with unacceptable price tags for our communities.

Don’t just take my word for it; listen to Richard Florida, who was recently the keynote speaker at the Detroit Regional Chamber’s Mackinac Policy Conference. He’s one of the world’s leading experts on what makes places grow, and he’s also one of the most vocal opponents of these kinds of subsidies. He’s called them “useless,” and notes that there’s absolutely no connection between how much a community hands out in subsidies and any measure of its economic well-being.

The only meaningful connection he found is that poorer communities are more likely to hand out subsidies than more wealthy neighbors. And that’s a fatal flaw of state-level subsidies: They create an additional incentive for cities to promise away money they should be using for something else. By dragging Michigan deeper into the never-ending subsidy race to the bottom between states, you’re also encouraging a competition between Michigan’s municipalities to open up their checkbooks wider than the community next door.

And when they do that – and they will – the money won’t be there in the municipal general fund when bills come due. This is why the more cities hand out in incentives, the less they spend on basic public services, at real cost to their residents.

This is already a problem in Michigan, and you shouldn’t make the problem worse. Consider that in 2019, the $54 million it cost the City of Detroit to acquire land for the FCA plant expansion was more than the city spent that year to run the entire Detroit Health Department.

Or in Grand Rapids, before the pandemic, the city’s combined cost of economic development programs was roughly $38 million. That was more than the $31 million spent to run the Grand Rapids Fire Department, or almost as much as the $39 million the city collected in property taxes.

We’re hearing that these kinds of massive, budget-crippling costs are necessary to win projects like Ford Motor Company’s new factory. Of course, they told Ohio that about GM and Lordstown, and they told Wisconsin that about Foxconn. And, of course, we heard it about Amazon’s HQ2.

The thing is, HQ2 demonstrates just how little subsidies do to change corporate decisions The final two locations in the DC area were just 10 miles apart in Bethesda, Maryland and Arlington, Virginia. Maryland offered Amazon $8.5 billion dollars in subsidies, more than $7 billion MORE than Virginia…and still lost.

I put it to you that if seven billion dollars can’t move Amazon ten miles, then no subsidy created by this program will meaningfully change corporate site selection decisions here in Michigan.

Mister Chairman, members of this committee, even the best-case benefits of the subsidy programs you’re considering today aren’t worth the costs they’ll create for our communities. I encourage you to move past the obsolete, smokestack chasing corporate welfare model of the past and move toward economic development models that create opportunity for all, instead of taxpayer-funded profits for a chosen few.

Thank you, and I welcome any questions you may have.

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