BEFORE THE MICHIGAN Senate economic and small business development committee

REGARDING sbs 981-983

june 9, 2022

Chairman Horn, honorable members of this committee, thank you for the opportunity to speak with you again today. 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 headquartered here in Michigan and working around the country to advance transparency, accountability and market-based reform of state and local economic development programs.

I am here today to share our concerns about Senate Bills 981 to 983. This legislation risks repeating the same mistake that Michigan keeps making over and over again: We put all our eggs in one basket, and then we subsidize the basket.

To be blunt, these bills would have the practical effect of creating an auto industry slush fund, using money that instead should either be paying for essential public services or left in taxpayers’ pockets.

The law that created the Michigan Strategic Fund in 1984 said that its first purpose is “to help diversify the economy of this state.” But for decades, the MSF and MEDC have instead effectively acted as the auto industry’s checkbook. Look at the MEDC’s reports: More than 210 of the 358 projects that redeemed MEGA tax certificates over the past decade were in or closely connected to the auto industry. The dollar amounts were even more skewed. All other industries in the state were left to fight over the automakers’ crumbs.

This committee and this legislature should be focused on diversifying our economy, as lawmakers envisioned almost four decades ago. But we know that’s not what the MEDC will do with the taxes captured by this fund, not when more than half of their quote “statewide impact focus industries” unquote are really just different ways of saying “the auto industry.” We will just be putting more eggs into the basket of an auto industry that is inevitably shrinking in employment because of automation, and remains highly vulnerable to cyclical downturns.

We don’t need complicated research studies to tell us this, we just need to look at basic facts. Despite billions and billions of dollars in subsidies, we have lost a third of the manufacturing jobs that Michigan had 20 years ago. Now, automakers report that EVs take almost a third fewer work hours to build than traditional vehicles – which means more manufacturing job losses no matter what. With all due respect to my friends and former colleagues in the auto industry, giving more money to subsidize fewer jobs there isn’t looking to the future; rather, it’s desperately trying to hold onto Michigan’s fading past.

Where is the future? I’ll leave you with the thought that most of Michigan’s workers are employed by companies that have fewer than 250 employees. That’s where our future economic growth can and should be coming from, but those are the exact kinds of companies that are most at risk of having their growth stunted when the MEDC uses the fund created by this legislation to subsidize some Fortune 500 company’s “transformational project” that “creates jobs” by hiring away those small businesses’ critical employees.

This would potentially be a different discussion if the MEDC was a keen-eyed, sharp-penciled guardian of taxpayers’ interests, one that was willing to make tough decisions and go against prevailing political winds when the evidence called for it. But in reality, they consider the companies they support to be their customers — and they live up to the old adage that “the customer is always right.”

That’s the biggest reason why it is critical that this committee and this legislature keep Michigan’s economic development funding subject to the discipline and oversight of the annual legislative appropriations process, by rejecting these bills.

Thank you, and I’m happy to answer any questions you may have.

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