Michigan Spent $1.8 Billion and Only Created 602 Jobs
One of the great economic myths that never seems to die is the idea that giving taxpayer money to a private company will generate a windfall, encouraging the company to create jobs and wealth that would not otherwise exist.
But still, if it happens, the benefits fall far short of what was promised. A new report suggests that Michigan is the latest state to learn this lesson the hard way.
“Michigan Governor Gretchen Whitmer has offered billions of taxpayer dollars to select companies to create jobs during her eight-year term.” writes James M. Hohman is director of fiscal policy at the Mackinac Center for Public Policy. “Overall, he has authorized $6.9 billion in business subsidies since taking office in 2019.”
a new reportHohman examined eight major projects that “offered payments of $100 million and attracted significant media attention,” totaling $2.7 billion in promised incentives. Hohman then evaluated how the investments had paid off.
Governments have a terrible situation track record It’s a matter of picking winners and losers, and it turns out Michigan under Whitmer isn’t bucking that trend.
“None of these deals delivered what was initially announced,” Hohman writes. “All told, the governor said the major subsidy projects would create 20,595 jobs in Michigan. So far, these deals have created 602 jobs, just 3% of expectations. Of the $2.7 billion on offer, $1.8 billion has been spent, directed to companies or local economic development agencies.”
In four of the eight projects, the government gave money to one of the Big Three US automakers (Ford, General Motors, and Stellantis (formerly Fiat Chrysler)), while in the other two, it gave money to a company that produces auto parts.
In one example, Whitmer in May 2019 announced “It is the largest automotive assembly plant deal in the country in the last decade.” As part of the deal, Fiat Chrysler will spend $4.5 billion to build a new facility in the state and expand its five existing facilities, creating 6,433 jobs, with Whitmer calling it “a generational investment in our state.” In return, state and local officials will contribute more than $200 million in cash and incentives.
The deal included $109 million to renovate the company’s factories in Detroit and Warren. Specifically, it will produce electric trucks at its Warren factory and create 1,400 jobs. But the Michigan Strategic Fund, the state’s economic development agency, noted in a report: 2021 report He said this part of the project was “rejected with no agreement” because “it was determined that the incentive was no longer necessary for the project to proceed.”
“The fact that the state rescinded this shows that private subsidies were not responsible for the jobs that might have been created,” Hohman said.
This was actually one of the better results; because the authorities were withdrawing the offer before the money left the door. But state taxpayers weren’t always so lucky.
Michigan lawmakers in December 2021 was created The Strategic Outreach and Attraction Reserve (SOAR) is “an economic development fund that will ensure the state can compete for billions of dollars in investment and attract tens of thousands of jobs to support our economy.” In the first 18 months, the state distributed $1.4 billion, all to companies producing electric vehicles, batteries or battery parts.
Of this amount, $210 million was given to Ford and $666 million was given to the joint venture between General Motors and Korean battery manufacturer LG Energy Solution. Each deal will produce an electric vehicle battery plant, where General Motors will create 4,000 jobs and Ford will create 2,500 jobs.
Neither agreement worked as intended. “Its grand promises were revised downwards, and GM gave up its share of part of the deal,” Hohman writes of General Motors. This factory is now owned by LG Energy Solution, which will produce residential and commercial batteries for Tesla.
Meanwhile, Ford lowered its job creation forecast from 2,500 to 1,700; but so far it has created zero and has not received any money from the government as the building is still under construction. However, the state spent another $780 million on site preparation.
Officials also negotiated for semiconductor maker Sandisk to build a factory in Mundy Township near Flint that would create 7,400 jobs. In return, the state accepted $261 million in incentives, but lawmakers have offered as much as $20 billion as part of the deal. This involved the purchase and clearing of 1,300 acres of private land, including the purchase and demolition of homes and schools. Demolition started in march That’s despite Sandisk pulling out of the deal last year.
“The local developer received a payment of approximately $200 million from the state,” Hohman wrote. “The result is a big empty space.”
In total, Hohman found that $1.75 billion in state funding, out of $2.67 billion committed, created just 602 jobs from eight projects, down from more than 25,000 promised. That means Michigan taxpayers spent nearly $3 million for every job Whitmer’s deals created.
As is often the case, Hohman found that government officials’ ambitious promises of taxpayer money were matched by the harsh reality of the free market. “People shouldn’t expect these projects to lead to economic growth, even if officials repeatedly say they will. The state’s economic trends result from decisions made by millions of people responding to their own opportunities and incentives.” “The Whitmer administration’s track record shows that major economic development deals rarely deliver as announced, and selective business subsidies fail to drive economic growth.”
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