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Topic: Capcon unravels the job creation myth

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El Supremo

Michigan Capitol Confidential
States MBDP Job Creation Claims an Inconvenient Fiction
Just because government says its effective doesnt mean it is
By MICHAEL D. LAFAIVE | Feb. 21, 2018 | Follow Michael D. LaFaive on Twitter

As state budget discussions are underway, now may be a good time to revisit the states corporate welfare complex to search for scarce dollars that could be redirected to higher priorities. One area that could be examined involve subsidies that support the Michigan Business Development Program. This program takes money away from lots of people and business and gives it to a few in the hope it may create more jobs than might otherwise occur.

The Mackinac Center just yesterday released a study about the MBDP and it finds it does not, on balance, create new jobs. The state of Michigan thinks differently. It claimed last year that so many jobs will be created by the program that $10 in new personal income tax revenue will flow back to the state economy for every dollar it gave to companies in fiscal 2016.

The program gives subsidies, loans and other handouts to a favored few firms in exchange for promises to create jobs or make certain investments. It has offered up $300 million in 319 deals through fiscal 2016, though only about half of that amount has actually been disbursed. As part of state law, the agencies managing this program must produce return-on-investment analyses to help justify the program. They do this by using a software program known as REMI, which helps them measure the economic and fiscal impact.

Heres out it works. The analyst plugs the pledged inputs new jobs, compensation and investment, for instance into the REMI software, which generates a report on expected outcomes. These estimates are done for each MBDP deal, summed up and averaged for the relevant state agencies (the Michigan Strategic Fund and the Michigan Economic Development Corporation) and the report they present to the Legislature each year.

The bad news is that companies often dont live up to their pledges. Companies that get deals in one year may fail, and in the next year see their agreement terminated. That means the agencies annual report to the Legislature shows the effects of successes that turn out to be failures. Yet when that next years report comes around, it doesnt mention that the previous ROI estimates were too high. Such an omission may lead lawmakers and others to believe the program is more successful than it really is.

Its fairly common for companies to fail to live up the terms of their deal. In the previous three legislative reports 34 companies are shown to have had their deals revoked. A spokesperson for the MEDC said that at least eight more revocations will be included in the 2018 report. Not all failures are due to company performance short comings, but many are. The fiscal 2016 report detailed nine revocations, and eight involved a companys failure to meet some milestone or parameter of its agreements with the state.

Thats only a portion of the problem. Around a third of MBDP deals have been or are in some stage of default and dismissal (revocation). Sometimes the company may turn it around and at other times, it will not. Even then, some companies on the fringe of failing to meet some stipulation in their agreement with the state may ask for their deals to be amended. In the MSF-MEDC fiscal 2016 report to the Legislature, 38 amendments are offered up and 28 of them appear to lower some performance standard such as the expected number of jobs to be created.

The Mackinac Center for Public Policys new study, titled An Assessment of the Michigan Business Development Program, eschews projections for historical fact. We built a statistical model based on workforce data at the county level and reports from state agencies from 2012 through 2016 in an attempt to isolate the impact of this program on the number of jobs. We find that for every $500,000 in disbursed funds, there was a loss of more than 600 jobs in the county in which MBDP projects were located.

Our economic analysis shows that this state program doesnt create jobs but rather costs them. It should be eliminated.
Post Thu Mar 01, 2018 3:05 pm 
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El Supremo

Michigan Capitol Confidential

Firm Gets $220,000 State Subsidy Deal, Files For Bankruptcy
Records show $100,000 was spent; what happens next up to state corporate welfare officials
By EVAN CARTER | March 1, 2018 | Follow Evan Carter on Twitter

In April 2016, a Michigan Business Development Program that gives state subsidies to select businesses approved a $220,000 grant for a Van Buren county produce wholesaler to expand a production facility in Paw Paw. The firm produces and packages blueberries, asparagus and grapes for sale to large grocery store brands like Meijer and Kroger, and the grant was contingent on it meeting certain employment milestones by specified dates.

State records indicate that $100,000 was disbursed in 2016, but whether there will be any more is uncertain because Spiech Farms filed for Chapter 11 bankruptcy in 2017, reportedly due to crop losses experienced with Georgia blueberies and Michigan grapes. This constitutes a default on its subsidy deal, and the state officials who manage MBDP have broad discretion over what happens next.

Spiech Farms isnt the only private company to default on conditions attached to grants from the Michigan Business Development Program, or MBDP. According to a new study by Mackinac Center fiscal analyst Michael LaFaive and Ball State economics professor Michael Hicks, more than 33 percent of MBDP subsidy agreements signed between March 2012 and September 2016 were in some degree of default, and some had been revoked. Some of these deals were later reworked under new terms.

According to LaFaive, the Spiech Farms default is one of many in this program that suggest government economic development officials are unable to effectively distinguish whether potential taxpayer subsidy recipients will be winners or losers.

If officials could truly decide who the next real commercial success will be they would be hedge fund managers on Wall Street not state bureaucrats, LaFaive said.

Michigan Economic Development Corporation spokesperson Otie McKinley said the agency is still confident in the program.

I have seen the report, but we remain confident that the MBDP is an important economic development staple in the arsenal of tools that aims directly at growing the economy through private investment and job creation around the state, McKinley said.

In 2011 Gov. Rick Snyder signed the law authorizing MBDP grants. When running for office in 2010 Snyder had promised to end a business tax break and subsidy-granting program called the Michigan Economic Growth Authority. That program was suspended in 2011.

The MBDP distributes money in the form of low-interest loans, cash subsidies and other incentives. Between March 2012 and September 2016, 319 MBDP deals were approved, representing subsidies worth $300 million. At the time the Mackinac Center study was released, only $157 million had been awarded to companies.

The largest single MBDP deal was a $10 million loan to what is now called the QLine in Detroit. The average subsidy awarded by the MBDP during the period studied was $950,000. Through September 2016, 55 percent of all MBDP subsidies were for projects in Kent, Oakland, Washtenaw and Wayne counties.
Post Thu Mar 01, 2018 3:07 pm 
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El Supremo

Michigan Capitol Confidential

State Corporate Welfare Agency Picks Winners That Turn Out To Be Losers
Program officials subsidize Cherry Growers, Inc., company goes bankrupt
By MICHAEL D. LAFAIVE | Feb. 27, 2018 | Follow Michael D. LaFaive on Twitter

This morning the Michigan Strategic Fund board hosts its monthly meeting to discuss new and old corporate handouts and very likely approve deals to subsidize more corporations with taxpayer dollars. Its use of the Michigan Business Development Program is a case in point. Mackinac Center research shows this subsidy program to be ineffective, and it should be closed.

The MBDP which is run by the Michigan Strategic Fund with help from the Michigan Economic Development Corporation gives cash subsidies, loans and other help to businesses it thinks are real winners. From early 2012 through September 2016, the state approved by my count 319 deals with an incentive value of more than $300 million, though only a little more than half has been disbursed.

One of those payouts was worth $2.5 million and went to Cherry Growers, Inc. of Grawn, near Traverse City. In 2012, the MEDC recommended that Cherry Growers receive the grant for adding 72 new jobs or more. The grant was to be repaid through "profit-participation." The MEDC projected at the time that these new jobs and related investments would yield a 3-to-1 return on the states investment.

Michael Finney, then president and CEO of the MEDC, used a press release to announce a deal with Cherry Growers as well as another company. It read, The expansion of these companies further exemplifies Michigans improving economy and its strategy to help companies flourish and grow. But the winner picked by the MEDC has since closed and is in liquidation proceedings. (As an aside, the other MBDP grant winner, in the words of one official, later withdrew the request for the grant.)

Cherry Growers filed for bankruptcy protection in late 2017, and has since closed and begun a liquidation process. According to the Traverse City Record Eagle, some 80 employees were let go. The sale of company assets will help compensate creditors, but how much of anything will the state claw back?

Remarkably, the MBDP subsidies were not the only taxpayer dollars at risk. As part of its deal with the state, Cherry Growers was also approved for a tax abatement by Green Lake Township. In addition, Cherry Growers has participated in a different (loan) program with the state also in 2012 that may further expose taxpayers to losses.

The Mackinac Center has analyzed the MBDPs performance not just one company from 2012 through 2016 and finds it to be a big failure as measured by job creation.

By our count, one-third of the programs project approvals have been or are in some stage of default or have been dismissed from the program. Some failures may be temporary and due to trivialities, such as an inability to locate the right building for the project. Others are not, however, and it appears the state is willing to amend many original agreements and lower performance thresholds.

The study also includes a statistical analysis of the program with data from the state and United States Census Bureau. We find that for every $500,000 in disbursements from the state, there is a loss of some 600 jobs in the average county hosting MBDP projects.

But the official economic development bureaucracies tell the Legislature and the state otherwise. With each deal, the MEDC or MSF prepare a forecast of how valuable their subsidy or loan will be to the state. They do so using a software package known as REMI. The user inputs expected performance data and the software attempts to predict detailed economic and fiscal impacts. The problem is the output may, at best, be only as good as the inputs.

In the case of Cherry Growers, the model was fed assumptions through 2022. That raises a question: Why do state officials think they can predict the economic performance of one company 10 years out when they cant do so successfully just one month, one year or five years out?

By August 2012, a large cherry crop failure was national news. The apple crop was bad too. Yet this is just one month after MEDC jobs czars declared Cherry Growers a big winner with its grant. It was bankrupt by 2017 due in part to that bad crop.

So, we are left with the following irony. The states REMI software model cant project the future because the people using it cant do so either. This is not the first time state officials predicted great things from a subsidized company and with the help of REMI that went belly up not long afterward.

It must be hard to see the future when you have egg (or in this case, fruit) on your face. The state should stop trying. The market has been creating jobs and wealth long before Lansing politicians ever thought it a good idea to take everyones money and give it to their favored few.
Post Thu Mar 01, 2018 3:11 pm 
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El Supremo

Buick City owner says site still on market despite news of $23 million project
Updated 11:00 AM; Posted 11:00 AM

By Dominic Adams dadams5@mlive.com
FLINT, MI -- A Buick City site is still on the market despite news that the C.S. Mott Foundation received money from the Michigan Economic Development Corporation to help develop a $23 million industrial park at the site.

"While that may be one possible outcome, it is important to note that RACER Trust's Buick City property is available for purchase and redevelopment and that there is other market interest in this property," a statement from Revitalizing Auto Communities Environmental Response Trust said. "It is not under contract."

RACER also said it is in discussions with several prospective buyers about the Buick City site.

The 140-acre development on the south side of the site will create an environmentally friendly industrial park with at least 300,000-square-feet of warehouse and light industrial space in a pact between the Mott Foundation and the Michigan Strategic Fund, according to MEDC documents.

The proposed $23 million project aiming to bring an industrial park to the southern portion of the Buick City site is being spearheaded by the C.S. Mott Foundation and is to feature a 140-acre development that will create an environmentally-friendly industrial park with at least 300,000-square-feet of warehouse and light industrial space, according to MEDC documents.

However, RACER officials say the proposal isn't a done deal.

"This prospect chose to publicize its interest in the property," RACER's statement said. "The site has not been acquired and no party has exclusive negotiating rights to the property. In fact, RACER Trust continues to actively market and solicit offers for the property and is in discussions with several prospective buyers who envision significant investments in economic development and job creation at Buick City."

The initial phase of the proposed project calls for 300 permanent, full-time jobs with an average $15 per hour wage, according to the documents. There was no further information provided on the jobs.

The project also is set to include walking and biking trails across the site and could feature an additional 700,000-square-feet of light industrial space.

The property is currently owned by the RACER Trust. The trust was established by the U.S. Bankruptcy Court to sell off unwanted GM assets -- including the Buick City site.

The Buick City automobile complex on Flint's north side opened in 1904 and became known as "Buick City" in 1985. Abandoned by GM during its bankruptcy, the last Buick rolled off the plant's assembly line in 1999, and the plant's operations ceased completely in 2010.

The MEDC on Tuesday, Feb. 27, approved the transfer of $1 million from the Michigan Community Revitalization Program in a performance-based grant that will fund due diligence activities, assess the financial feasibility of the project and establish reserves to fund ownership and operating activities of the special purpose entity, according to documents from the MEDC.

The Michigan Strategic Fund also approved a $5.5 million equity investment in BC Leasing, LLC to develop and operate the project.

The project would be funded by a $1 million investment from the Michigan Strategic Fund that will be matched by up to $1.5 million from the Mott Foundation, the MEDC said.

The funds will be used for master planning for the site, preliminary engineering, surveying, title, environmental market analysis and other feasibility and due diligence.

The Michigan Strategic Fund money will become available to the project after $1 million of the Mott Foundation money has been spent, the documents.

See which commercial properties top Genesee County's 2018 foreclosure list
Updated 10:32 AM; Posted 10:32 AM

Gallery: Properties, some worth millions could head to property auction for non-payment on taxes

By Zahra Ahmadzahmad@mlive.com
Commercial properties throughout Genesee County could head to this year's property auction for non-payment of property taxes, some valued at millions of dollars.

Nine commercial properties top the county's list of the most-valuable properties facing potential foreclosure.

This is a list of the top nine, from most to least, valuable commercial properties on the county's 2018 foreclosure list. The list is based on the state equalized value of the property, which is half of the property's estimated market value:

5038 Miller Road, Flint, MI, 48507

Across the street from the Genesee Valley Center, two properties in Flint Township's Mill Creek Shopping Center top the Genesee County foreclosure list. According to county records, the combined properties' state equalized value is $1.4 million. The combined market value for these properties is an estimated $2.8 million.

The properties share the strip mall on Miller Road with the former Gander Mountain store, according to a rental listing online. County records show there are $93,401 in combined unpaid taxes subjecting the properties to foreclosure.

1616 Davison Road, Flint, MI, 48506

The non-profit, Praise House Deliverance Ministries, comes in second on the list of this year's county foreclosures. Nearby Mott Middle College High School on the northern side of Flint, the property's state equalized value is $705,700.

County records show there are $58,411 in delinquent taxes for the property. The building previously served as Brown's Funeral Home.

7518 Lapeer Road Davison, MI, 48423

A building hosting a gas station and McDonald's restaurant, owned by Empowerment Consortium in Davison Township, is the county's third-most valuable property up for foreclosure this year. The 10,900 square feet building's state equalized value is $645,500 with an estimated market value of $1.2 million.

On the corner of Lapeer and Irish Roads, the building sits kitty-corner from Meijer. County records show that the property is subjected to $36,082 in unpaid taxes.

2801 S. Dort Highway, Flint, MI, 48503

Elms Mobile Home Park is the county's fourth most valuable property facing foreclosure this year. Financial troubles are nothing new for the park.

Records show Elms went into receivership in 2016, but the receiver later transferred ownership of the mobile home park back to its previous owner after becoming aware of a number of liens on the property.

The mobile home park's state equalized value is $556,800 and the total market value for the property is an estimated $1.1 million. County records show there is $81,274 in unpaid property taxes subjecting it to foreclosure.

3901 N. Averill Ave., Flint. MI, 48506

Richfield Court Apartment complex, owned by Mazel Tov Investment 770, is listed as the county's fifth most valuable property up for foreclosure this year. The complex, constructed in 1968, consists of 16 two-story buildings of wood frame construction with brick and aluminum siding exterior, according to an online listing.

The multifamily apartment complex's state equalized value is $453,100, making its market value an estimated $906,200. County records show the complex owners owe $37,611 in unpaid property taxes subjecting it to foreclosure.

1938 S. Dort Highway, Flint, MI, 48503

An event center, Piece of the Rock Entertainment, on Dort highway is the county's sixth most valuable property facing foreclosure this year. The event center facility used to be home to the Greater Flint Outreach Center, a church group before being bought by Piece of the Rock Entertainment LLC in 2014.

The state equalized value for the venue, Piece of the Rock Entertainment, is $350,000, meaning its market value is an estimated $700,000. County records show there is $36,531 in unpaid property taxes.

4144 Jimbo Drive, Burton, MI, 48529

Bristol Auto Recycling just northwest of Burton is helping wind down the list by being the county's seventh most valuable property facing foreclosure this year.

Its state equalized value is $330,500, meaning the estimated market value of the building is roughly $661,000. County records show there is $60,338 in unpaid property taxes.

10149 Corunna Road, Swartz Creek, MI, 48473

Two six-unit buildings, a house and storage garage on 3.35 acres of property in Clayton Township come in eight on the county's list of most valuable foreclosures.

The property was built in 1968 and its state equalized value is $283,000, meaning the market value is estimated at $566,000. According to county records, the property owner owes $5,799 in unpaid taxes.
Post Thu Mar 01, 2018 3:20 pm 
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