JACK SPENCER: Let’s not forget the MEDC transparency issue
Preoccupation with the House Republican road funding plan, which would divert $187 million from the Michigan Economic Development Corporation and use it for roads, has taken the focus away from transparency. Hopefully this is just a temporary situation. MEDC, the state’s “corporate welfare arm,” should no longer be allowed to operate behind a veiled curtain.
Whether MEDC should exist at all is debatable. Nonetheless, MEDC is going to survive for the foreseeable future; and the issue of its lack of transparency needs to be addressed.
MEDC, which its supporters refer to as the state’s “economic development arm,” is essentially a slick advertising and promotional entity. Making its projects appear successful, based on the number of jobs they supposedly create, is its core function. That’s why MEDC is unsuitable to the task of providing the level of transparency the public has come to expect from governmental agencies. Admitting this reality is the first step toward fixing the problem.
Defenders of the MEDC argue that the agency reports the number of jobs its projects produce. This claim is dishonest or, more likely, naive. MEDC‘s disclosures of reported jobs created by its projects are mere snapshots of the number of jobs created as of a given point in time. There’s little reason to believe these statistics are anything more than promotional gimmicks.
This became obvious a few years back in the case of the A123 battery company. In June of 2012, A123, which had received $100 million in MEGA credits from MEDC, announced that it would hire 100 people per month over four months. In September, immediately following the hiring period, A123 reported having 844 employees. Three weeks later it went out of business.
Somehow, A123 showed up on a list of active MEDC projects that was sent to the legislature the following March. Yes, it was embarrassing that MEDC had taken credit for creating the 844 jobs months after A123 had closed its doors; but the mistake unearthed something even more significant.
MEDC clearly hadn’t kept track of how many people A123 was employing. It only reported the amount of jobs the company reported at the moment of its peak level. Evidently MEDC – which is primarily interested in promoting its projects – wasn’t interested in how long the jobs had been in existence or whether the jobs were sustained.
At the time MEDC recorded the 844 jobs, 100 of those jobs had existed less than a month, 200, less than two months, 300 less than three months and 400, nearly half, had existed less than four months. One month later none of them existed.
The implications are that MEDC operates like a health department that phones ahead of time to tell a restaurant when the next inspection will take place. If a business knows the date when it needs to report its number of employees, it can go on a hiring spree to temporarily inflate its workforce as of that date. There is no way for MEDC or the public to determine how many of the jobs were there a couple of weeks earlier and no way to know if those jobs will still exist a month later.
Stop and think about it. Knowing that MEDC is an advertising and promotional agency; knowing that MEDC’s primary interest is making its projects look as successful as possible, should any thinking person blindly trust its job creation numbers?
This year, the big transparency issue involving MEDC is that it doesn’t report how much money it gives to each business. It used to report the amount; but no longer does. This policy change was based on verbal advice MEDC says it received from someone at the Attorney General’s office back in 2009. According to the advice, disclosing this information violates the state Revenue Act.
The reason this has been a hot issue is because of what the state discovered over the winter about tax credits handed out through MEDC when Jennifer Granholm was governor. Businesses cashing in those credits or using them against their tax bills could cost state taxpayers as much as $9.38 billion over the next dozen years or so. Adding fuel to this fire is that neither lawmakers nor the public are allowed to know the amounts of the tax credits each company received.
Perhaps little can be done about MEDC’s lack of transparency in the past; but what about the future? Legislation is needed to force businesses that receive MEDC subsidies to agree to disclose certain information as part of the deal. Considering that they are getting public money, having to meet this minimal standard of transparency is more than reasonable.
The businesses should agree to allow the amount of the money they receive to be made public. Furthermore, they should be required to report their job numbers on a monthly – or at least quarterly – basis, beginning with the amount they employed at the outset. The only meaningful way to truly measure job creation is to track the jobs over a period of time.
This information ought to be given to MEDC and also directly to some other entity — perhaps the Auditor General, even if that means adding another employee to the Auditor General’s staff. Then the information should be posted on a website. There is no place for secrecy and deception when public dollars are involved.