Michigan State Capitol. Istock photo

by Paula Gardner (Bridge Michigan)

New proposals from Michigan Republicans take aim at the state’s once-acclaimed $2 billion incentive program and the agency that oversees it.

Republicans this week said they plan to introduce legislation this spring to increase oversight of the Strategic Outreach and Attraction Reserve (SOAR) fund, along with adding performance-based funding for the Michigan Economic Development Corporation.

The measures, announced by House Minority Leader Matt Hall, R-Richland Township, and a group of fellow legislators, follow year-long Democratic initiatives to overhaul how the state spends money on incentives to attract new businesses.

While both parties have separate proposals, they underscore growing concern among lawmakers about Michigan’s return on investments from corporate subsidies.

The legislation also could indicate that Gov. Gretchen Whitmer faces headwinds in her efforts to pump another $500 million into SOAR and rebrand it as the Make it in Michigan program.

Her proposal passed with overwhelming bipartisan support in 2021, but many lawmakers have soured on the spending.

“These deals are not good deals,” Hall said. “We’re paying way too much money with not enough return for the taxpayer.”

A Bridge investigation published in March showed that Michigan pledged $335 million in economic development incentives in 2023 to 83 companies that planned to create 11,408 jobs. In all, 40% of jobs created pay less than the state’s average, and nearly 90% of incentives fund manufacturing jobs, Bridge found.

Neither Whitmer’s representatives, a Democratic spokesperson nor the MEDC replied to questions from Bridge.

MEDC CEO Quentin Messer Jr. has said SOAR helps Michigan compete with other states on big-ticket developments, especially in electronic vehicle and semiconductor plants.

Republicans are pushing for more legislative oversight of spending and the type of jobs created by incentives, as well as greater geographic and industrial diversity for the spending.

Lawmakers want to limit spending “tax dollars on out-of-state companies and (add) real benchmarks,” said Rep. David Martin, R-Davison. “We want to make sure that the higher worker pay that has been promised is actually in there.”

Incentives, Hall said, should focus more on existing companies in Michigan and their growth.

“It’s much cheaper to just help our existing companies grow than it is to go out and hunt for new ones,” Hall said. “And if we do that, and we work on (business) fundamentals… the bigger deals will be easier to land because we’ll have a better environment in the state.”

Multiple reforms

The SOAR program was launched after Ford Motor Co. announced its largest manufacturing investment ever, $11.4 billion for Kentucky and Tennessee battery factories in 2021.

Bipartisan legislators and Whitmer moved quickly to enact the large-scale attraction fund by year-end. A few weeks into 2022, General Motors announced $7 billion in EV investments in Michigan, thanks in part to $666 million in SOAR funds.

Since then, the program has spent heavily on electric vehicle production, prompting criticism that the state is spending too much on auto jobs and not enough in high-growth areas.

A Republican proposal to create a tax credits for research and development, in fact, has drawn Democrat support.

Democrats in the Senate recently approved their version of incentive reform, which emphasizes investment in communities as a job-attraction tool instead of direct corporate awards.

Among other things, the legislation would amend the program to require half of all incentives fund “transformative community investments,” said sponsoring Sen. Mallory McMorrow, D-Royal Oak.

That could include local housing, childcare, education, transit, McMorrow said when the plan was approved.

“I hope that this is just the start of an ongoing conversation as we remake what holistic economic development looks like in the state of Michigan,” she said.

The measures are now with the House for consideration.

“It’s clear to me that Democrats are not going to be able to get an economic growth plan done without bipartisan help,” said Hall, the Republican leader.

And bipartisan lawmakers are sponsoring bills to create the Michigan Innovation Fund, which Whitmer set as an economic priority this year. The fund would redirect $105 million from existing venture funds to create a self-sustaining funding source for entrepreneurs.

Unclear, however, is how the MEDC could be affected by incentive reform. Among Republican plans are adding audits of all payouts, restoring unused SOAR grants to the general fund instead of the MEDC and requiring full legislative approval of funding requests rather than only members of the appropriations committee.

Along with targeting the state’s largest economic development program and the MEDC, Republicans said they’ll introduce additional economic-focused legislation.

Among other things, they seek:

• Mandatory audits of the state’s job placement programs to measure hiring, pay and the number of people served.
• Rolling back the state income tax rate to 4.05%, the temporary rate for 2023, from the 4.25% it increased to this year.
• Restoring Right-to-Work, which allows non-public workers under a union contract to choose not to join the union or pay dues. Michigan’s Democratic Legislature in 2023 repealed the Republican-led policy, with the law taking effect in February.
• Streamlining state regulations, from reviewing licensing and regulation rules to preventing state government from setting stricter-than-federal rules.

Business reaction muted 

Michigan business leaders this week said they’re still evaluating the Republican plans.

The Michigan Chamber of Commerce supported SOAR when it was introduced, saying that the move brought new transparency and oversight to MEDC incentives.

“We will be soliciting feedback from our members in the coming days and weeks,” Wendy Block, vice president of government affairs for the Michigan Chamber, told Bridge.

Andy Johnston, senior vice president of the Grand Rapids Chamber, said his group, too, will be seeking feedback from members.

While incentive reform is a priority among both Democrats and Republicans, business leaders in Grand Rapids are focused on other business policies, Johnston said.

“There have been concerns about the overall business environment in Michigan,” Johnston told Bridge. They include reinstating Right-to-Work legislation and reversing prevailing wage laws, which require union-level wages on public projects.

“We’re trying to focus on how we keep the overall business environment strong,” Johnston said.

Block, of the Michigan Chamber, also said that the Republican proposal to restore Right-to-Work is a priority.

However, with the recent special election to replace two outgoing Democrats yielding two Democratic victories, the party retains control of the Legislature. The repeal passed in a party-line vote.