One of the great economic myths that never seems to die is the idea that giving taxpayer money to a private company will yield a windfall, incentivizing the company to create jobs and generate wealth that otherwise would not exist.
And yet time and time again, the benefits fall far short of what was promised, if they materialize at all. A new report suggests the state of Michigan is the latest to learn that lesson the hard way.
“Michigan Gov. Gretchen Whitmer offered billions of taxpayer dollars to select companies in an effort to create jobs during her eight-year term,” writes James M. Hohman, director of fiscal policy at the Mackinac Center for Public Policy. “Overall, she has authorized $6.9 billion for business subsidies since gaining office in 2019.”
In a new report, Hohman examined eight major projects—”those that offered $100 million in payments and received significant media attention”—totaling $2.7 billion in promised incentives. Hohman then assessed how the investments paid off.
Governments have a terrible track record of picking winners and losers, and it turns out that Michigan, under Whitmer, did not break the trend.
“None of these deals have delivered what was originally announced,” Hohman writes. “All told, the governor said that her 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 offered, $1.8 billion has been spent—transferred either to companies or to local economic development agencies.”
In four of the eight projects, the state gave money to one of the Big Three U.S. automakers—Ford, General Motors, and Stellantis (formerly Fiat Chrysler)—while in two others, it went to a company that made automobile components.
In one example, in May 2019, Whitmer announced “the largest automotive assembly plant deal in the country in the last decade.” As part of the deal, Fiat Chrysler would spend $4.5 billion in the state building a new plant and expanding five of its existing plants, creating 6,433 jobs, which Whitmer called a “generational investment in our state.” In return, state and local officials would contribute cash and incentives worth over $200 million.
The deal included $109 million just for the company to update its factories in Detroit and Warren. Specifically, it would build 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 2021 report that this portion of the project was “dismissed with no agreement being executed,” as “it was determined the incentive was no longer necessary for the project to move forward.”
“The fact that the state canceled” it, noted Hohman, “suggests that special subsidies were not responsible for the jobs that may have been created.”
In fact, this was one of the better results, as officials simply retracted an offer before any money went out the door. But state taxpayers weren’t always so lucky.
In December 2021, Michigan lawmakers created the Strategic Outreach and Attraction Reserve (SOAR), an “economic development fund to ensure the state can compete for billions of dollars in investment and attract tens of thousands of jobs to bolster our economy.” In its first 18 months, the state distributed $1.4 billion, all of it to companies making electric vehicles, batteries, or battery components.
That included $210 million to Ford and $666 million to a joint venture between General Motors and LG Energy Solution, a Korean battery manufacturer. Each deal would produce an electric vehicle battery plant, with General Motors creating 4,000 jobs and Ford creating 2,500.
Neither deal panned out as intended. Of General Motors, Hohman writes, “Its lofty promises have been revised downward, and GM abandoned its stake in part of the deal.” That factory is now in the hands of LG Energy Solution, which will make residential and commercial batteries for Tesla.
Ford, meanwhile, lowered its job creation estimate from 2,500 to 1,700, though so far it has created zero, and received no state money, as the building is still under construction. The state did, however, spend another $780 million on site preparation.
Officials also negotiated for semiconductor manufacturer Sandisk to build a factory in Mundy Township, near Flint, creating 7,400 jobs. In exchange, the state agreed to $261 million in incentives, but lawmakers offered as much as $20 billion as part of the deal. That involved acquiring and clearing 1,300 acres of private land, including purchasing and demolishing homes and schools. Demolition began in March, even though Sandisk pulled out of the deal last year.
“The local developer has received about $200 million in state payments,” Hohman wrote. “The result is a big empty field.”
In total, Hohman found that $1.75 billion in state funds—out of $2.67 billion pledged—only created a measly 602 jobs at three of the eight projects, out of more than 25,000 promised. That means for each job Whitmer’s deals created, Michigan taxpayers have spent nearly $3 million.
As is often the case, Hohman found, government officials’ ambitious pledges of taxpayers’ money ran into the harsh reality of the free market. “People should not expect these projects to lead to economic growth, even if officials repeatedly say that they will. The state’s economic trends come from the decisions made by millions of people responding to their own opportunities and incentives,” he concluded. “The Whitmer administration’s track record shows that marquee economic development deals rarely work out as announced and that selective business subsidies fail to drive economic growth.”
