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GOP lawmakers cut aid for economic growth agency

Chad Livengood
Detroit News Lansing Bureau

Lansing — Unhappy with the rising cost of business tax credits, Republican lawmakers have signaled their intent to cut the budget of the state agency responsible for awarding incentives to companies that hire new workers and expand facilities in Michigan.

Two legislative committees this week took whacks out of a fund the Michigan Economic Development Corp. uses to help subsidize job creation efforts.

A GOP-controlled House panel Wednesday slashed $16.7 million from the MEDC's $127.8 million business attraction and community revitalization fund. The agency uses the money to award companies grants instead of the tax credits the Legislature moved away from in 2011.

State Rep. Laura Cox, R-Livonia, said the MEDC's budget cuts result from budget-busting Michigan Economic Growth Authority tax credits.

"We're trying to pare down some of the programs because we have to focus on some prior programs that are making us have mandatory cuts, like these MEGA credits," said Cox, chairwoman of the House Appropriations general government subcommittee.

On Thursday, the Senate Appropriations General Government subcommittee took a different approach, directly cutting $20.6 million in general fund support of the MEDC business development program.

But the Republican-controlled panel wants to replace the $20.6 million with funds from a pool of money the state has received back from companies to which it loaned money for economic development projects in the past. It was unclear Thursday whether the Legislature has the legal authority to raid the fund, known as the 21st Century Permanent Fund.

Sen. Jim Stamas, R-Midland, acknowledged that the MEDC's executive board would have to appropriate the money toward the business attraction program.

"We have the opportunity to look at the dollars and prioritize those dollars, and I think that's a better way for those opportunities to happen," said Stamas, chairman of the Senate subcommittee in charge of the MEDC's budget. "Because it's a separate authority, we've left it to (the MEDC) board to do that."

Under the Senate plan, the business attraction program would receive an additional cut of $17.9 million, which the MEDC would have to make up with corporate revenue. In total, the Senate plan reduces general fund spending on grants for businesses by $38.5 million.

The economic development agency has found itself on the political hot seat this year because business tax credits are taking a $800 million bite out of the state's $9.6 billion general fund budget.

The MEDC recently revised the state's long-term exposure to business tax credits from $6.5 billion to nearly $9.4 billion through 2031 after taking into account rising payrolls at Michigan's largest companies, including the Detroit Three automakers, who received billions of dollars in tax credits to retain jobs.

MEDC officials have answered questions about the ballooning cost of tax credits under the Michigan Business Tax.

Some lawmakers have proposed scaling back the commitments by changing the formula for calculating the credits or eliminating the program. But the efforts have failed to gain traction in the Legislature as Republican Gov. Rick Snyder has warned against breaking existing contracts with the state's biggest companies owed the tax credits.

In February, MEDC President and CEO Steve Arwood acknowledged this year's budget process could be difficult for the agency.

Meanwhile, Auditor General Doug Ringler's office dinged the MEDC in a new audit Thursday for having poor internal controls over financial reporting in accordance with generally accepted accounting principles within the Michigan Strategic Fund, the budget entity under which the MEDC and other economic development programs fall.

State auditors found some payments in the MEDC's ledgers were understated and that a fund balance in the agency's general operations fund was overstated by $16.5 million. The MEDC also properly recorded the value certain investments in another fund, state auditors found.

"We totally agree with the auditor's findings and are establishing better internal controls and processes to ensure all Michigan Strategic Fund transactions are properly recorded as quickly as possible and that draft statements are accurate and delivered on time," Arwood said Thursday.