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The downtown of Paw Paw, a southwest Michigan village of about 3,500 people, has been coming back in recent years after the recession left businesses there struggling to get by, longtime resident Roman Plaszczak said.

So when the village found out it would receive $200,000 from the state to help with facade improvements, local officials like Plaszczak considered it a major victory.

But the funding never materialized — for unclear reasons. Local officials were shocked and unsure what to think.

"In the city of Detroit, that would be a drop in the bucket," said Plaszczak, the village president. "You get a town the size of a Paw Paw, that can make a huge difference."

The cash awards for Paw Paw and two other cities  — all represented by Republican lawmakers — got ensnared in a fight over economic development funding. State officials in Democratic Gov. Gretchen Whitmer's administration say financial cuts imposed by the GOP-controlled Legislature made the initiative imprudent, while lawmakers say pulling the projects was political retribution.

Documents obtained through the state's open records law appear to lend credence to both arguments. But they also reflect officials' broader concerns about what the 2020 budget will mean for Michigan's overall efforts to attract businesses.

A form letter designed to be sent to state lawmakers and shared in emails with others by Jeff Mason, president and CEO of the Michigan Economic Development Corp., called the new budget "a historic low for investment in critical economic development activities."

The budget cuts send "a signal that Michigan is unilaterally disarming when it comes to business attraction and opportunity," according to a MEDC document on "messaging" about the 2020 budget.

On Oct. 1, the state's 2020 budget took effect and reduced funding for "business attraction and community revitalization" by $26 million, or about 25%. The MEDC's "messaging" document said the cut would eliminate "the creation of more than 5,000 jobs."

Whitmer also vetoed $37.5 million for Pure Michigan, the state's tourism campaign, and $37.2 million for Going Pro, a skilled trades and jobs program. The vetoes were part of a larger effort by Whitmer's administration to try to force the the state's GOP legislative leaders back to the negotiating table to make budget adjustments.

In addition, lawmakers let expire the state's Good Jobs for Michigan program, which allowed select businesses behind large projects to capture income taxes paid by new hires. 

Whitmer's vetoes were "petty politics," said Rep. Mark Huizenga, R-Walker, who chairs the House appropriations subcommittee that worked on economic development programs. As for the Legislature's cut to "business attraction and community revitalization," Huizenga noted that lawmakers were trying to free up money to invest in road improvements and that Michigan has a low unemployment rate of 4.1%.

"Especially when times are really good, there is probably less urgency to put dollars toward those programs," he said.

But the cuts would potentially have "a very real impact," MEDC spokesman Otie McKinley said.

"A single job can provide a pathway to hope, to equity and to stronger families and communities across our state," McKinley said in a statement to The Detroit News. "Imagine that impact multiplied by 5,000, the number of jobs that will potentially be stalled by a $26 million funding reduction."

The governor's office declined to provide additional comments beyond the MEDC's replies to questions from The Detroit News.

But Birgit Klohs, president and CEO of The Right Place, Inc., an economic development group in west Michigan, called the moves limiting business attraction efforts "short term thinking." The state needs a strategy that it sticks with in economic good times and in times of recession, she said.

"We’re sending a message that basically says, ‘We’re closed for business,'" Klohs said.

Critics at the free-market-oriented Mackinac Center for Public Policy have questioned the MEDC's job estimates. Michael LaFaive, senior director of the Mackinac Center's Morey Fiscal Policy Initiative, called programs like the ones whose funding were cut ineffective, unfair and expensive.

"It’s not unilateral disarmament if it was never armament in the first place," LaFaive said.

Origins of controversy

The controversy appears to have been set in motion on Sept. 24, when the Legislature approved the new budget. That same day, the Michigan Strategic Fund, the board that appropriates dollars to support business development, was supposed to award $600,000 to facade restoration efforts in Alpena, Manistee and Paw Paw and approve $5 million to be provided later for facade improvements in other municipalities.

A memo provided to board members in advance of the meeting said the $600,000 in awards would come from $1.5 million "set aside" by the Michigan Strategic Fund for facade restoration grants in 2018.

"The $600,000 in awards being recommended today will come from the initial $1.5 million in funding," said the memo from Lori Mullins, the MEDC's community development incentives director.

But on the day before the meeting, MEDC officials decided to pull the $600,000 in awards and the $5 million in additional funding from the agenda. The reason was because of "uncertainty" created by the budget for 2020, according to a form letter MEDC officials asked supporters to send to lawmakers.

In an email response to questions, McKinley added, "This decision was made based on the realities of facing a $26 million budget cut."

Officials "had to pull back on efforts to support vibrant communities, removing award-winning facade restoration initiative funding approval from the agenda of the September MSF Board meeting — an unfortunate but fiscally prudent response to the proposed reduction in funding," according to an MEDC document on "messaging" about the 2020 budget.

Sarah Moyer-Cale, the village manager for Paw Paw, planned to come to Lansing on Sept. 24 to be present for the facade restoration award. Like other local officials, she found out Sept. 23 that her trip wouldn't be necessary because the award had been pulled from the agenda.

"I was disappointed and kind of stunned because it was the day before," Moyer-Cale said.

State officials told her they didn't want to allocate funds that hadn't been provided to them yet because the state budget wasn't finished, she said.

Gloria Carnicom, who works in government relations for MEDC, said in an email to a legislative staffer the proposed additional funding "represented prospective projects for next year." The organization's leadership felt "it was prudent at this time remove the entire item from the agenda until more certainty is known about our FY20 budget," she added.

Political payback?

But multiple state lawmakers who represent the municipalities whose projects were dropped said they believe the decision was politically motivated.

The situation was an example of "holding politics over people," said Sen. Aric Nesbitt, R-Lawton, who represents Paw Paw in the Senate.

Nesbitt sits on the Senate Advice and Consent Committee and has questioned multiple appointees to the Michigan Strategic Fund about the facade restoration awards. Multiple board members said they had no knowledge of why the awards were pulled from the agenda.

"... I am left to wonder what MSF board members do and why your appointments are necessary if whatever MEDC puts before you is approved without thought or question," Nesbitt wrote in a November letter to appointees.

Nesbitt is a member of the Senate GOP's leadership team, serving as Senate president pro tem. Sen. Jim Stamas, R-Midland, whose district includes Alpena, is chairman of the Senate Appropriations Committee.

The decision to pull funding for the projects showed "politics being played," said Rep. Jack O'Malley, R-Lake Ann, who represents Manistee in the state House.

"That doesn’t make sense to me," O'Malley said of how funding "set aside" in 2018 would be affected by the 2020 budget. "But it does when you look at it being in a Republican district."

Local economic development officials in the places that would have received the funding for facade improvements are hopeful the dollars will still come in the future.

Anne Gentry, director of the Alpena Downtown Development Authority, said her team applied for the first round of facade restoration grants in 2018. Over the summer, the team found out the city would receive some of the funding allocated in 2019.

The $300,000 would go to expensive projects that are "critical" to the 10,000-person city's downtown, Gentry said. The Northeast lower peninsula area of Michigan where Alpena is located had the state's highest regional unemployment rate in November — worse than even the Upper Peninsula.

"The ones that are left to renovate are really huge projects," Gentry said. 

The story is similar in Manistee, where the city's downtown development authority gets a "pile" of applications for facade restoration projects every year but only one of two can be funded, said Caitlyn Berard, the authority's executive director.

The proposed $100,000 from the state would allow for more improvements to take place and would make a "big difference," she said.

"We are still hoping and praying," Berard said, adding that "it would mean the world to our community immediately."

As for Paw Paw, Village Manager Moyer-Cale said when she drives through the downtown, she thinks of the opportunities that are there.

“There are business owners who are waiting to do work on their buildings, much-needed work on their buildings, to see what happens with this," she said.

cmauger@detroitnews.com

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