by Scott McClallen
General Motors (GM) garnered national headlines when it promised to invest $6.5 billion in Michigan, but the people negotiating the deal’s claw back provisions might only require GM meet half of that investment and 80% of the original job creation promise, despite taxpayers still footing an $824 million subsidy.
When in front of the press, GM and Michigan promised the factory would support 4,000 jobs and retain another 1,000 – a cost of about $206,000 per job created, and if it failed, Michigan could claw back a sizeable portion of that money.
But behind closed doors at the Michigan Economic Development Corp (MEDC) CEO Quentin Messer Jr. said they aim to drop that claw back provision to “a minimum of 3,200 jobs,” which would hike taxpayer cost per job created to $257,500 despite possibly halving original investment promise.
The Detroit News first reported the story.
On Wednesday in a House Appropriations hearing, Chair Thomas Albert, R-Lowell, asked why the figures dropped from the original announcement.
Messer said it’s “standard” to drop agreements early if a company hits the benchmarks early. He said ongoing negotiating for GM contracts would be tied to a minimum investment of $3 billion.
The MEDC hasn’t responded to a request for how this negotiation helps taxpayers by decreasing the private company’s responsibility but apparently keeping the same taxpayer cost.
John Mozena, president of the Center for Economic Accountability, a nonprofit organization for transparent economic development policy, told The Center Square that remote work transformed the traditional idea of bringing companies to where people live.
“The point of this deal already happened, which was the giant press conference where all the politicians took credit for it,” Mozena said. “Everything else is just details.”
Mozena said politicians gifting a billion dollars to select private companies are aimed more to win re-election than create a thriving Michigan economy. Gov. Whitmer is facing re-election this year.
“In reality, the MEDC, like most economic development agencies, isn’t representing the best interest of the average taxpayer,” Mozena said in a phone interview. “They are fundamentally a political agency designed to get the best political outcome for the politicians that run it.”
Mozena cited an article in the Journal of Economic Perspectives that concluded: “In the raw data, per capita incentive spending increases by more than 20 percent in half of the cases in which it is an election year and the governor is up for reelection versus one-fifth of the cases otherwise.”
Gov. Gretchen Whitmer touted the $6.5 billion GM investment as the backdrop of her annual State of the State address in which she touted 5,000 promised jobs. She hasn’t responded to The Center Square’s request for comment on the possible broken promise to taxpayers.
“Yesterday, the world saw what we can accomplish together,” Whitmer said in her speech. “Democrats, Republicans, businesses, utilities, and labor joined forces to equip Michigan with solid economic tools to attract big projects and create thousands of jobs.”
About $6.5 billion might not seem like much money to GM, a company that reported a whopping $10 billion of profit in 2021. But to Michiganders, that money could have “fixed the damn roads” or other pressing priorities.
A 2018 paper by Georgetown University and Pennsylvania University researchers analyzed government subsidies. The paper rebuts the idea Michigan can subsidize itself into economic prosperity by favoring a few large companies. But the researchers did find evidence affirming suspicions that firms receiving subsidies often donate to the campaigns of politicians handling the deals.
“A firm is nearly four times more likely to receive an award, and the award is 63 percent larger, when the firm makes campaign contributions to state politicians,” the paper found.
The Michigan Campaign Finance Network says a GM-affiliated political action committee (PAC) gave a $10,000 donation to the Building Bridges PAC for 2019 and 2020, two committees tied to Whitmer.
The paper also says subsidizing a select few large companies hinders economic growth. Despite some initial benefits, “[p]olitically connected awards are associated with lower local future economic growth,” the paper says. “Our analyses suggest that government incentives awarded to politically connected firms are a less effective allocation of taxpayer funds.”
GM spokesman Daniel Flores said their plans haven’t changed.
“GM is excited and enthused to invest more than $7 billion in four Michigan manufacturing sites, creating 4,000 new jobs and retaining 1,000 and significantly increasing battery cell and electric truck manufacturing capacity,” Flores wrote in an email. “This is the single largest investment announcement in GM history. We are proud to bring these jobs and investment to Michigan. We remain fully committed to executing our announced plans.”
The pitched requirements would mean the 3,200 jobs created are only required to exist for six months, and GM would only have to spend $3 billion to pocket $824 million of taxpayer money.
Rep. Pamela Hornberger, R-Chesterfield Twp, said many Michiganders struggle to understand why taxpayers subsidize GM, a private company, while small businesses struggle with a tight labor market and 40-year-high inflation.
“Coming from a family who’s owned a small business for nearly 50 years, it’s really hard for me to swallow this,” Hornberger said.
“There better be some better things in these contracts other than they can disappear in six months and GM can walk away from it,” she said.
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Scott McClallen is a staff writer covering Michigan and Minnesota for The Center Square. A graduate of Hillsdale College, his work has appeared on Forbes.com and FEE.org. Previously, he worked as a financial analyst at Pepsi.
Photo “Thomas Albert” by State Representative Thomas Albert. Background Photo “General Motors Technical Center” by ajay_suresh. CC BY 2.0.