In December 2021, Michigan’s Democratic Governor Gretchen Whitmer signed legislation establishing the Strategic Outreach and Attraction Reserve (SOAR) program, “a billion-dollar economic development fund to ensure the state can compete for billions of dollars in investment and attract tens of thousands of jobs to boost our economy,” according to the news release. The Michigan legislature appropriated an initial $1 billion for the program. SOAR grants would be disbursed to companies investing in the state or to entities affiliated with the state for the benefit of those companies; all transfers would require approval first from the state Senate Appropriations Committee and then from the entire legislature.
In practice, SOAR only further contributes to a growing trend of corporate welfare, in which states give away vast amounts of taxpayer money to private companies. Michigan’s example should prove to both taxpayers and state governments that private companies are the only ones that should bear the costs of their own development projects.
According to a spreadsheet provided to Reason Per the Michigan Department of Technology, Management and Budget, the state has allocated $2.166 billion to SOAR as of March 2022. Of that amount, it has approved more than $1.4 billion for disbursement. So far, all spending has gone to benefit a company that makes electric vehicles (EVs), EV batteries, or associated battery components.
The state spent more than 75 percent of its initial SOAR infusion in just seven months on just two deals: $666.1 million for General Motors (GM) and $100.8 million for Ford. Each outlay came in response to that company’s commitment to upgrade or expand its manufacturing footprint in Michigan.
In April 2023, the state authorized another $585 million in grants: $210 million to Ford for a battery plant, $200 million to battery maker Our Next Energy, and $175 million to Gotion, Inc., for a battery component factory. for electric vehicles.
Apparently, these incentives are supposed to pay off in the long run: By attracting businesses to your state, you create good-paying jobs and promote future economic development. But there is mounting evidence that such agreements are bad for the states that sign them, spending hundreds of millions or billions of dollars to “create or retain” a few thousand jobs here and there. Corporate welfare just doesn’t work, especially not in the way its proponents say it does.
Even the numbers Michigan cites are unimpressive. For example, while Gotion has pledged to spend $2.36 billion on its factory, Michigan’s incentives have so far dwarfed $800 million, meaning state taxpayers are funding a quarter of the entire project.
While the company promises to create 2,350 jobs, the state’s contribution to the project is reduced to more than $340,000 per job. For the same amount, Michigan could pay the salaries of each of those 2,350 employees for almost six years.
GM has committed to investing at least $7 billion in the state at four sites and creating or “retaining” 5,000 jobs. But so far, state and local governments have provided $824 million in incentives and $666 million in SOAR funds, plus a $936 million reduction in utility rates, a total investment of $2.426 million in direct grants or lost revenue, or more than one-third of all of GM’s promised investment. Each of those jobs will cost Michiganders more than $485,000.
Our Next Energy promises that its plant will create 2,112 jobs, in exchange for $200 million in state money, a comparatively paltry state expense of just under $95,000 per job. Notably, that company raised $300 million in venture funding in February to help finance its Michigan factory.
Finally, that project financing method is far superior: companies with multi-billion dollar valuations should shoulder the burden of financing their own development projects. Let them take the risks and, if successful, reap the rewards, all on their own.
State governments can play a role in this process, but not by handing out cash to favored companies. Rather, they should focus on making their states more hospitable to all businesses, perhaps by simplifying their tax structure or upgrading their infrastructure. Corporate welfare simply distorts the market, rewards companies that are politically connected, and wastes tons of taxpayer money.
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