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Sunday, 27 September 2015 19:58

Economic developers remain optimistic despite MEDC cuts

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Birgit Klohs was preparing to walk the floor at the Frankfurt Auto Show this month to meet with automotive suppliers about the opportunity of locating in West Michigan when she received news that made her sales pitch a bit tougher.

The problem: The Michigan Economic Development Corp., the quasi-governmental agency tasked with supporting business attraction and retention efforts in the state, needed to reorganize with layoffs in the wake of a sizeable budget shortfall.

For Klohs, the president and CEO of Grand Rapids-based The Right Place Inc., that meant she needed to quickly get to work to inform attendees of the conference, which includes about 80 percent of global Tier 1 auto suppliers, that Michigan was not getting out of the business of economic development.

Rather, her message to the companies in Germany focused on the MEDC’s need to reorganize after it lost a chunk of funding because of a dispute over casino revenue sharing, she said.

“The MEDC continues to be the economic development organization for the state of Michigan,” Klohs said from Germany in a phone interview with MiBiz. “They need to continue to exist — they are a very critical partner. They will not cease to exist and they will concentrate their programming after these cuts have been made on the very things that we think they need to be concentrating on.”

That refocusing of the MEDC includes an emphasis on an overall return on investment for jobs and job retention, expansion and attraction, according to sources in the economic development industry.

“Those are the core functions that the MEDC has to concentrate on and that’s the message that we sent to the customers and clients we visited (in Germany),” Klohs said. “The organization is not going away, but like some companies in the private sector had to do some years ago when we hit a really bad economic bump, they need to adjust to a budget that they don’t control.”


TIME TO RIGHT-SIZE

The MEDC board of directors voted Sept. 15 to cut 65 jobs and reduce the organization’s budget by 27 percent.

The action became necessary to close a $7 million budget gap that stemmed from the loss of revenue sharing dollars from the Gun Lake Casino in Allegan County, which is owned and operated by the Match-E-Be-Nash-She-Wish Band of Pottawatomi Indians. The tribe began withholding payments to the MEDC on June 1 after it alleged that the state selling online lottery tickets amounted to an expansion of state-sponsored gaming, thus voiding its revenue-sharing agreement.

For the MEDC, the budget shortfall is expected to grow as the tribe continues withholding funds, according to a Detroit Free Press report.

According to the MEDC’s 2016 fiscal year budget, funding will decrease 27 percent from $481.7 million to $351.8 million, while the staffing levels will drop from 307 people to 242. It was not immediately clear which areas of the state’s top economic development and marketing organization will be affected.

An MEDC spokesperson said in an email that staffers were told that the cuts would be across-the-board and effective Oct. 1. Executives at the MEDC were not available for comment for this story.

Doug Rothwell, president and CEO of Detroit-based Business Leaders for Michigan and chair of the MEDC executive committee, told MiBiz the cuts serve as somewhat of a right-sizing for the organization.

According to a report by Crain’s Detroit Business based on data provided by the MEDC, the organization ballooned in size in the post-recession years. In October 2010, the MEDC had 246 total employees. By December 2014, that number was up to 336.

“Getting back to the low 200s (in employment level) is not necessarily a bad number for what the MEDC’s mission is,” said Rothwell, who served as the first CEO of the MEDC when it was created by former Gov. John Engler in 1999. “I don’t think (the cuts) are so draconian that they will severely impact the state’s competitiveness.”

Both Rothwell and Klohs said separately that the cutbacks could have a silver lining in that they will push the MEDC to refocus on its core competencies.

But some changes remain inevitable, Rothwell said.

“I think there will be some things that are not going to get done that got done in the past and there will be some things that get done in a different way,” Rothwell said. “The reality is that you can’t make the total amount of cuts we are talking about without having some impact. That’s a fact. But I also think some of that can be mitigated by merging programs, cross-training staff and just getting more efficient.”

Rothwell pointed to last year’s reorganization that spun out much of the MEDC’s skilled- trades training programs to the newly created the Department of Talent and Economic Development (TED) and the Michigan Talent Investment Agency (TIA). Skilled-trades training and entrepreneurship support may not be handled best by the MEDC going forward, Rothwell said.


REMAINING COMPETITIVE

Prevailing political trends have already impacted the MEDC in recent months, particularly amid calls from some legislators to completely defund the organization.

For example, Gov. Rick Snyder in July stripped the Michigan Film Office, a division of the MEDC, of funding for its film incentive program.

Both Klohs and Rothwell said the recent cutbacks at the MEDC won’t have much of an impact on the state’s business competitiveness, but the realignment comes at a time when other states have bolstered their economic development tools. To make deeper cuts could start to bring negative consequences to the state, they said.

Moreover, the competition for jobs and investment in Michigan comes from global sources in addition to rival agencies in neighboring states, Klohs said.

During her trade mission, Klohs met with one German company to discuss opening a West Michigan operation just two hours after the firm met with economic developers from Ohio, she said.

“I hope (Michigan) legislators understand that without a robust MEDC, we will not see some of the projects we have seen,” Klohs said. “We need to have people understand that when we have a company that is already in West Michigan, that doesn’t mean they will be there forever. Other states like Ohio, Indiana or South Carolina go after them for their expansions, which means we need to have a robust state organization. Our competition is in Indiana and Ohio, but it’s also in India and elsewhere.”

Read 1886 times Last modified on Monday, 28 September 2015 10:28

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